Trading RM, LLC.

Last Friday was relatively slow, but when one of the Trading RM senior traders saw Mastercard (MA) and Visa (V), he literally jumped out of his seat to alert the room. There had been discussions the day before about the possible early implementation of the CARD Act, which would likely lead to a reduction of credit extended to customers. There were also rumors of a draft bill to create a Consumer Financial Protection Agency, and further talk of interchange fee reform. Whatever attributed to the sector weakness, our traders liked the price action and were ready to take advantage.

As shown in the 5-minute charts below (click to enlarge), both MA and V had accelerating selling on increasing volume. The Trading RM Real-Time chat window (at left below) shows that our traders were buying puts as early as 9:12 CST, with more traders getting involved in both names within the next few minutes. The selling volume stayed strong, and the 5 minute red bars were relatively broad as they closed near lows. The acceleration of the flush raised implied volatility and gave the options an extra boost.

News of the selling came across the wires at 9:20 CST (at middle below); approximately 3-5 minutes after our traders had piled into MA and V. As V started to find support near its 50-period moving average on the daily (top right below), our traders were hitting profit targets and selling into the move between 9:23 and 9:26. As the flush slowed down, our traders exited MA between 9:29 and 9:34. Both MA and V found strong support and bounced with fairly sharp reversals. Any traders that were late to the party and did not hit their profit targets were still able to secure a profitable trade.

By being aware of the assorted downside rumors and paying attention to the accelerated selling, Trading RM traders found a solid sector play and capitalized!

For more information about Trading RM Real-Time, see www.tradingrm.com

Regulatory Changes Lead to Trading Opportunities

By: Larry Fisher, Trading RM LLC, Founding Partner

SEC Approved NYSE Euronext’s Option Pricing Proposal on September 16, 2009.

http://online.wsj.com/article/SB125381146430538199.html?mod=googlenews_wsj

For the past 2 years, the leading equity options exchanges have been trying to convince the SEC that a move towards trading equity options in penny increments vs. the nickel and dime increments of the past is a poor idea. The SEC must disagree as they recently approved the trading proposal of NYSE Euronext. NYSE Euronext’s plan calls for all equity, equity ETF’s and equity index options priced under $3 to be traded in penny increments. In August 2000, the SEC oversaw the equity markets shift from trading in fractions to decimals. Regulatory changes usually cause a shift in the balance of power in the corresponding market. How will these changes affect the options market? Market makers will most likely be the most adversely affected as the decrease in the quoted spread will cut into their margins. Large institutions will complain that there will be less quoted size on the inside market. Individual investors should benefit from tighter markets. We believe that the groups that will benefit most from these changes are short term equity traders. That’s correct. Equity day traders who are savvy enough to understand how to express their views via options will see their profitability skyrocket. That is our focus at Trading RM LLC. For the past 2 years we have been preparing for these rule changes. We have developed a systematic approach to benefit from the new and ever changing landscape in the market place. We are confident that we can help successful short term (position holding time is minutes to days) equity traders express their views with less risk, more reward, and ultimately higher profits.
It is time for traders to evolve with the market and reap the rewards.

For more information, visit our website at www.tradingrm.com or contact us at info@tradingrm.com.

This morning I saw the final standings for the PGA Fedex Cup. It again reminded me of the many trading analogies between sports (specifically golf) and trading. In a previous post I talked about David Duval's recovery from a slump. (I highly recommend the book "Breaking the Slump" for a more detailed look). Looking at the 2009 Fedex Cup standings I see Steve Stricker coming in at third.

2009 FedExCup Playoff Points

Standings

Stricker's career began in 1990 after graduating from the University of Illinois. He turned pro in 1990. His most successful year came in 1996 when he won the Kemper Open and the Western open. In 1996 he also had seven top ten finishes and finished 4th on the money list.

Stricker lost his game sometime in the early part of this decade. Between 2002 and 2005 he did not play in most of the majors and when he did he did not make the cut. In 2004 he finished 151st on the money list and lost his tour card. Stricker said: ''I was beating myself up. I knew I was a better player than what I was playing, and not doing it is frustrating.''

