MGM - Trending Down or Healthy Pullack?

MGM - SELL



Unfortunately for MGM, despite hitting a new 52 week high, the move was not strong enough to have a clear breakout over the resistance level. Some stocks will some time manage to move a little higher but the volume is not there to support the move and as a result it retreats. For bow MGM is still in an up trend but one that has slowed down since it has now broken its 20 day MA. Keep in mind that MGM has moved up nearly +90% in just 4 and a half month from around $9.00 to nearly $17.00, so a pullback is not necessarily a bad thing. MGM being a high beta stock can have sharp declines despite still trending up like now. MGM's next major support level is at $14.00 at the 50 day MA for which MGM has been trending over since the beginning of this up trend in September. For now MGM is a SELL until we hopefully see a bounce back at the next support level which would be around $14.00. For now I believe that the market is experiencing a short term healthy pullback. I think MGM will fly high only once we get a clear break out over $17.00 in one day with heavy volume with a major price move. MGM seems now to have too much resistance around the 52 week high to just manage to move slowly above it. If MGM does break its 50 day MA, it will have broken its up trend and could go as low as $12.00-$12.30 around the 200 day MA. The long term trend now seems to continue to indicate that MGM is in a long term sideways trend until it clearly breaks heavily above $17.00. MGM has been trending in a long term side ways trend since May 2009 between around $9.00 and $17.00, with the range tightening in the last year between more towards $12.00 and $17.00. Despite this trend, MGM being a high beta stock with a lot of volatility had a lot of opportunities arising to make heavy gains. My stop loss order of MGM got obviously triggered a couple days ago and I still manage to exit my position with a nearly +20% gain. For now I am waiting to see a bounce back hopefully at $14.00 with a short term target around $17.00 which could hopefully turn into something more if it breaks this heavy resistance level. Keep in mind that MGM has strong support at $13.75-14.00 and a bounce back around this level would be an interesting and potentially good new entry point. MGM does also have minor support at $14.50 and $15.00 which I don't think will hold. Keep in mind that when MGM does give us a sign of a bottom it will most likely touch or fall below one of its major support levels before it bounces back up on the same day; this is a sign to look for. However, it is usually best to wait until the next day to see if MGM does in fact close higher before entering into a new position. For now I still like MGM a lot as a trading stock rather than a long term investment. It is much more profitable to enter and exit those short term trends, that is until it breaks heavily above $17.00. My previous MGM analysis and prediction stands, it only seems that we will have to be more patient before the break out occurs. MGM is still a stock that trades heavily based on technical and therefore makes it easier to catch trends. But we have to accept that we will not always be right. But I don't mind being wrong while still cashing in gains. That is why setting stop losses is extremely important, because you never know when the stock will start pulling back, and you want to be able to cash in at least part of what you've earned. In my case, for now, I will not sacrifice more than -8%. Even if I might get whipsawed at times, I believe that in the long term this strategy is beneficial. Ideally you want to have your stop losses to be set below major resistance level by if possibly up to -3% to -5% while not losing more than -8%; however this is easier said than done.

The Trader's Evolution - 11 - The Unfeasible Dream

11 – The Unfeasible Dream

When you start trading, probably dreaming of becoming an overnight millionaire you are often led to hunt for very speculative penny stocks you hope to one day see jump +1000% or more in one day. When you start out trading, be assured that you will be probably doing your first mistake on your first trade. Keep in mind that most traders don’t start making money after starting their 3^rd year. A lot of people will do the mistake of not looking for the right brokerage firm and pay very expensive commissions unnecessarily. Most new traders will start with very little capital as they can either not afford to invest more or are simply scared of losing too much money. Let’s set the record straight, you are most likely going to lose whatever money you decide to initially invest.

The Trader's Evolution - 10 - Accept the Fact that you were Wrong

10 – Accept the Fact that you were Wrong

One of the hardest things to do during the first 2 years is to accept that you will be wrong sometimes, and you’ll be wrong more often than you’ll be right. Most successful traders have more losing trades than winning trades. However, winning trades usually come with heavy gains and losing trades with minor losses and thus as a result traders make profits. Some people tell themselves that as long as they don’t sell their stock they haven’t lost anything. If they do have the chance of seeing their stock actually bounce back up, they will usually sell at a point where they will be at par with their losses. Many times the stock will actually continue its increase and you will then start having regrets and tell yourself that you should have kept the stock as you could have end up with a profit. But more often than none you may just find yourself holding on to a losing stock that may never recuperate from its losses.

