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Haki Hika is a pseudonymous contributor to Seeking Alpha and other social trading networks including StockTwits and Twitter. The persona represents the extravagant thoughts and opinions of individuals and not necessarily their RIA firm or funds managed by the individuals. Although the... More
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  • Blackberry (BBRY) Long Term Trade Plan

    Introduction:

    Blackberry reported earnings this morning and it was not pretty. I had been bearish on BBRY for a while, and made a few quick short trades on it in the $15-$13 range. However, I didn't have a huge conviction on a long term bear case, it was just a gut feeling and shorting off of hype and levels.

    Now Blackberry has gapped down into what I would consider no-man's land. If you were to take a short or a long, I'd give you a 50/50 chance of profiting. But more importantly, I'd give those traders who do initiate a long term long or short right here right now a 75% chance of losing money. And not just on this trade. To go long or short here, even if you have strong conviction that BBRY is going to sell more smartphones over the next five years then every company combined, or that they are going bankrupt in one year, is foolish.

    There are two elements to trading that need to come together to be successful. First, a good thesis. Second, timing. A good thesis is important for a trade because it will give you the conviction, it is what the trade is based off of. However if you just go out and willy-nilly buy a hyped stock for the long run and whatever price, you're going to lose money (unrealized, but losses none-the-less). Individual investors can do that because they don't have investors to answer to. Fund Managers cannot. That is where timing comes in. And for timing, I like to use levels, public sentiment, and one or two other tricks up my sleeve. Understand, here, that I only say other tricks up my sleeve because I couldn't think of anything else at the moment.

    So with that introduction, let's get into how I will trade Blackberry long term.

    The Trade:

    Blackberry is in the middle of a range. And it is a large range at that.

    (click to enlarge)

    While you could draw a "support" line across from that gap in late November, it is weak support at best.

    This trade is not for everyone. It requires patience and a good memory of what your trade plan is. Those who have followed me know that I am a trader who looks for smaller sized positions and big moves and that is very true in the case of BBRY.

    Here is my chart:

    (click to enlarge)

    I see strong support at 8.50 with a good level to play off of (6.5) that's a big move, so you have to keep your position small enough that the loss will not be greater than 1% of total AUM. So that's the long play. I will wait patiently for the 8.5 level and will likely work into a position at various levels (buy some at 8.75ish, 8.5ish, and 8.25ish) even save a little room to add closer to 7. The target on that trade would be to sell 1/2 as it begins to fill the gap it just created.

    From the short side, I will look for a few things. I will look for hype into the gap fill, and I will look to short at the 50% fib retracement. Let's zoom in on the gap:

    (click to enlarge)

    For this trade I will work into the trade with orders to short at 12.24, the 200MA, 12.62 with room to add another leg of the short around 13.5. Wrong over 15.25.

    Closing Thoughts:

    Does the fact that I'm going to wait for blackberry to come into one of my levels mean that I don't have a fundamental view on blackberry? Yes and no. I believe there are people out there that are far better at analyzing a companies fundamental outlook than I am. Some of them are bears, some are bulls. When I look at the market, I tend to look at it through a very distorted lens of the efficient market thesis. I believe that in general, the sum of everyone's view of a company's value is what a stock will revert back to. When it gets cheap for the bulls, they'll buy, when it gets expensive bears will sell. This creates the patterns that we see.

    I am only willing to come in and take a position, when I see an extreme level that I can play off of. The reason for this is because I don't want to play the stock price relative to the company. I am playing the market against the other participants.

    If you can predict the crowd, you can play the stock market. That's what I believe, and that's what I do.

    Right here, with BBRY at 10 (it has seen 10.25 and almost 11 today), I can't predict one way or another what the crowed is going to do. My guess is there will be a narrow (relatively) range for a week, then it will chop going above that range and below it, maybe even multiple times. Eventually the price will get extended and ideally it will get extended to one of my levels. There, I predict that those who were on the right side of the trade will take profits and those who were on the wrong side will give up. Then we'll revert back to a normal price.

    Summary of Trade:

    I'm a buyer of BBRY around 8.50 and a seller around 12.50 with a target somewhere right in the middle (10.5).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: BBRY
    Jun 28 12:15 PM | Link | 2 Comments
  • Google Trade Setting Up

    The stock market is a tricky game. I often compare it to chess because there are many nuances involved and you are playing it against other people. Many people talk about the ominous "they" and often times these people are just making an excuse for a losing trade. You need to think about "they" being the losing traders and how are you going to beat them. Yourself being a winning trader. What's this have to do with a Google trade, you ask? It's a prerequisite for understanding the trade.