He returned to his home in Wisconsin and seriously considered retiring from professional golf. However he found his passion for the game again and began training through the Wisconsin winter by hitting golf balls out of a modified/heated trailer. He focused on his swing. He did not focus on winning tournaments or getting it all back at once.

He eventually made his way back to the tour, winning the 2006 and 2007 comeback player of the year. In 2007 he was runner up to Tiger Woods in the Fedex Cup playoff standings. In 2008 he lost a playoff in the Mercedes Benz Championship but vaulted to # 3 in the world standings. Stricker has won 3 tournaments in 2009 (Colonial, John Deere, Deutsche Bank). And he finished the season third in the FedEx Cup.

So how did Steve Stricker go from a man without a tour card (training in a heated trailer) to an elite player again?

Some samples of what Stricker worked on from an article by Chuck Evans and from the book Breaking the Slump (my thoughts underlined in black):

• "Never give up. We all go through periods when we are not playing particularly well and the key is to find the weakness that is cause of that. Sometimes it is ball striking and other times it is the short game and in rare cases it is both! " Never give up.

• "Always practice with a purpose. Virtually all players practice incorrectly, they go to the range and hit balls, which is only exercise, but they almost always do not have a plan for improvement. I recommend rehearsal swings then hit one ball, rehearse and hit one ball, and so on to build a feel for what you are trying to accomplish." Have a plan, do not act without a purpose.

• "Driver, wedge, and putter account for approximately 78 percent of all strokes, so spend the majority of your practice time with these clubs." I make the link to trading this way: focus on your bread and butter trades and set ups. Do not worry about the home runs or one off trades.

• "Find someone to help you in your quest for improvement." Trading mentor? coach? friend? colleague?

In the same book that details the slumps and recoveries of Duval and Stricker, Greg Norman had this to offer:

”"I can’t remember who the quote came from, but it says,”Show me a path with no obstacles and the path will lead you nowhere.""

Yesterday Dr. Steenbarger gave a presentation to the traders at Trading RM. The focus of his talk to us was mental and physical preparation for the trading day. We all know that good traders do not arrive at their desks at the open and trade blind. Dr. Brett was able to break down mental preparation in three parts.

Today the USO broke major support as the Dollar put in a new low before sharply reversing higher. Will the strong Dollar force oil prices lower? Will oil drag down the broader markets? As day traders we trade what we see and not what we think is going to happen. Tomorrow when I return to my desk, I will pay special attention to the price action in the Dollar and the USO.

Listening to the market is a vital part of trading. There are many ways traders can do this:

-Reading the tape and order flow
-Reading about general macro sentiment
-Tracking indicators (VIX,TICK,TRIN)



The last one is a extremely helpful because these indicators are readily available to us each day. We can gauge them against past performance and averages, as well as use them in real time. Looking at the VIX can provide insight into market sentiment (put buying and the premium traders are willing to pay for this protection), as well as a benchmark for the type of moves we can expect and general market volatility (whippiness, volume, ranges, etc).
Looking at the graph of the daily VIX below, we note that today we broke the prior intra day low of the year of 22.48 set on 9/11. The key is adjusting our trading to this. We have been in a downward VIX trend, and the action has been falling in line with this. Clearly less volatility in the market tends to be experienced with tighter ranges (and therefore fewer "follow through" trades), range bound and choppier activity, and in general "slower" moves.
Taking the extra step to assess the indicators we track and the current market environment can often lead to laying off marginal trades, and focusing our attentions on our best (and most profitable) ideas.

Today the US Dollar Index (UUP) formed a double bottom and while also putting a new low in. The volume in the UUP has been strongly increasing over the past few sessions which may be a sign of capitulation. An interesting divergence occured today as the UUP broke news lows and the GLD did not break new highs. Also, the SPY closed the day with a red candle and the broader equity markets did not break new highs and rally on the weak Dollar trade. The QQQQ did confirm the dollar trade by breaking new highs.

