Risky!

Well, the past few days have been pretty interesting here in trading land. I took a step back, looked at my trading strategy, and finally realized that I have gotten away from the trading strategies that had brought me solid returns over the past few months. My goal is to trade with more of a swing-trader mentality, buying stocks and look like they would move over the next few days and sell with a decent profit. What I have been doing, however, is holding stocks too long. I have limited capital that I am trying to build with so holding on to stocks that are doing nothing is putting a serious damper on my gains, and I've watched a lot of opportunities pass me by because I have been tied up in non-performing positions. Yesterday I finally decided that enough is enough. I liquidated all positions and started looking. I've been learning a ton from YngvaiMalmsteve, noobtrader08, Muddy, Tim Sykes, and some other in the GOTM chatroom and this is what I really need to concentrate on. Unfortunately learning in this industry costs cold hard bucks because mistakes result in lost capital.

Anyway, on to my trade for today. For some reason FNM has caught my eye the past few days, but I've tried to stay away because of the volatility associated with 1.) a financial stock in this market, 2.) the fact that they were recently taken over by the government, and 3.) the bailout talks that have been going on. I woke up this morning and made a conscious decision, after much thinking the past few days, that the stock still has a lot higher to go because once the bailout gets annouced (which I think that it will soon) then investors will come flocking back. I purchased 500 shares at $1.99 pre-market. The stock shot up to $2.75 over the course of the day and I would have sold but I was with a client in Iowa and had limited access to the market and only had a few chances to check the price. This is always risky in case it starts to tank, especially after so many days on the rise. It did end up tanking, all the way down to $1.09 in fact (SCARY!!!) and I decided to buy more at the discounted rate. I was hoping to get back in around $1.40 or so but it shot up so fast that by the time I submitted the trade for another 500 shares on my PDA it didn't fill until $1.87! Not because of a slow fill, but simply because in the amount of time it took me to type in the trade it had jumped $0.40! Now that is some volatility. So now I'm sitting on 1000 shares of FNM with an average price of around $1.94 or so. It rattled around for a bit for the rest of the day and finished at around my average fill price. This is fine with me because I'm counting on the fact that when the bailout finally gets announced it will restore faith in the company and the price will rise. Now my rationale here could be really smart or REALLLLLY dumb. I have almost my entire account riding on a highly volatile financial stock whose future price is highly dependent on this hugely unpopular bailout. This doesn't sound very smart to me. However I don't think that the government will shy away from the bailout no matter how unpopular it is (think Iraq?) and that it is going to come, and once this happens FNM should do just fine. There also seemed to be a lot of activity in the options market today for FNM with long calls ranging from $2.50 all the way to $7.00 for October. This is telling me that people are reasonably bullish on the stock in the near term. After-market trading, however, took the price down to $1.60, which hurts and gets me a bit worried. I know that after-market trading losses could be turned around in minutes once the market opens the next morning but it's just a bit discomforting to see the stock tank 15% with so much on the line. I do feel strongly that the stock will hit $5 in the near term but if the stock starts to tank tomorrow morning it's going to put me in a nasty position. I'm definitely going out on a limb with this one but on risk = no reward, right? I'll post again tomorrow and let's hope that it's a happy one!