.  It  lost  140 points over the weekend  from  itsclose on Friday.  This was a warning sign for me, a reminder that a big partof risk management is to plan  for the worst.  I have traded MSTR in the past,so I was familiar with the slock.  In fact, I remembered at least one incidentwhen I held the stock overnight in the past, and when something like thishappens to a stock you carried in  the past, you realize the danger you were inand  the  risk  you  were  taking.  I  took  this  incident  as  a  warning  sign  as  I  waslooking to make my first trade.
I was monitoring my six candidates and none of them triggered the setup 1was  looking for.  Some gapped up and  traded down,  while some gappeddown below the support levels which I wanted to buy them at.  It was  be-coming a very frustrating day.  The indexes were trading in opposite direc-tions.  While  the Dow was  up  85  points,  the NASDAQ  was down  179  points.
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I was very disappointed that I didn't pull the trigger on any of the trades Ihad planned for today,  I felt as if I was a bride who spent the last twelvemonths planning a wedding, but then didn't have the nerve to show up.  Andyou, my friends, are the guests who have been invited to the wedding only tofind  out that there will be no ceremony.  I am sure you are just as disap-pointed as I am; however, disappointments are delivered by Wall Street on adaily basis.  It is a part of the job.  Although I did not execute any trades to-day, I realized, how important were the lessons learned on the first day of thechallenge.
CHAPTER 
i)
FOMC  Meeting
DAY TWO
Tuesday,  March  21,  2000
The story of the day is the FOMC meeting in which a possible change inmonetary policy might take place.  Recent economic numbers suggested thatthe Fed might raise interest rates at this meeting in an attempt to battle theinflationary threat.  While the market often seems to disregard these threats,Alan Greenspan has made ominous warnings about the current economicsituation.  Most of us are expecting the Fed to raise interest rates today, andthe only question is, by how much?  Since there was added risk to tradingtoday, I didn't make any trading plans for stocks I studied overnight.  Mystrategy today is to sit tight and watch.  I call it the sniper strategy, where Isit patiently,  observing the movement of the market and specific stocks, andthen when I have a clear shot, I will take it.
I got up at 4:45 AM Pacific Standard Time, and I rebooted my machine.  Itry to reboot my machine every morning before the market opens  in order toftclean it out."  Since I didn't have any trading plans from my overnight re-search, I was going to use my intraday scanning software and my Constantwatch list to generate potential trades.  The news from the Fed that we are allwaiting for will not be released until 2:15 PM EST, so there is plenty of timeto trade until then.
I was waiting for a high percentage setup.  I wanted the first trade to be awinner in order to build some confidence and set a positive tone for theweeks ahead.  I was up for four hours already, and I finally saw a setup that Iliked.
As  you can see  in  the chart, MU  ran up  from  127  1/2  back up  to  130  1/4,then  pulled back to  129  1/8  around  12:05.  The stock was gaining momen-tum and volume  increased.  1 bought  100 shares at  130.  My price target was133  1/2 -  135.  I placed my stop loss at  128 7/8, which is the price level be-low  the  129  1/8  lows  set at  12:05  PM,
1  had  MU on my watch  list because it made a  52-week high around  1:30  theprevious clay.  I was watching the action on the stock very carefully.  Yester-day,  3/20/00,  MU  traded  in  a  range  between  139  3/4 and  127  1/2.  The  stockopened for trading at  129  1/8 and traded down to  127  1/2.  At this pricelevel, the slock found support, and it turned back up and traded all the way tc139 3/4, which was the a ll  time high for the stock.  MU then traded downand  closed  at  133  1/2.
Today,  it gapped up and opened at  137.  It traded as high as  138 before sell-ing off.  The stock traded down  and  hit  127  1/2 at  1 i:30.  The same pricelevel that held the previous day, held again today and the stock started mov-ing up in  price.  I  followed  it up  very closely and was ready to enter an order.
MU traded up to  131  1/2.  I was very nervous the entire time I was in thetrade because  the  Dow  broke  through  the  low  of the day around  12:18,  and  itlost 68 points from that point on.  The Dow then rallied 68 points, but MUwas  flat.  The  Dow  turned  back down  again,  and  MU  looked  weak.  I  sold100 shares at  131  1/8 and  locked in my profit.