SPY
GLD

Every good trader I know reviews his/her trades at the end of the day. Today while reviewing my trades I found the same flaw in a couple of losers. In short I was trading what I thought would/could happen. I did not trade what was happening.

Lately in our Trading RM morning meetings we have been talking about "making today the most important day." Today is the most important day of the year. The market does not care if I had a bad day yesterday or if my car broke down this morning.

Every day our traders have to approach as the most important day of the year. What am I going to do today to be a better trader? What is my game plan? What are my setups? What circumstances will I be aggressive?

We can't worry about yesterday or tomorrow. Only today.

Trade Like a Champion Today.

As many of you know Trading RM Real-Time is a product that we offer to allow traders to get real-time access to trades that our traders make. It is our belief that when a trader actually executes a trade it speaks volumes to his or her confidence and commitment to the trade idea. Every trade that is made on our floor is than put into an chat room that is powered by Blast Instant Message Technology. Thus a trader doesn't have to be on our floor to have access to these trades but can be anywhere in the world and receive the information.

TRM Real-Time is helpful for stock, options and futures traders. The sharing of trade ideas from experienced traders leads to the speeding up of the learning curve for all of traders. We are confident that TRM Real Time will speed up the learning curve for traders at every level of experience. Stock selection and timing in to positions are two of the more difficult aspects of trading equities and options.

So how does Real-Time help me make money? One piece of information that we have in Real-Time is the entry and exit points for trades made by our group of experienced traders. Every trade that is put in the chat room has 3 distinct colors(Green, Red, Blue). Green trades are long positions in the underlying stock or equity indexes, red trades are short positions in the underlying stock or indexes and blue trades are all liquidating trades. In addition there is a C, P or stock after the position which details whether the trader put on options or stock. For example, I initiate a long stock position in AAPL so this would look like this is the chat room +AAPL Stock RV and when I liquidated the position it would look like this -AAPL Stock RV in the chat room. The fact that I bought AAPL doesn't mean that you need to put it on immediately but rather is should be brought to your attention that I saw something in AAPL to get me to put the trade on. I would compare it to the same way that you would react if you heard a news story about a stock that you were currently looking at. If the story was a big-event you would make the appropriate trades to to take advantage of that news so use TRM Real-Time in a similar way. Once the trade is blasted in the chat room go through its chart and news to figure out if it is a trade that meets your criteria. If it fits your criteria don't hesitate and put that position on with your risk parameters in place.

If I only trade futures how does TRM Real-Time help me? The way to look at the blast is to focus on the individual colors of the positions that we are putting on. Are we putting on a lot of longs or are there more shorts being executed? The majority of the days the underlying stocks show you where the futures are going. In addition, are we getting involved with tech names or more financial names so that you shift your focus on the Nasdaq Futures vs. S&P Futures. In addition, every 30 minutes we provide some key-market related data to assess whether we are having a 1, 3 or 5 star-day. If we are having a five star day look to take bigger moves out the market whereas 3 or 1 star days have a better chance of being more of a range bound day.

The above examples show a couple of ways to use the TRM Real-Time to help you. There are also many additional ways that this product can help traders so please feel free to sign up for a free trial for TRM Real-Time at info@tradingrm.com.

On 9/10/09, the airline index XAL was making eight month highs, boosted by an upgrade of United’s parent, UAL Corp (UAUA). UAUA gapped up from the previous day’s close of $6.45 to open at $7.14, and was ready to soar higher. Traders at Trading RM saw United’s sector leadership and took advantage of its strength.

The market gapped up around 5 handles and immediately began filling the gap. Conversely, UAUA saw aggressive buying on solid volume. As seen in the 3-minute chart below (middle right-click image to enlarge), UAUA was trending upward and became relatively stronger than the market. The 1-minute chart shows 4 green bars within the first 5 minutes, all closing on their highs. The upgrade, divergence from the market’s gap fill, bullish 1-minute bars, and strong volume were all great signs to get long.