“Do not try to correct your mistakes. Accept the fact that you did a mistake, that you were wrong, and then move on.”

It is too late now to correct your mistakes; there will be other opportunities in the future that may lead you to better and bigger things. One strong advice is for you to stop feeling bad about your past mistakes and remove the words “should” and “could” from your vocabulary. People who buy stocks and hold on to them as they lose more and more money are doing what we call “Buy and Hope.” You may have heard of the famous investors’ phrase of “Buy and Hold”; but keep in mind that you should only “Buy and Hold” when your stocks are moving up. Think about it, if you buy a stock and it starts moving up and doing exactly what you want, why shouldn’t you “Buy and Hold”? There is no logic in “Buy and Hope” as you’re stock is doing exactly what you don’t want by making you lose money, and that is why you should cut it off the moment you incur a loss of ideally no more than -8.00%.

The Trader's Evolution - 9 - Discipline Eliminates Stress

9 – Discipline Eliminates Stress

If you want to have success in the stock market you have to learn to invest while not being scared to trade, as well as not being afraid to invest rather than over trade. You have to find a balance between being an investor and a trader. An investor can be considered someone that does very few trades a year and may even hold on to a stock for many years before deciding to sell. A trader can be considered someone that does many trades a year and never hold on to any stock. So should you be a trader or an investor? The best would be to be both or what we call a swing-trader. If you trade too much you’re not giving your stock enough chances to move up, while if you invest and hold on too long to a stock you’re giving it all the chances to go down. A swing-trader is a trader who will follow trends. As long as its stock is moving up, you hold on to the stock. The moment the trend shifts down, you sell the stock and hopefully cash in a profit. The purpose is not to make many small profitable trades but rather to try to do a few a big profitable trades. Most successful traders have more losing trades then winning trades. The key is to cut your losses while holding on to your stocks as long as they move up without risking too much of what you’ve already earned. Basically you have to learn to be disciplined, and not let your emotions take control of your actions. Building discipline takes time and is the hardest thing to do for new traders, and this is why it usually takes about 3 years before a trader can start making profits, because we lack discipline. Unfortunately greed takes over our discipline and it’s only by consistently losing money initially that we learn to become discipline and not let our emotions of fear and greed take control. Fear and greed creates stress. Even when things are going your way, by having no set plan, you will always fear of losing what gains you have and become greedy in the hopes of making more. When you are making losses, you end up holding on to that stock which ends up making you lose even more money. You will have a hard time sleeping if you know that you can wake up at any moment and find yourself down heavily. Creating a disciplined strategy is what will allow you to remove your stress.

“The source of stress is everything that is uncertain and unknown to us; outcomes in which we can’t predict.”

That is why after experiencing those emotions and this stress, I decided to create a trading system in which I would be able to know and prepare myself for any possible foreseeable events.

“Trading is not about predicting the future; it’s about being prepared and foreseeing every possible future scenario by knowing how to react in the occurrence of any event.”

To trade successfully you must not find yourself in a situation where you will have to think in the moment to make a decision.

“The moment you have to start thinking is when you will start having problems and as a result cause you to have stress. Everything must be calculated and decisions have to be pre-determined, always.”

The beauty of stock trading is that you can place orders that will be triggered in any event you might foresee. You’re decisions on when to sell or buy more stocks have to be decided before you even open your position. When you start making heavy gains you must not be foolish enough to lose all you have gained. Trading in stocks comes initially with risk but if you know how to manage your trades they can become almost risk-free investments. You must not be greedy because if you hold on to a loss, you are driving yourself to a quick and fatal end.

