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BY ROBERT BARKER
OCTOBER 25, 1999


Diary of a Day Trader, Part 2

"Trading is kind of a lonely business. Everything is in your head alone"

Robert Barker
Robert Barker covers personal finance in his weekly column, The Barker Portfolio, for Business Week from Melbourne Beach, Fla. And he appears every Friday on Business Week Online

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George Henel, a day trader from Buffalo, N.Y., thinks that his breed gets a bad rap, so he agreed to share several weeks' worth of his experiences with BW Online Columnist Robert Barker and his readers. Here's Part 2 of the six-part series.

Friday, Sept. 10
I guess I should be happy with the week's profits of approximately $3,800. However, I feel that I really had some excellent ideas, but my style of trading limited taking even larger gains. For instance, I knew two days ago that Anadarko was undervalued at $35. I had 5,000 shares and sold for a small $800 profit. If I had held through the end of Friday, I would have made $10,000. I also could have made about $7,000 on Nike, instead of $600.

These last two gains would have let me cruise a bit. However, time exposure to the market equals risk. You can dare to be great, or put the chips in your pocket. My hit-and-run style has given me a 240% return for 12 months, and close to 130% since Jan. 1.

My trading style takes a lot of work. I am not daring, but consider myself quite conservative. My success is the result of a high degree of consistency. Small but regular hits, with losses kept to a minimum. Trading value [stocks] and stocks you know well allows you a certain amount of comfort and the ability to limit your losses by carrying losing positions over to another day.

 


Maybe a lot people play stocks like the "ponies," but I don't
 

Trading is kind of a lonely business. Everything is in your head alone. At times, I wish I had a trading team to share my ideas with. In the end, you alone are at the wheel. I only wish that my style of trading was as easy as rolling dice or flipping a card. It's not! Maybe a lot people play stocks like the "ponies," but I don't and don't want to be put in that class.

People seem to forget that Schedule D of your tax return has two sections for losses. Long- as well as short-term. In my years working for the Internal Revenue Service, I have seen more long-term losses in returns than short-term. Somehow, people are soothed into believing that you can't lose money long-term, and tend to let these losses get unusually large before pulling the pin. I also believe it takes some pressure off the broker who sold the loser by letting his client learn to live with the loss.

Looking to next week, I expect more of a nervous market. Stillwater Mining has firmed up with strength in platinum and palladium prices. Both were up over $10 this week. Retailers Friday gained strength. J.C. Penney firmed a bit.

Monday, Sept. 13
It was generally a down day today. My quote service was down until about 11 a.m. Since I was up at 4:30 a.m., I was able to get a ten-minute nap that got me through the day.

The market environment continues to worsen. The dollar/yen ratio was down another 2 yen, to around 106. Bonds were down, but platinum and palladium were up about $7.

Platinum has gone from $347 to $373 in one week. Palladium the same. The strong yen and another major bombing incident in Russia are starting to put the buying into the white metals. Stillwater closed up at $24 today. SWC is the only major source of these metals outside the [former] Soviet Union and South Africa. I bought 1,000 shares this morning and sold a total of 3,000 shares (2,000 from inventory) before the end of the day for a profit $2,020. I sill have 2,000 SWC, purchased around $24 several weeks ago.

This market seems very weak. One house even recommended Eastman Kodak (EK) today. I notice that this particular recommendation is always made when the market seems weak -- to bolster the Dow, I suspect.

Tuesday, Sept. 14
Today was wrought with problems. My Internet broker, Brown, was down until noon. My general rule is not to trade when the Internet link to the broker is down. The reason being that you can never tell how long you will be on hold with the phone. In any event, I could have made some small profits early in the day, but waited. I tried day trading 2,000 Stillwater, but only made 1/16. I sold 2,000 Newmont Mining with a 1/16 loss. So, the day was pretty much a wash. My Anadarko was down, and J.C. Penney up.

 


The secret is to keep the losses to a minimum and keep the cash register ringing
 

My style is to constantly make small hits on a regular basis. Therefore, I don't feel bad when the market is down 120 points and I am out even on the day. The secret is to keep the losses to a minimum and keep the cash register ringing.

Have to keep my goal in mind. Stay light on my feet and bob and weave so as not to get one on the chin! If you can average close to 1% on money each day, you don't have to have that blockbuster punch in your glove. Net today, I raised about $40,000 in cash. This market is getting very weak. I may go shortly to 100% cash overnight. Risks are rising.

Thursday, Sept. 16
The last 24 hours have been wild. Toyko was down as much as 600 points before closing down only 2.73%. I thought that this would roll into Europe and cause our market to fall quickly. Actually, we opened up slightly, then sold down 170 points came back close to unchanged, and then closed down about 65 points.

For the week, I am up about $2,600. I may not trade tomorrow because Hurricane Floyd will have gone through Boston where my broker resides. You never want to be in a position from which there is no exit if my communication link is broken.

 


It takes a great deal of discipline to do nothing when the conditions warrant
 

Sometimes the hardest thing in this business is to do nothing. It is so easy to see something on screen, click your mouse, and go underwater on a position not well thought out. It takes a great deal of discipline to do nothing when the conditions warrant. This may be just such a time.

I believe the above paragraph should be underlined. It is the biggest downfall for the trader. Everyone thinks that you have to "get in the ring" and mix it up. Better to know where to lay the punch before getting in the ring.

My gut reaction is that this market looks terrible and could break in a bad fashion. The Dow Transports made a new 52-week low today. Everyone seems to dismiss this as the old economy. Maybe so, but I still like to fly on airplanes when I travel, buy my clothes at the mall, and eat at a restaurant. You can't do these things on the Internet!

In any event, caution is the advice of the day. If I do trade, it will have to be short and quick. I really believe that October will bring the real bargains. Today, J.C. Penney bounced a bit more. I may try it again soon. On a day like today, the sellers may have gone home early. Better to see if they return tomorrow before buying. On a day like today, market makers can make their stocks go wherever they like....

More bad publicity on day trading by the SEC before Congress today. The concern is legitimate. I wonder if this may be also to protect market makers.

(Tomorrow: Part 3 of Diary of a Day Trader: "A beautiful day in Buffalo")

Barker covers personal finance in his weekly column, The Barker Portfolio, for Business Week from Melbourne Beach, Fla. And he appears every Friday on Business Week Online

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EDITED BY DOUGLAS HARBRECHT

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