    Earlier today, I posted a quick series of tweets on how you have to combine multiple signals to make a good thesis. Many traders will take only one item (Sentiment, support level, breakout/breakdown) and decide to make a trade based off of it. These trades, more often than not, turn out to be losers because they are easy. Don't get me wrong, a trade doesn't need to be complicated to win, it just needs to be a bit more subtle.

    Here's tweets today on that rant:

    (click to enlarge)

    Now let's get to the Google trade. Below is a chart of Google and then I'll explain what exactly I'm looking for and why.

    (click to enlarge)

    I haven't really looked at the stream or sentiment tonight as I'm out of town for meetings/vacation. However, I'd be willing to bet there are a lot of people calling to buy Google based on a hammer candle. However, that is the obvious trade and has a high probability of turning into a losing trade. Notice also that while the hammer formed near support it's not really at support.

    So really, the only thing this trade has is a hammer candle. Sentiment? It's certainly not overly bearish for Google, Support? Close, but not quite. Breaking out? Ha! For these reasons, I'll pass on buying based on a hammer candle (though I really do like hammer candles). I'm not saying that trade won't work, I'm just saying that the probability of success isn't high enough for us to take the trade. They do have oversold stochastic with the hammer, and I'll admit, it is a very nice looking hammer.

    The trade that I am looking for is buying the stops of everyone who buys this hammer. And here's how it should set up:

    • Google will confirm a breakout over the hammer candle high.
    • Sentiment will get very bullish (likely see a lot of that tomorrow) And if I were at the office, I think Google to the long side tomorrow will be very profitable.
    • Momentum will quickly be lost and Google will either trade sideways or start trading lower on Monday.
    • Over the course of 1-4 trading days after breaking down from the lost momentum, Google will breakdown below the low of the hammer (847).
    • Sentiment will start turning extremely bearish because everyone that was long will start tweeting the usual bearish tweets about how terrible a stock is and why they are glad to be short (ha!).
    • Price will be right at support 840-844 (50 day moving average, channel support).
    • Oversold reading will still be there.
    • Who knows, maybe there'll be another hammer candle (though probably not as pretty and obvious).

    So basically, I'll be looking for those stars to align for me to get long Google again. And I'd take a 4% position to start with as the risk isn't easily defined from that position. If I were going to play today's hammer candle, I would have taken an 8-10% position because the risk is very defined (stop below 847). But that's why we will likely see below 847, it's an easy stop to run. Think fractals. Though that's a whole other post.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GOOG over the next 72 hours.

    Additional disclosure: No real need for a disclaimer as I've pretty much posted exactly what my plans are and what I'm looking for. However, I obviously reserve the right not to initiate a long trade or to change my plan based on any price action I see. I will not necessarily update this post when and if that happens, you are on your own for your investment decisions and I merely post this for entertainment/food for thought.

    Tags: GOOG
    Jun 07 2:04 AM | Link | 1 Comment
  • VHC Trade Review And Other Ramblings

    This isn't a trade idea in the sense that I want to give everyone an idea of a potential trade to make. It is, however, a trade idea in the sense that these are the sorts of trades that more often than not, prove to be successful.

    Many people will tell you to avoid trying to catch "falling knives." Its an industry wide term. However, in my career, I have found that knife catching has a high probability of ending in a profitable trade.

    Where most people go wrong is they dedicate too much capital too early. They see a stock dropping and think, "That's a falling knife, I'll catch it." However, falling knives generally fall far longer than you think because it is powered by all the traders trying to catch it too early. In catching knives, especially on the daily time frame, I will not dedicate more than 2% of the capital to a position, and most of the time it remains at 1%. This means that even if I make 100% on the trade, my account value will only go up 1%.

    So on a $100,000 portfolio. If you make 100% on the knife catch, your portfolio only moves to $101,000. This is where beginning traders go wrong. They think, "Well that hardly seems worth it. If I stick in 10% of the portfolio, I can make more than that. If I stick in 25% I can make much more than that." So they get heavy into a trade and even if the trade would have worked out, they are forced to close out because guess what? They can also lose much more than 1%.

    Now, my strategy isn't for everyone. I have seen traders put a lot of leverage to work. That just isn't me. I trade not only my money, but other's as well. For some PMs this drives them to increase risk because at the end of the day, it's not their money. For me, though, I care more about my client's funds and my good name, than I do about my personal money. I am not a huge risk taker. I prefer to eek out 6-8% a year and give my investors more consistent gains than to be a hot shot who gives them the occasional 30% year, but blows up a few years later.

