TA

I was very negative about GMCR but they beat earning and were up 40%. Personally I think it's more a function of a short squeeze, not GMCR being worth that much. But only price pays. Disappointing but not a big loss since I had a reasonable position size and had puts.

I've come to an important realization about trading. Technical analysis isn't about predicting future price action. I can't know what price is going to do and I don't have any control over it. The only thing I control is my level of risk. Technical analysis is about finding opportunities in the market where reward outweighs risk.

Par

I was looking at my trading record and I have been shorting USD/JPY a lot recently. It was an easy trade, wait for it to get up into resistance, start rolling over, and get a quick drop.

Almost out of habit I went short last night around 98.60.

Then I zoomed out on the chart and studied the price action of the past month really closely.

After that I realized very quickly that I was on the wrong side of the trade. I reversed the trade and doubled it right before it took off. I took half off before the run to 100.


Autozone also had a really big drop today on high volume.

Direxion is now trying to create monthly leverage for their ETFS.
That's heading in the right direction but I'm still skeptical of leveraged ETFs for anything but trading.


Currency trading is going well. Mostly I'm trading USD/JPY and I'm getting a good feel for that.

It's become very systematic for me. Look at charts, calculate position size and risk, make trade.

A big reason people lose when the start trading is that it's new to them. It's exciting and easy to get emotional about. You either stop getting emotional about trading or else you'll most likely fail. Most people don't last long enough to get emotions under control.

But I also see people take the psychology way too far. I heard one thing last year about how being told what we can and can't do as a child affects our ability in the markets because we're overwhelmed by choices...something like that.

Advantages of Currency

Lately I've been drawn to actively trading currency and doing longer term trading in stocks. Here's what I see as being the major advantages of trading currency.

1. Virtually no commissions - The spreads on major currency pairs during market hours is incredibly small. Thinkorswim usually has a 2 pip spread on USD/JPY and Oanda's varies but is usually between 1-2. This means for a mini-lot ($10,000) the cost of the trade is between $1-$2 round trip.
2. Liquidity - OTC currency markets do enormous volume. This liquidity means tight spreads. With the exception of products like SPY, most options markets have pretty wide spreads. It's like paying an extra commission.
   
3. Commissions based on volume - This is a sub-point of #1, but the commissions paid on a trade depend on the volume. Per share pricing is available with many brokerages, however most retail places still do a flat fee.
   
4. 24/5 trading - In the US currency markets open on Sunday night and close Friday afternoon. This provides more opportunities and is also great for people who aren't full time traders, like college students. This also means that there is no overnight risk. Eliminating overnight risk means more exact control over the amount of risk being taken because there aren't any surprise gaps in price.
5. Less regulation - The pattern day trader rules are a huge burden on many active retail traders. Even non-day traders have to worry about getting stopped out multiple positions the same day they put them on.
   
6. Position sizing - Brokers like Oanda allow trades of any size. This makes it very easy to set a stop-loss, determine the percentage of capital to be risked, and then size the position accordingly.
   
7. Scalability - Because the only commission paid is the spread, and positions can be sized according to risk, it makes it very easy for a trader to grow an account. By thinking of risk/reward as a percentage of capital, there is no difference between trading $100 or $1,000,000. This means a trader can develop a trading method and gain experience with a small amount of initial capital and those methods will continue to work as the account grows. This is in contrast to stock trading where a small amount of initial capital is a makes trading more difficult.
   

More GMCR thoughts

I played around with a Keurig mini in Target today. It was ok, but it felt sort of cheap and it was all plastic. The basic model costs $80 and was on a shelf next to a normal drip-machine that cost $8.

If the main reason people by this machine is convenience, why not buy this for $100?



I'm a huge coffee drinker and I understand how a Keurig could be convenient. But buying the simple entry-level Keurig for $80, being locked into a proprietary system, having no control over the coffee, and not being able to brew more than 1 cup at a time are serious drawbacks. It's a niche market.


GMCR made new highs on Thursday. 44.75 was the old high and had been resistance. Now it's acting as support. The stock had a nice run but gave up the gains the next day.
Here's the google trends search index data for "keurig". The "green mountain coffee" data looks similar, but less volatile. I think it's important to track "keurig" since that's their self-proclaimed growth driver.


Based off this there is an increase in searches for keurig. But pay attention to where the huge spikes are. Right around the holidays. I was reading an analyst a few months back who was saying the sale of the coffee pods weren't keeping pace with the machines. This is why. People get the machines as a gift and don't really use them. This bad for GMCR since they are making the real money selling the coffee pods.

GMCR update

Pretty crazy day today. Let's see how the dust settles.

I found something interesting today. A google search for "nasdaq short float data" brings up the specific page for GMCR.

http://www.google.com/search?q=nasdaq+short+float+data

So there's a lot of interest in GMCR's short float info, presumably by people looking to get long and profit from a short squeeze.

It's very close to breaking out to all-time highs. If this doesn't happen there could be a lot of people dumping the stock. People who were expecting a breakout or people who were expecting a short squeeze.

The other possibility is that it does break out. This could trigger a huge short squeeze. Although this is a possibility, it hasn't happened in the past. So there could be a boring breakout that causes a lot of short squeeze longs to dump.

I'll still got my puts and can't wait to see how this plays out

ETFs by volume

Thinkorswim has an watchlist that contains about 1500 ETFs. I graphed them by volume.

The first chart is the top 20 ETFs by volume today. Some familiar favorites on the list. For some reason the 3x funds aren't included although FAS and FAZ do a lot of volume.

Even in the top 20 there is a fat tail.
Gets even worse when all 1500 are included.

Liquidity brings in liquidity.

Good as gold

Last night when gold was at 910 I said I thought it would break it's 50DMA and trendline.



That was fast

Gold is right above it's trendline and 50DMA. I think it breaks and tests the 200DMA around 860.


The Norwegian Krone looks like it could see some strength.

TLT at support

I bought TBT on 12/18 and sold it on 2/4. I'm not entirely sure where we're going, but TLT looks like it is at support.