2008 Portfolio

I rebalanced my 2008 trading accounts. Adding and withdrawing money is a headache, so I will try to minimize that process.

Swing and position trading in pit/electronic options/futures markets: $15000.00
Day and swing trading in electronic futures markets: $8744.04
Roth IRA: $4000.00
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Total portfolio: $27744.04 (as of 1/4/2008)

Trading futures options can be pain in the butt because you need to have a pit trading account, which is what my $15K account is for. I will not only trade options on that account, I will also trade longer term position trade to give more room on my electronic futures account. On my Soybeans and Soybean meal spread, I could have used the electronic account, but that will reduce my buying power for day-trading. Note that commissions are slightly higher to trade pit/electronic ($3.03 per side) account as opposed to electronic only account ($2.40-ish).

I finally opened my first Roth IRA account! If you don't have one, I highly recommend this to anyone because you can always withdraw money you funded without any penalty, but gains are not taxable if you take out after 59.5 years old. I chose to open Equities account instead of futures or Forex because nowadays you can mimic all of those using ETFs. What I will likely do is to buy a few strong companies that I really like and hold them for a long time unless a significant break happens. I have one rule though. I will never put more than 20% of my portfolio to one company for diversification. Eventually I like to have less than 10% per company.

Other than this, I'm involved with a club that utilizes pretty aggressive trading method, but I didn't include this because I don't manage it. I can voice-out a few things, but members' votes are needed before any action is taken on that shared account. Even if significant amount of my money is there, it didn't do much last year. At one point it went -10%. Gladly, it ended up a whooping 1% gain for 2007, we'll see how it turns out on 2008. I plan to give another 6 months before making a decision. I'll write about how it goes.

I may open a Forex account again but still debating between spot Forex v.s. Forex futures. They are basically non-regulated v.s. regulated, but one huge advantage of trading spot Forex is that I am able to trade exotic pairs such as EURAUD, EURJPY, AUDJPY etc (non-USD-related pairs). I did pretty well (+79%) last year on $1K account, so maybe that's what I should do.

I will also contribute more on 2008 Roth IRA, which will make my Roth IRA portfolio $8K, but not so soon.

Bond (US)

30-year Bond (US) looks pretty good right here. You would buy a pullback to 8ema at 117 anticipating to break above the recent high. The trend has been that people are expecting to cut a rate, so US is moving higher towards to FOMC, and then sell off hard after the rate cut. We will see what happens.

Lumber Monthly

Commodity is a very interesting trading vehicle because it has intrinsic value. Of course there are no intrinsic value on stock indexes or currencies etc, but when we talk about commodities that can be physically delivered have intrinsic values. Where are the intrinsic values coming from? Cost of production. There are cost of production when you produce, for example, crude oil, soybeans, cattle etc. If you were a farmer and you're raising lean hogs, you are there to many money so you will be selling your hogs more than you invested.

If you watched futures options long enough, you know premiums are skewed to call side. Why? Will orange juice ever go to zero? There's no way it'll go to zero. It might get cheaper though. It could go below cost of production. If that happens, OJ farmers will grow something else than OJ. Now there are not enough OJ farmers. What will happen is OJ price will start heading higher (remember supply / demand curve?). This cycles happen over and over again. As a trader, I would like to take advantage of it.

This is the monthly chart of Lumber. The lowest point in last 90 years is 220 level and we're now about 250 level. This is where you can start getting positioned. This doesn't mean that we should just go out and buy futures contract outright. There are a lot more about this type of trading. Unless you do your homework, you'll get hit badly, but its reward is very significant.

Gold and Oil

Gold had a huge move to upside today making all time high. Since Gold started moving from 680 level, I only caught one 10 pt move. I've been just a dick for a tick waiting for a perfect entry. The upside targets are 880 level and 907 level. At this point, I would wait for a pullback to 840 level which is 8 EMA.

Curde oil finally hit $100 today. If you have been watching gold and oil long enough, they tend to follow each other. Why? Rising oil indicates inflation and inflation means our currency is dropping and gold is appreciating. Just like gold, 127% is a slam dunk and will likely test 161% fibb level. The perfect entry would be 97 level.

Soybean / Soymeal Spread

I finally entered Soybean / Soymeal spread trade.

Short Mar Soybeans (SH08) at 1236.25
Long Mar Soybean Meal (SMH08) at 343.9

Since this is a long term position, I used market orders for both. A bad mistake. Slippage kicked in and I got filled almost at the bottom on Soybeans. In fact I placed an order to buy SM first, but got filled on S. I guess whenever you use market orders, someone knows and takes advantage of it. Lessons learned.

Anyway, the spread between S and SM is about $15000, but now it's $27500!!! The profit would likely come when S drops. If that happens it'll happen pretty quickly. Today My drawdown went as high as -$750 (what a way to start 2008) this morning since all the grains are screaming higher and this is a long term trade until it realizes at least $5-10K gain.

Update (on 2/20/08):
I rolled over to May contract by doing to following:
Bought March S at 1391.50
Sold March SM at 360.2

Sold May S at 1409.4
Bought May SM at 367.5

2007 Profit / Loss

Forex: +789.59 (+79% on $1000 account)
Stock options: -1584.16 (-31.7% on $5000 account)
Futures (day-trading, swing-trading and futures options): +15700.9 (+242% on $6500 account)

Total Trading P&L: +14906.26 (+119% gain on $12500 portfolio)

Trading related expense (internet, newsletter, exchange fees, webinar etc): -3317.83
Consulting: +1184.64

Net P/L: +12773.1

The Best and The Worst Trade of 2007

The best trade of 2007, yet the best trade I've ever had, came from Wheat and Soybeans spread. Spread is also a fact based strategy. Many successful floor traders are either scalper playing between bid and ask or spreaders. For this trade, I waited and waited for the price to come down. It went against me about $700, but turned out $7K trade per contract for the course of 2 weeks.

The worst trade of 2007 came on FOMC day, Sept 18. Interesting enough, it was not from swing trading, rather day-trading. When everybody was expecting a quarter point cut, Fed came out and cut a half point! At that time I was not even watching CNBC. I knew the fed announcement would come out, but my fading level was high enough (about 250 YM pts away) that I thought I'd be okay to fade. Wrong. Do you see a reg flag there? I set 20pts stop on 3 lots. Worst yet, the slippage kicked in and got me stopped out for 47pts for 3 lots. I normally use 20 pts stop on day trading max, but 47pts did hurt me quite a bit.