    I will be getting to the quick VHC review, but I want to finish the point about position sizing, because that is one of the keys to successful trading, in my opinion. My investors are happy with 6-8% a year. Some people complain, "Well the S&P was up 13% in 2012 and you were only up 12%. I should just stick all my funds into the S&P 500 index funds and get better return." But that's not what they pay me for. They pay me for consistency. I have had investors pull out for this reason, but then they stick their money in an index fund at the top and lose a bunch on the way down. It's easy for warren buffet to say, the index will outperform mutual funds after fees. And while that's likely true, it isn't true that the individual investor will perform better putting their money in the index fund than they would in a mutual fund.

    So while I tell my investors that we just seek to deliver 4% more than the rate of inflation--making us a better alternative to CDs and other investments. We have in our history proven to return better than that (won't post numbers due to performance reporting compliance, just trying to make a point).

    That's why I don't put more than 1%-2% into a trade like VHC. Even though it has a high probability of success, in the times that it does fail, the losses are huge.

    The Trade:

    I first posted about VHC to stocktwits on March 25 from what I can see in my post history. I do seem to recall mentioning it prior to breaking below $20, but I could be mistaken. It was after it had dropped below an important level and I made this tweet:

    "Amazing how prescient levels are on a binary event stock. You wouldn't think so, but check $VHC."
    - http://stocktwits.com/message/12717388

    This chart was attached:

    (click to enlarge)

    After examining the chart, and seeing that the first knife catch failed, I determined the next level of support (where I would try to catch the knife), along with the exact scenario that would need to play out for me to enter. A level is not just enough for a knife catch to work. There are also other factors that increase the probability.

    See:

    (click to enlarge)

    On March 25, 2013, when VHC was still trading at over 19. I posted that I would need to see VHC trade to my entry level (17.5) on a day when it reached there it was down more than 6%. This increases the chances of a rubberband trade vs. just continuing lower.

    A few days later, on April 1, my scenario played out. In the morning VHC dropped more than 6% to 17.50 and I was able to enter a limit order when it was around 17.46 for 17.50. My entire order was filled.

    (click to enlarge)

    I chose to include more than just my tweets because I wanted to give an idea of the sentiment on that day. Most of the people on the stream were either just pointing out that VHC was tanking again or that they were glad to be short. Negative sentiment on an already stretched name is another necessity for trying to catch a knife. If too many people are trying to play the knife catching game, then all the knife catchers will likely get cut.

    Here is what VHC looked like that day:

    (click to enlarge)

    This was the third break down. I could write a whole post on why I like to trade the third breakdowns. Or even breakdowns from key levels that everyone is watching. These are often called 2b reversals and it essentially just shakes out the bottom catchers before forming a bottom.

    A little more than a month later, I sold the position for about 31.5% gains. My initial target was 22.5, but it flew past that today, so posted an exit at 23.

    It took about 30 minutes for the order to fill, but it eventually did. I even got a tweet from someone telling me that they would continue to hold VHC.

    (click to enlarge)

    Again, I posted more than just my tweet just to give a small sample on the sentiment switch between the day I entered and today when I exited. Today it's on short squeeze screens, you see buyers and people talking about how it could fill a gap at 26 and 30.

    And the chart certainly looks like it could continue to go higher like they say. However, I made my 31%, and I happen to believe that when charts look like they have a lot of room to run, it's time to exit into the people who are actually buying that they have a lot of room to run. It's an odd concept and hard to explain exactly. Its not the warren buffetism "Buy when others are afraid and be afraid when others are greedy." It's slightly different than that. Perhaps that's a post for another day though. Here's a chart of VHC that I snapped just a bit after I sold:

    (click to enlarge)

    It certainly looks like it could continue to 27.5, but that seems greedy to me and that wasn't the trade. The trade was just a snap back from a falling knife. If I can make 30% in a little over a month on a trade, I'll take it and run. I'll leave it to the "buy on strength" crowed with their stops and risk management to see if it will continue. My game is over, I'll pass the ball onto them.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Sold VHC today (discussed in the post). Author takes no responsibility for reader's actions. Author is making no recommendations one way or another in the blog. And the post is meant for educational and entertainment purposes only.

    Tags: VHC
    May 13 2:08 PM | Link | Comment!
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