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The  chart,  on  the  previous  page, shows  the overlay of the Dow vs.  MU.  No-tice the divergence from  12:13  to  12:22.  MU was going up while the Dowwas going down.  Notice the rally on the Dow from  12:22  to  12:25  whileMU was  flat.  Then the Dow broke down  again at  12:27 which is just aboutthe time I pulled the trigger on the sell order.  MU followed the Dow thistime.  It is important to follow the indexes when sitting in a trade.
I  will  use  the  following  trade  record  table  throughout  the  book, so  we  cankeep track of the performance.  The six fields in the table are:
Source - How did I  find  (he trade.Investment  -  The  total  dollar  amount  I  put  into  the  trade.Proceeds - The total  dollar amount received when  I closed the position,MIJT - The total  commission cost charged  by MB  Trading  for the  trade.P£L - The net  dollar amount I  made or lost on  the  trade after commissions
and  fees.
Return  - The percentage return on  the money I had at risk.
Trade  Record
Source 
Investment 
Proceeds 
Watch  List  1 
13,000.00 
13J  12.50 
MBT 
10.42 
P&L 
102.06 
Return
0.78%
I was happy to get the first trade out of the way.  It was no home run, but the100 bucks or so I made on this trade helped rny confidence.  I truly felt as if Ihad never traded before this  MU trade look place, and I was so excited as ifthese were the first profits  I ever took out of the market.
I was watching my intraday scan, looking for an opportunity.  This is when Ifound CLRN.  The stock showed up on my Power Scan.  I have included adescription of how each one of my real-time scans  is  used  in Appendix D.
CLRN pulled back from  178 3/4 to  1 1 1,  It was in the process of a ReversalDay, and  it was  taking out the previous day's  high.  A  Reversal  Day takesplace when a stock opens for trading at a certain price, then trades signifi-cantly lower.  Buyers step  in to buy the stock, and the stock trades up to itsopening price and starts breaking out to new intraday highs.  The followingchart illustrates a Reversal Day.  You would normally see higher than aver-age volume on  Reversal  Days as traders  like the strength  the stock is show-ing.
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CLRN was showing strength.  It took out the high of the previous day andbroke out to an inlraday high.  I  bought  100 shares at  129 at  1:15 or so.  Theprice target I had  in mind was  140, which was the top three days ago.  Iplaced a stop  loss  at  126  3/8,  which  was just  below the  tops  made at  126  3/4around  12:55.
CLRN was very strong, and  it  took  the  130 level out.  It was now trading at135.  I moved  my stop  loss up to  133.  I  was  looking for five more points onthe upside, but I wasn't w i l l i ng to risk more than two points.  I was also wor-ried about a couple of things:
1.  The stock has run up from  11 I  to  135.  There is always a possibility of a
sharp  pullback  after a  move  like  that.
2.  The  Fed  will  announce  their  decision  within  the  next  45  minutes.
CLRN  pulled back  from  135  and  was now  trading at  133.  I executed  mytrailing stop and sold  100  shares  at  133.  The stock would go  as  low  as  130and then run  back up  to  140,  after the  Fed  made  the  announcement;  however,1  followed my strategy and  sold once  the stock hit  133.  These are  the  rulesof discipline.
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As  I closed my position  in CLRN,  I  noticed  that RSLC might have  found
some support.  If you  remember,  RSLC was  on my watch  list  for a  potentialtrade  yesterday.
What  I liked about this setup was that the stock made two bottoms at 21  3/4.The stock  was  trading at 22  and  if a bounce was to take place,  RSLC couldgo  up  to 23  3/4  -  26 3/4.  I  thought this setup presented me with a great risk/reward  trade,  My plan  was  to buy 300 shares at 22  1/16.  I would place astop  loss at 21  5/8, which  is  1/8  below the  low of the day.  I will  be risking7/16  of a  point trying to capture  13/4-4  3/4  in  reward.  The  fact that the21  3/4 price  level held  twice was very encouraging, so I bought 300 RSLC at22  1/6.  I placed my stop loss at 21  5/8, and I held it into the announcementof the  Fed.