The Trader's Evolution - 8 - Paying Low Commissions is the Key to Success

8 - Paying Low Commissions is the Key to Success

Your number one need is to find a brokerage firm with the lowest possible commissions that can offer you the best service. Paying low commissions is the key to success; lowering your costs, increases your profit. During my first year of trading when I was paying $28.95 commissions per trade I had calculated at the end of that year that 70% of my losses came from commissions. This shows how critical it is to pay low commissions. Ideally your commissions per trade should be lower than 1.00% of your investment. Commissions between $5.00 and $10.00 should be considered fair. However, be careful that some brokerage firms may charge ECN (Exchange Commission Network) fees or SEC (Securities Exchange Fees). ECN fees may get charged on both Canadian & US markets. Basically this is a fee charged when you remove liquidity from the market. Market orders will often trigger ECN fees because you are going against the market’s purpose of functioning like an auction. When you place a market order whether to buy or sell, you simply accept to pay or sell at the best price available. Placing limit orders are best to avoid ECN fees. However, if you place a Limit order within the bid/ask spread or if your order is filled within a few minutes, you will most likely be charged ECN fees. ECN fees are usually around a quarter of a penny per share. This may seem meaningless to even bother to mention ECN fees when you hold only 100 shares of a $50 stock. However if you hold 10000 shares of $0.50 penny stock you can end up paying very hefty commissions. Assuming you pay $5.00 commissions per trade and ECN fees are $0.003 per share, you would get charged 10000x$0.003= $30.00 ECN fee+ $5.00 commission. You would end up paying much higher commissions than you would with a bank since bank usually only charge a high commission without ECN fees. ECN fees will usually be charged if orders are executed within the first few minutes of market opening (9:30 am – 9:35 am). ECN fees will always be charged on AON (All or None Orders), on illiquid stocks (penny stocks), and orders filled during extended hours (pre-market and after-hours). To avoid any ECN fees, your brokerage firm may allow you to place MGND (Managed) orders handled by a market maker rather than a direct access order. Please note than MGND orders are the only type of orders than can be placed with banks as your trade order may not always go directly into the market if the bank has shares in its inventory and it considers it more profitable for them to sell you their shares. Managed orders are slower to get filled and this may cause you to not always get the best price available that you would get with a direct access order that goes directly into the market. ECN fees are not that meaningful unless you trade thousands of shares. SEC fees can be charged on US exchanges only when you sell or short a stock. The SEC fee is charged based on the value of the trade rather than the amount of shares. For example, if SEC fees are $0.0000169 and you sell 100 shares of a US stock at $30.00 you will incur a $0.0507 fee (100x$30.00= $3000.00x$0.0000169). When selecting a brokerage firm you must be careful that they won’t charge you any type of fees, such as quarter fees for not maintaining a certain balance in your account. The next thing you’ll need to know how to figure out is how to transfer funds between your brokerage account and your bank account. If you are trading with the bank, your funds will usually be directly accessible at any time. If you trade with an independent brokerage account you will be able to do EFT (electronic fund transfers) which can take up to 5 business days to clear and arrive in your account. If you are Canadian, you can do EFTs in and out of your bank account easily in Canadian funds. However, if you are trading US stocks and want to send US funds from your US bank account (Canadian based) to your brokerage account you will have to set-up PAD (Pre-authorized deposit) agreement which will grant permission to your brokerage firm to transfer US funds to your brokerage account when you instruct them to do so. Some brokerage firm will set a limit on the minimum amount of funds you can transfer. Also it can take up to 10 business days for the funds to clear. Keep in mind that you can still do EFT from your brokerage account to your US account (Canadian Based). Up until recently banks use to force Canadian traders investing in US stocks to always exchange back their funds into Canadian dollars after they sold their stock. This made it practically impossible to make profits with US stocks because not only would you be paying commissions in the exchange rate, the Canadian dollar has historically been positively correlated with the US market. What this means is that when your US stocks are going up and you sell them at a profit, the Canadian dollar has more often than none gone up. This made it very hard to make a net gain in Canadian dollars after being always forced to exchange your funds the moment you sell your US stock. Thankfully, times have changed and now most brokerage firms (including banks) allow you to keep the US funds and exchange it when you want and when it is most profitable for you rather than for the bank.

The Trader's Evolution - 7 – Opening your Brokerage Account

7 – Opening your Brokerage Account

Before you start trading you need to first open a brokerage account. When you trade stocks you can open a cash or margin account. When you start trading opening a cash account is the best option as it will force you to manage your trades with the amount of money you actually have. Basically as long as you are taking long positions you won’t be able to lose more money than you have. After you gain more experience and build a discipline, a margin account can be very convenient. Basically your brokerage firm will usually allow you to borrow up to three times the amount of funds you have. This allows you to invest more money than you have and thus allow buying some stocks for which you see a good opportunity even if you don’t currently have the funds available. Obviously you will pay a little interest, but if you end up making a good profit with the stock, the interest should just be considered as a small tax for the gains this allowed you to make. A new trader should completely stay away from a margin account as you can find yourself into debts if you end up making big losses with funds you borrowed.