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Saturday, Sept. 18 It's 6 a.m. Saturday morning, and it's going to be a beautiful day here in Buffalo, so I thought I would get this bit of work done before the sun comes up. Worked Friday. The market just opened higher and so I decided to put in the day. It wasn't an easy day because I still detect tax selling. Bottom line for the day was $1,009, and for the week it was $3,273. I thought I would go through my thinking pattern for a portion of the day, so as to give you a feel for how things go. On Thursday, I had seen good buying in J.C. Penney (JCP), so I thought this might be a good play. The stocks started to move up right at the start. I wasn't sure about the play, because I didn't see any large bids for the stock, so I went more with what I had seen on Thursday. Not generally a good approach, but we had a good rally starting so I went with it. Bought 1,000 at 37 1/2, 1,000 at 37 9/16, and 1,000 at 37 7/16. I usually only buy 1,000 shares, but this stock seemed ready to go, had a 6% plus dividend, and was a good "value." My cost on 3,000 JCP is 37 1/2, plus $30 in commissions. HALF-HOUR RALLIES. Well, it wasn't long before a large block of stock showed for sale. I should have bit the bullet immediately and taken an eighth-point loss ($375), but I thought buying might materialize like Thursday. Before I knew it, the bid ask was 37 1/4 to 37 3/8, and I would lose $750 dollars if I sold. The time was either 11:45 a.m. or 12:45 p.m., I can't remember which. In any event, I thought I would wait for the one-half hour to begin before selling. The reason here is that for the last several years, mini-rallies seem for whatever reason to start on the half-hour and continue for about 10 to 12 minutes. Hard to believe, but it does occur with a fairly high probability. The Dow going into the half-hour was up about 70 points. Sometime in the 10-minute span after the half-hour, the Dow was up another 30 points, and buying was coming into JCP. The stock got up to 37 1/2 bid, and I saw a 21,000 share block offered at 37 5/8. So I hit the bid at 37 1/2 with my sell order (which was already filled out) and was out with a $30 loss. The stock did not stay at these levels long and traded as low as 36 5/8 later in the day. Next, I saw a block of 10,000 shares in SWC go by on my ticker. That is an unusually large-sized block for this stock. I then saw a 5,000 share bid go in at 22 7/8. I saw 1,000 shares offered at 23 1/8. (The stock was already up a half-point or so on the day when platinum and palladium weren't doing anything, but a lot going on in Russia.) I tried to buy the 1,000 shares at 23 1/8 and only got 100 shares. Bought them and another 1,000 at 23 1/4. I immediately put a sell order for the 2,000 shares at 23 3/4. This would be a $1,000 profit. The stock only went to 23 11/16, so later in the day, I sold for 23 1/2, a $500 profit. Now let's go into the reasons behind sell orders. I visualize my trading as a business. I want to buy good inventory (stocks) at a price for which I believe there are customers (buyers). I want to place a reasonable mark-up on the inventory so that I can move them the same day. To judge this, I may look at the high price for the current day or the high range for the last several days, always keeping in mind the dollar target I would like to earn for the day (my salary).
I think the above rationale is very important. Whenever you become emotionally involved with a stock you are just asking for trouble. The thinking is very similar to how a market maker thinks. Also, remember that most of the time, stocks go nowhere, so what are you losing? For every stock you sell, there are many, many more which are available to buy. It is important to remember that sell orders define your salary. If you don't put these orders out there, you may not get a paycheck! The sell order lets you "cut" your own paycheck as long as the "market forces" (the boss) approves. GOLDEN OPPORTUNITY. Both the buy and sell orders, however, must be considered within the current market context. Another topic. Bottom line is that you don't need a bull market to consistently make money. I actually like choppy markets. It allows you the opportunity to buy good inventory for resale. Friday's third purchase was Newmont Mining (NEM). Gold was down, and NEM was in the lower part of its recent price range. I noticed a considerable number of upticks on my tape at 19 1/4, 1/16 above the day's low. I also watched the price of gold on the 10-minute commodity ticker on CNBC. It had stabilized, and we were going into the last hour of trading for gold, and it was a Friday. Bought 2,000 shares at 19 1/4 and placed my order to sell at 19 1/2. Sat back and watched. In a half an hour, I was executed for another $500 profit. In the last hour of the day, I tried trading JCP below 37 but only came out with a one-eighth on 1,000 shares. This was an additional $100 gain for the day. Well, the sun is up and time for breakfast. (Tomorrow: Part 4 of Diary of a Day Trader: "No pay today") 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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