As seen in the Trading RM Real-Time chat window at left below, our traders were buying UAUA at 8:36 CST. UAUA rested for a few minutes on lighter volume and then the buying came back in. Supported by the market’s turn upward, UAUA kept pressing up. Seeing that United was trending on good volume, still outperforming the market, and relatively broad 1-minute bars closing on highs, more traders got long at 8:42 and 8:49. At 8:52, traders that were early to the move were hitting profits targets and others locking in profits. As volume slightly tapered and the candles became less bullish, our traders sold into the move with exits at 9:03 and 9:06. Taking a solid winner in UAUA was a great way to start the day.

On 8/27/09, Oskosh (OSK) won the bid for a multi-billion dollar US Army defense contract. As seen on the daily chart below, this caused OSK to surge from $28.62 to close the day at $34.20. On 9/8/09, however, OSK received a stop-work order from the Army after two losing bidders filed protests to the contract. When this news hit the wires around 12:40 CST (bottom right below-click to enlarge), Trading RM traders took advantage of the negative price action.

As seen on the 1-minute chart, there was heavy selling around 12:42 and our traders bought puts within the next minute. The Trading RM Real Time chat (top right below) shows the traders’ entry. Although the protests to the contract would probably not cause a gap fill down to the $28.60 level, the uncertainty of the situation raised implied volatility and the value of the puts. With steady volume, the 1-minute candles closed on their lows as OSK stock dropped $0.80 in just a few minutes. Our opportunistic traders took profits into the move and scaled out of their positions around 12:46. As volume dwindled and the stock found some support, the traders locked up their profits around 12:50. Solid trade!

During the last week of August, Energy Conversion Devices (ENER) missed on quarterly earnings, issued downside guidance for the next quarter, and was downgraded. As a result, the stock had several consecutive down days leading into September. This is another name with a significant short interest (approximately 31%). On 9/8/09, ENER had some upside news and we were able to take advantage of the change in character.

During the morning trade, ENER was in a tight 10 cent range with weak volume. At 9:22 CST, heavy buying came in and ENER sprung to live. Seeing the volume spike and the one-minute bar closing on its high, several traders got long at 9:23 CST. A minute later, Briefing.com released takeover chatter (top left below-click image to enlarge). The underlying stock did not maintain the high volume, but the implied volatility of heavy call volume and a high short interest made the options attractive as the stock chopped for a few minutes. As the stock chugged up for the next 10 minutes, our traders scaled out and locked in profits (see Trading RM Real-Time chat at top right below).

ENER provided a second opportunity around noon. When Najarian highlighted the company on CNBC, the volume spiked again and the stock made session highs. As shown in the Trading RM Real-Time blast (bottom right), our traders saw the surge in buying around noon CST and took advantage of the $0.30 Najarian pop.

Select coal mining stocks have begun breaking out on the daily chart. Two coal mining stocks to watch tomorrow are BTU and PCX. Both stocks broke out today on strong volume and both closed near high of day.

Here are some interesting chart patterns and levels to watch when returning to your desk for Friday's trading session.

The XLF has a possible head and shoulders forming on the daily and is currently at the right shoulder resistance. The right shoulder needs to begin rolling over in order to confirm the pattern.

The SPY is up against major resistance around the 105.00 to 105.10. Each time over the past four months it has touched this trend line it has sold off.
The QQQQ is facing major resistance at its 200 moving average on the weekly. The first touch of this moving average back in March 2008 resulted in a big bounce and when it broke through to the downside the market sold hard.

Today the dollar took out its double bottom and sold off hard after comments from a United Nations Conference on Trade and Development suggested that a new global reserve currency is needed to restore confidence. The USO reversed and made a nice move to the upside today. The GLD began to break out on its daily today only for sellers to step in and slam it down to close near the lows of day during the session, but traded up in the after hours session. Below are key levels on the UUP, USO and GLD.