It’s been a rough week for the market. The DOW ended the week below where it started at the beginning of the year. It was the worst week the market has seen in some time. This week was also the week I decided to expand my account to a margin account. A margin account allows you to borrow money from your brokerage and trade with it, and keep the profits after you pay the brokerage fees. Read my full margin review here. The end of the week had President Trump fire the opening shots of a trade war, we will consider those impacts at the end.
In The Margin
The process was fairly simple, in my E*Trade brokerage I requested that my account by upgraded. The application was all online and it was approved within a day. E*Trade will loan you up to the value of your account, so I received about $20,000, available on loan or in margin. I took a few hours off of work on 3/19 and 3/20 to try some large day trades. Here they are:
I tuned into the trade-ideas.com webinar for some ideas. They have a free webinar with an excellent day trader telling you his every move for free! That concept sounds familiar…
Bought 105 shares of MFGP for $14.44 each, total cost $1,523.15
Sold the same shares for $14.78 each, total sale $1,544.90. Profit of $21.75, 1.4%
Bought 360 shares of GERN for $4.16 each, total cost $1,503.29
Sold the same shares for $4.15 each, total sale $1,486.39. Loss of $16.90, 1.1%
This was my first real attempt at actively engaged day trading and it worked! I actually turned a profit and stuck to the rules of getting out of a losing trade quickly. While I have not completely figured out the best way to pick a stock, Trade-ideas.com offers some great insight and it’s completely free! I have begun listening in, even when I don’t have time to trade. It is very educational and informative if you want to know how day traders actually make their selections.
Sold all 33,000 shares of HEMP that I had held for several months for $0.02 each, total sale was $687.40. This stock had not produced much profit and while it may be a good one in the long term, my goals are short term right now. More on that in a moment.
Bought 118 shares of KTOS for $10.11 each, total cost $1,197.47
Sold the same share for $10.05 each, total sale of $1,180.91. A loss of $16.56, 1.3%
Bought 162 shares of AMD for $11.10 each, total cost $1,806.13
Sold the same share for $11.22 each, total sale $1,812.62. A profit of $9.49, 0.5%
While I didn’t make a profit, I did manage to make a profitable trade. One lesson I heard before beginning any day trading was, you have to learn to lose before you can turn a profit. I understand now that the idea is to limit your losses and not chase things down a rabbit hole. Be a surfer, not a salmon. Surfers ride the waves and don’t question where they come from and why they happen. Surfers recognize the wave when it arrives and ride it for a limited amount of time to get what they want. Salmon swim against the stream sometimes get eaten alive trying to get back a few more inches. While many do still make it where they are going, it is a lot of work to get there. As a trader you want to be a surfer.
True day trades, bought and sold on the same day, are restricted by the FINRA, or Federal Industry Regulatory Authority. You can only conduct 3 per 5 business days if your account is less than $25,000. This is to prevent people from losing their entire life savings by wildly trading in the market. The next level up is called Swing Trading.
Day Trade: Position bought and sold on the same calendar day
Swing Trade: Position held at least overnight, up to several weeks, typically less than a month.
My focus is now on swing trading. I will use the margin account to leverage my skills and knowledge in an attempt to grow my account to $40,000. $25,000 as the day trader minimum. $10,000 for a cushion to allow me to have some losing days with dropping beneath the $25k minimum. $5,000 for a new computer and home office setup. Once this level is reached, I will transition to a full time day trader. Don’t worry, I’ll always be a night blogger!
MU was scheduled to release its earning report the next day. Every analysis was predicting great things, every indication was that the company would have positive news, so I increased my position with an additional 57 shares for $61.20 each, total cost $3,493.20.
The next day everyone was right! MU was more profitable than ever! The outlook was great as demand for their products was increasing, driving up prices and profits!! The stock plummeted! Dropping like a rock after a great report. What caused this?!?! I should be rich right now! The simple fact is there were more sellers than buyers. The laws of supply and demand are always on in the market. Sometimes when large institutions buy or sell lots of stock it will have serious impacts on the price for a short period. This is one reason the market is not for the faint of heart. My best guess was that a larger player was taking profits.
My Next Moves:
I decided to do an industry double down. WDC is a competing firm of MU. Both manufacture and produce microchips that are essential parts of our cloud storage and computing abilities. Demand is rising and supply is struggling to keep up. That means the price will rise; remember supply and demand!
Bought 50 shares for $101.90 each, total cost $5,099.95
I saw the price drop and then begin to rally. I decided to make a quick day trade, too.
Bought 50 additional shares of WDC for $101.15 each, total cost $5,062.45
Sold those 50 shares for $101.23 each, total sale $5,056.42. A loss of $6.03, 0.1%
Even though I did sell at a higher price than I bought in at, it was not a big enough gain to overcome the brokerage fees.
TSLA had fallen to near its year low after news of more production delays. Analysis always predicts doom and gloom but customers are not canceling orders. As long as the demand stays strong I believe this is a good stock, this was a buying opportunity.
Bought 16 shares of TSLA for $310.61 each, total cost $4,974.79
Final Margin Notes
I exceeded 30 trades per quarter in my E*Trade account, and they now charge only $4.95 per trade, down from $6.95. This is in line with the lowest prices I have seen advertised. E*Trade is not the most highly recommended brokerage out there but right now it has everything I need. For these larger trades I prefer using a desktop and Robinhood is only available on the smartphone app right now.
On Friday 3/23 I made my typical contribution of $50.
E*Trade IRA Summary
I had a little bit of cash in that account. Seeing that the market was having a rough week I wanted to get more mutual fund shares as cheaply as possible.
3/21 Bought 1.906 share of PRGFX for $67.63 each, total cost $128.90
3/22 Recived a dividend of $5.00 from the MJ ETF
3/23 Contributed $105 to the account.
3/19 Bought 1 share of TSLA for $317.43. In hindsight I should have waited to buy this, but I believe the price will rebound within a few weeks.
3/20 Bought 20 shares of AMD for $11.17 each. This stock tends to be fairly volitile, I hope to be able to sell it above $12 within a week or two
The Trade War
I took Friday off of my day job and was hoping to make some more day trades. The President had other plans; the day prior he announced $60 billion in new tariffs with our largest trading partner, China. This announcement rattled the markets sending them into a tailspin. I decided to sit the day out and not go swimming with the sharks.
A few notes on the trade war. First, there are hardly ever winners in any war, typically all sides suffer. Second, President Trump is more predictable than some people think, at least in terms of his negotiations. The $60 billion in new tariffs was an opening of negotiations. In the past, Presidents have negotiated these deals quietly out of the public eye and announced the final agreement once it was hashed out.
Our current President is a showman, he enjoys making a scene and being the center of attention so long as its on his terms. Announcing new tariffs is not necessarily a bad thing. China does need to be reigned in, and previous administrations have failed to produce any real results. However, signing a law into effect as part of a negotiation fails to provide certainty to the US markets as well as the Chinese. Imagine you were playing a game and half way through the referee decides to change the rules. That means you need to suddenly change your strategy, maybe even your team. American businesses are extremely resilient. When handed a set a of rules they will find a way to be profitable. Changing those rules constantly causes unnecessary pain and limits business investment in their future since they are unsure how they need to invest.
Ending a trade war is not easy, much like it is not easy to end a real war. The wars in the middle east have been raging for 17 years with no end in site. President Bush (W) declared “victory” in Iraq in 2003 but the war still continues today. With any war, it is over when both sides say it’s over. Both sides always get a vote.