Tuesday, June 27, 2006

Master Trader Session 4

Tonight's session concentrated on 3 tactics. We started with a review of last week's Swing Bull Pullback Long. We also added the Weekly Bull Pullback Long, which is just like the swing time-frame trade in terms of technical setup, but rather than using a daily chart, we'd look at a weekly chart instead. One extra concern with the Weekly Bull Pullback is paying attention to earnings. Of course earnings reports are important with the Swing Bull Pullback too and it's not recommended to enter into such a trade with an imminent earnings report or other news that would affect the volatility and risk of the trade.

After wrapping up the discussion of the above Bull strategies Matt Gildea explained the Short Sale. I've been on the verge of understanding how selling short works, but never quite got it until hearing Matt describe it using the George Foreman Grill example. When you order a George Foreman Grill from a TV commercial, you'll notice that you should allow 8-10 weeks for delivery. This is because they don't have any set number of the product sitting around in a warehouse. It's likely they don't have any on hand at all, but they know they can have it manufactured and delivered within 8-10 weeks. So, basically the commercial is selling this product short because they're selling something they don't currently have. Unlike stocks, they probably know precisely what the cost per unit will be, and so they know what their profits will be. The same ability to sell something you don't have is available in the stock market. In this case you're selling before buying, with the goal of selling high and buying low. You loan the sold stocks (short sale) from your broker and then buying them back, hopefully at a lower price. I hope that example helps you as much as it helped me.

Before explaining how the short sale works Matt demonstrated entering a stop-limit trade on Options Xpress. Unfortunately my computer froze in the middle of this demonstration, and I couldn't reconnect in time to see all but the start. That's ok, as I've used Options Xpress for paper trading already, so I'm at least a little familiar with their site and the way to place a stop-limit.

It wasn't just my computer that had a problem for this session. Matt Gildea, our presenter, was having trouble with his local connection. He was giving the presentation from Chicago, and has done so without issue in the past, however this evening there were multiple interruptions in the presentation. The end result of these problems left me staring at blank screens most every time Matt moved the presentation forward. It seems that I was the last on the update list with WebEx. Needless to say, staring at a blank page while listening to visual cues being described was exceedingly frustrating. Being the computer nerd that I am, I looked into how WebEx connects and discovered that I may benefit from forwarding a port on my router (TCP port 1270, if you're interested). WebEx does tunnel through port 80 using HTTP, so it's not required, but it may improve the connection speed for me. I've contacted Tricia Moore, my coordinator for the Master Trader course to see if any make-up can be arranged.

It just wasn't Matt's night, as he was suffering from the remnants of a cold. His 35th birthday is this Friday, and although that's not really a bad thing, it must not be pleasant to be ill for such an event. Hopefully he'll be feeling better by Friday. Say it with me: Happy Birthday Matt!!

Not to harp on it, but it was particularly frustrating to have these interruptions with the presentation, especially given that this session was most appropriate for the current Bearish market condition. We did go through many examples of Swing Bear Rally Short tactic trades and since they're essentially just the inversion of the Swing Bull Pullback Long, I don't think it was a total loss, just frustrating. I think Matt did well to convey much of the information, even during the periods of time that his connection did not allow him to manage the presentation.

To wrap things up we were going to look at some live examples of bearish trades; unfortunately, due to the technical difficulties, Matt gave us the list of about a dozen stocks he identified but was unable to point out the setups visually with us. All of us as students need to do our homework now and take a look at the stocks that he picked for demonstrating the Swing Bear Rally Short tactic. Aside from just giving us some stocks to look at, Matt pointed out how to do our own scans using Trade Seeker to identify likely candidates for ourselves.

All in all, a frustrating evening, but not fruitless. It truly seemed to be an exceptional evening of technical difficulties. The previous 3 sessions were not fraught with such problems, so please don't interpret this as "normal" operations. Stay tuned, hopefully future sessions will go as smoothly as previous.

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