You have to manage your life and your business in good times and in bad.

I understand this as a truth I must accept. I just don’t do it all that well…

Multiple emergencies in my life, since last post about emergencies and life. Some were quiet family emergencies and a couple you may have read about in the news. Life seems to be approaching stability again. That stability is always temporary. So I must learn to manage my life, my business and my blog through the good times and the bad.

This is my next attempt to begin again. Thank you for sticking with me as we figure this whole thing out together.

It is the end of the year and that means it’s time to make predictions.

I predict that the new year will prove that people who make predictions can’t predict the future…

Happy New Year!

Ted Paras

Moonlighting In The Market

Why moonlight in the market?

To learn about the world and how it works by watching the market and what it does…

Due to a of couple family emergencies it has been almost two months since my last blog post. In that time much has happened in our world and in our lives. Now on 12/12/12 it is time to begin again…

With the US presidential election behind us and the Fiscal Cliff in front of us, we must prepare for the emergencies and opportunities that lie ahead.

So I am back to give you the best information that I can, to help you succeed in this world we live in. To deliver it in the perfect blog, podcasts, books and any other format that you will find useful.

The problem is that the perfect blog has never been written, neither has the perfect book. They never will be. My quest for the perfect blog post must end here today…

So I plan to “begin again” by acknowledging reality and breaking the habit of the time consuming quest for perfection. I plan to post here for you more frequently and more efficiently. In the coming posts I will be searching for balance. The best way to serve you. The proper length without being too long, more frequent without being too frequent.

The longer unfinished “potentially perfect posts” that are now saved as drafts, endlessly edited in pursuit of perfection are hidden and will do nothing to help you until they are published. So many of these will be refined and published in my book, so they will be the best length to serve you better. This will allow me to give you more information in the proper way.

I will make better use of the Podcast for you as the spoken word is an efficient way to communicate more information to you. So you can subscribe to the feed and listen at your leisure. I hope you will find this a useful enhancement to our conversation.

So with these small changes, I hope to serve you better as we chart the course ahead.

I have so much to tell you. So many opportunities, so little time. Life is short so lets get back to it!

A while back I set a bunch of stops. These stop-limit orders were set to protect some gains in my portfolio. When I am out of the office, sometimes I am not able to follow the market and trade. So when I have gains, I like to protect those gains with a stop-limit order. I put a floor under the stock price with the order. An “insurance floor”. There are lots of things that can go wrong with this type of stop-limit order. Just read all the disclaimers and warnings about it and you will see. As with all stock trades you have to understand the risks and the rewards and trade accordingly. So I decided that this time it was worth the risk to me and I put in a bunch of stop-limits to protect gains.

Over time I started getting emails stating that my orders had executed. So I booked my gains automatically and didn’t think much of it. I figured I was back to all cash.

Last Friday I saw that I had one stock left in this trading portfolio (along with my two worthless F Call options). So I decided to put a stop-loss under my position in HERO. When I went to place the order it would not go through. I still had an order in place from before! I had totally forgotten that I wanted to protect gains at 20% and now that the stock was up over 40% it was time to move the floor up higher to keep more of the gains. This time the floor worked well for me. It was there to protect my price if the stock went down but it also had no affect when the stock went up.

I just got lucky when I forgot about this position and the only thing that saved the extra gains was the periodic checkup…

So today I moved the “insurance floor” up again and now I have a stop-limit order in at a 50% gain. So in an orderly market I am likely to get stopped out and automatically sell at that level.

If I think I am getting close to a market top or I want to go ahead and book the gains, I will change my strategy to a trailing stop-loss order, that would be in order to “ratchet up” my sale price. I will not do that yet. The stock pulled back today and I am guessing it will probably go up a bit. So I will let it ride now, using my set “floor” price for now and later when I figure it is getting close to a top, I may try to milk out that little extra upside using a trailing stop order to “ratchet up” the price and try to get a few extra percent.

For now I have just this one stock, so I will play with it to see if I can get lucky again and make a few more percent…

But wait!

I just looked at the account to see what percentage of cash I had, so I could mention it to you here and I see that my stop-loss order has executed already. So I got stopped out and protected my 50% gain. From here maybe it will go back up and I will have missed out on more gain but who cares!?! These days any time I can lock in 50% gains, I am happy…

Now I have some worthless call options and a bunch of cash that I have to put to work in the market. Better start planning now and easing back in to the market when the time is right…

Last week we began a new quarter and that was all the buzz. This week is the beginning of earning season and that is the new “new thing”. One report I heard this morning said earnings are not going to be good this time around.

