Anatomy of a Trade

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Good old GOOG. I wanted to detail a short term day trade I took today, which from a financial standpoint was unsuccessful, but from a trading standpoint a success. I saw google getting sold off and from the morning the futures didn't seem too bad, write downs were not as bad as expected and it seemed like we may sell off initially then start to recover(that was just my opinion due to the large sell off the day before). After GOOG started to stall around 715 and there were a few green ticks in a row I went long 5 contracts of the Nov 730. GOOG seems ideal for a day trade because you don't need to buy many contracts to make a decent amount of money, so commissions are kept to a minimum. So I get into the trade, all is going well, I am up 1500, Hooray!

Bernanke testified before congress today and did so about 40 min into the open. I should have assumed based on my stance and logic that he would not really favor cuts outright due to possible inflationary pressures, however I was still just watching the trend. If my uptrend broke I would exit. The problem was that it was such a violent reaction it blew through the trend, obviously the next technical level to hold would be 715 because stopping above that would technically still be a higher high. It went all the way down and through that. I immediately sold out, at the same price I bought so it cost me about 25 dollars in commisions, after at one point having an unrealized 1500. Oh well, as Warren Buffet says, rule number one is "don't lose money." Rule number two is "don't forget rule number one."

So, how was this a successful trade? I knew my risk, defined my exit, position sized correctly and most importantly followed my rules. Yes, the stock did retrace back up and I could have gotten out with a little profit if I held, but let's see what would have happened had I continued to hold throughout the day expecting a come back.

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As you can see, had I held I would have been in a lot of trouble and lost quite a bit of my initial investment. I probably should have bought puts, but it was still early in the day and I didn't want to compound an issue and possibly lose more money the next time.

Today was crazy overall, Dow was down 200, and the Nasdaq was down 90 at one point! They rallied back, which I think had to be more than just short covering. I thought the sell off was exaggerated so I bought 1 contract again on GOOG at 700 assuming it could get a nice bounce tomorrow. Even though I am only down 90 dollars on it at this point I am somewhat concerned it didn't rally and hold better at the end of the day, I wanted it to finish strong, instead it bounced off of 700 as resistance right at the end. Same goes for AAPL, I am actually up on that, as I re-entered into it in my ROTH account close to 170. It too rallied back up to 180 but settled again at 175.

I sold out of my spy puts right at the open for a small profit assuming we had a decent day I wanted to be more delta neutral, that ended up being premature and I could have made some extra cash holding, but at the end of the day I think I would have made only slightly more than I did at the beginning so it wasn't all bad. That's the hard thing about holding those hedges on the index, even though it follows a pattern too I didn't want to be on the wrong side of that since I was much more delta negative with those puts. Overall on the day I was up a couple percent so I feel pretty decent.

CMG is a problem, and we know what can happen if we don't follow rules or make exceptions(ACH, CROX etc) it broke below 130. I however did not sell, it held 125, which looked to be good support AND it was on below average volume. I am still down only 1% on the options too and that is only because the spread is about a dollar wide right now. We will see what happens if we don't have a strong day tomorrow I will get out of it.

Whew, that was a long one. :-)