How do they know that?

They don’t.

It was said with confidence so that people will believe it and stay tuned through the next commercial for the next prediction. That is their business model… It is fun to watch and follow along with them, but we have to remember no matter how confident a speaker is, no one can predict the future.

So we can enjoy watching and listening but we have to be careful how we use the information. We have to put it all in perspective. Their goals may be different from your goals, their time frame may be different from yours. So we have to be on the defensive and know their business model. What are they selling and how does it apply to us?

As for the comment that “earnings will not be good this time”. I am not buying it. Not because the prediction won’t turn out to be right. It might turn out to be right, but even if it is, the guy who said it didn’t really know…

Your success will be determined by how well you prepare yourself for the future you can not predict.

J Ted Paras

As I was getting organized, defining and refining my plan, updating my buy and sell lists and setting stops, life changed with one phone call…

I was out planning the “Live Fire” training that I was scheduled to give along with the other fire company officers, and I got the call on my cell phone.

Emergency room… Ok, I’ll be right over.

After a few quick conversations to line up other instructors for the Fire Company Training, I hit the road for the hospital to see how I could help. Family takes care of family. My Firefighting Brothers, said “Go, we got your back”. So I did. Leaving one family for my other family.

Now as I look back over the past couple weeks, we have gone from ER to surgery, recovery and then to Transitional Rehab Care. The road back will be long but we will do our best together as a family…

The good news is that we are past the point of 18 hour days. It seems we are approaching stability. So I need to figure out where I left off. I haven’t looked at my portfolio since before the call.

The good news is that I set some protective stops back before I knew when the next crisis would come. The bad news is that the market went up and I could have moved the stops up a bit to capture more gains. This didn’t happen. I am getting notifications that I have “Trade Executions”. So I didn’t sell at the highest tick. You never do. You always try to and you never do.

So I may have a stop or two still set or maybe they all executed. I don’t know. Have had other priorities lately. Making a living is important, so is this sideline but it is only money. Money is not as important as people and I have been helping family during a family emergency. Now that things are stable, it is time to get back to work and see where I left off and figure out how best to move forward.

So I am in mostly cash. Stops have executed to lock in some gains. I sold the MGM outright after my last post. I looked at the chart and it had been down 10% for me and it came back to even money and then it was down about 1% so I sold it before I lost more…

The F Call Options that I am holding and seemed like a good play on the recovery don’t seem so good lately… The September Calls expired worthless. That is the thing about options. You can magnify your upside but you can also lose everything (plus commissions!).

So in the future when we discuss my option trading success, remember this failure. It is all part of the process. Learning how to make profits and limit losses.

In this case, I bought a small position and didn’t sell back when I had a small profit. I wanted more and the market didn’t give it to me. You have to trade the market that you have, not the one that you want.

So the goal here is to get caught up on where the market is and try to anticipate where it might go. Figure out where I left off and figure out what is going to happen when the game changes next. That might be due the U.S. election or some event in Europe or The Middle East or it might be right down the street in the local Emergency Room, because you never know when a crisis will come along and change everything.

You always have to be ready, because you never know…

Hard to find time to moonlight around here. Day job, family, house, firehouse and about a hundred other things. Just have to take time for the important things and following the market is important. You have to take this seriously…

Ok so I have been watching the market and want to give you an update. Today there was some good news from Europe and the market is up…

All of my F options are down big. The September $13 Calls will probably expire worthless or close to it. Down 99% at this point. It was a good play when I bought. But I didn’t execute the sell for a profit when I had the chance. I didn’t pay attention closely enough to sell before the loss got big. Luckily this is a small portion this “experimental” portfolio. I am working to learn options. This kind of thing is part of the cost of learning the market. Learning how to take positions and how to protect yourself against loss. On this one, I left the position on because it was small and there was a chance it could come back. The mistake was not setting a floor and keeping to my discipline…

My December F $13 Calls and January F $12.5 Calls are both down big too. (Down 98% and 88% respectively). Small positions…

MGM is down 6% for me at this point.

The good news is that my other stocks are up. The bad news is that I am very defensive. About two thirds cash and one third stocks. So the market is in rally mode. Do I jump in to catch up? Or do I admit that I missed it and watch and learn… You can’t tell for sure if you can’t predict the future…

For now I decided to set some “Stops” to protect my gains and keep watching for different trends. Short term and long term (and in between…) Watching the waves in the market…

I think of these “stop limit” orders as an “insurance floor”, to insure that I lock in the profit. Stop limits may not execute as planned in a disorderly market but none of this stuff ever goes exactly as planned. It is all a calculated risk. You get paid for taking risk (when you get it right…)

I will adjust these “stop limits” over time to follow the market, until they execute.

TQNT up 12% set stop limit to protect 9%
IRBT up 18% set stop limit to protect 13%
HERO up 30% set stop limit to protect 20%

DRYS is up 11%. I will be watching that and hopefully set a stop soon…

So that is where I am now. Today. This minute…

Everything can change in a heartbeat. I will adapt as fast as I can but it is hard, when this is only a sideline… But you have to do the best you can. At this point the stop limit order is the best tool for me. We will see how it works. Will it be the insurance that I hope for? Or will it be the missed opportunity they warn you about in the disclaimers? Ya never know until you can look back on it…

One of the best ways to learn how to understand something complex is to first understand something simple, something that works the same way…

To understand the complex motion of the stock market, we can use simple waves on the water. The water waves can help us visualize what can often seem difficult to comprehend and make it easy to understand.

During my days in the College of Engineering when they were teaching us physics, advanced calculus and engineering analysis it was not uncommon for the professors to use water waves in the examples to help us learn to visualize what was happening in many different complex and dynamic systems. All those fancy equations were hard to understand but the waves rolling along the water made it easy for us to see the ideas in our mind’s eye…

So if the stock market is a complex and dynamic system and we can use advanced calculus or simple waves on the water to figure things out, lets choose the simple water method…

It’s all about watching, understanding and timing the different waves as they move through the market. Then watching to see how they all add up…

So we can start with the really big long term waves or market tides. Long term things. You can think of the tide as a really big, long wave. That is something that comes along slowly to raise the level of the market. Things like Demographic Shifts, Unemployment Rates, Interest Rates and Election cycles. Things that change slowly with long term trends that are measured over the course of years. Seasons and annual events like Christmas Shopping come each year but they are always different. Earnings season comes quarterly and so on. The market tides are all big, slow moving stuff that affects the market trend over the long term.

As the time frame gets shorter we go from tides to add in the waves. Market waves can be large or small and even though they have a predictable rhythm they are each totally unique, with differences in size and timing. These are more frequent things that we consider. Market waves have an affect that is more immediate and shorter duration. This could be things like Summer Hurricanes or Winter Storms. They come in, run their course and have an effect for a while but it is not always long lasting. Things from months to weeks are in the wave range I use.

Then there are the ripples. The things that are short duration and small effect. From weekly, down to daily or even hourly events. Things that come and go. Maybe a company announces a new product, a merger or layoffs. Something that runs its course fairly quickly. When I get up at 5 AM to look at what happened overnight in the markets in Asia and Europe, the little market news events of the day over there will come along and affect the US market at the open and the results may not last more than a few days, hours or even minutes.

Finally there are splashes. That is something that makes a big unforeseen impact. An earthquake or a terrorist attack might fall into this category. You may never see it coming and it can totally change your life and the market you trade, it can come without warning in one unpredictable instant and change things forever…

Everything adds up over time, the tides, waves, ripples and splashes all serve to come together to create that single point where the market is trading at any given time.

So the tide may rise to lift our boat while the waves may serve to take us lower and lower for a time…

You can see how simple, yet complex, it is to add up all the different tides and waves to determine where you are at any given time. Then the trick is to figure out how they will all interact and where they will take the market in the future.

This can take a lifetime of study to get it right and we will never be perfect. The goal is not to be perfect. The goal is to get good. Good enough…

So now it is time to look at my portfolio and see my stocks in terms of their own waves and then look at what tides, waves, ripples and splashes may be affecting each of my stocks. Do I think there is a rising tide that will lift them to new highs or is it time to sell because of a coming wave? Should I move on to other opportunities because there may be ripples on the way? Beware the unknown splash that can come at any time.

The waves in the market are always changing so we have to always be ready to change as well…

Watching the waves and learning to time the events and how they come together can take a lifetime. Successful timing can result in making a lot of money or losing a lot of money. It is a journey and every day there is something new to learn.

Join me, follow along, have fun but most important be careful out there…