The moment we have been waiting for all day was near.  Finally, the Fed an-nounced 0.25% rate hike in both the federal  funds and discount rate.  This isexactly what everyone expected,  so  there were no adverse surprises.  Partytime!
The i n i t i al reaction to the announcement was the predictable panic selling.  Iwas watching RMBS  free  falling.  The stock was trading at 293 prior to theannouncement,  and  now  it was down to  275.  The stock dropped as  low as269 before bouncing back in a violent way.
I expected  the stock  to bounce at 270, which was the previous  low  set at12:30  PM, but there was no way I was going to  try and catch a  falling knife.I  wanted  to see  it bouncing  first.  The problem  is that when  almost any vola-tile momentum stock, like RMBS, trades, supply and demand are prettymuch  one  sided.  There  are  either a  lot of sellers  or a  lot of buyers.  When  theshift from panic selling to buying frenzy takes place, the price swing is veryviolent.  When RMBS  started bouncing at 269,  the offer instantly jumped di-rectly to 271  1/4.1 then  entered my buy order;  however, there was no way Iwas going to get a fill at that price, because the stock was already printing274  on  the ticker.  Momentum  traders were sending SelcctNet Preference or-ders to  Market Makers and  ECNs at higher prices out-of-markct to guaranteethemselves a  fill.  I was  forced to do the same thing.  I entered a buy orderfor  100  shares  of RMBS  at 275  on  the  Island  ECN.  There  was  a  seller on  Is-land  at 275  and our orders  were  crossed  and  executed  immediately.  Myprice  target was  285  -  288.  I  was  in  the  trade  for four minutes  as RMBS  hitthe  price  target of 285.  It started  to  show  some  weakness,  so  I  entered  a sellorder.  I was  out at 283  1/4.
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Once  the  initial  reaction  to  the  Fed's  announcement was  over and  buyersstepped in, the market gained momentum and traded higher.  At this point, Iwas monitoring my Constant watch list for buying opportunities.  I was alsowatching the candidates which my scanning software was generating.
MRVC came up on  my Pullback Swing Trade Scan,  and  it was just about tomake an attempt at breaking out through resistance at 112 to make a new in-traday high.  At the same time, I was following CIEN, which resides on myConstant watch list.  It was forming an ascending triangle and was also justabout to possibly penetrate through resistance and move higher.
CIEN also broke out to a new daily high  over  138.  I had  better success en-tering this trade at a price close enough to the breakout.  I bought  100 sharesat  138  1/2.  My price target was  144 3/4 -  149, which was resistance for thestock a few days back.  My stop  loss was placed at  136 3/4, which was  1/2  apoint below the lower Ircndline of the ascending triangle.
MRVC broke out over the 112 resistance level.  I entered a buy order onARCA  for 200 shares  at  113  1/2.  I  didn't  get  a  fill  because  the stock wasrunning  up  fast.  It was printing  114  3/4.  I  cancelled  my  order  and sent an-other order to buy 200 shares at  115 on  Island.  I got a fill for  100 shares andthe rest of my order was cancelled  for the reason that it would have locked orcrossed  the  market,  If there is no one selling at the price that you enter a buyorder on an ECN, and the price is higher than the inside offer,  the order getscancelled, because you cannot bid  for a stock at a higher price than the bestoffer.  This is a NASDAQ rule, so the order will be kicked back in these sce-narios.  Since I wanted another 100 shares, I sent another order to buy 100shares on Island at  115.  My order was cancelled again.  I sent the same or-der a  few  times  more  and  finally there  was  a seller at  114  15/16,  and  I  got afill. My price target was somewhere between  122 -  126, which were resis-tance levels from the previous two trading days.  I placed my stop loss at1 11 3/4, which was below the 112 level.  Unfortunately, I didn't have thebest entry on  the trade.  I tried to buy it at  113  1/2 and missed it; however, Ihad to manage my position as if I did buy it at  113  1/2, because the logicalstop  loss would be at  111  3/4.  This, of course,  is a lot easier said than done.
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CIEN traded as high as 143 3/16 before pulling back.  I had a mental trailinga stop behind the stock.  When it hit  143, it was  1  3/4 away from my pricetarget.  At this point  I raised my stop  loss  to  141  3/4.  CIEN turned  aroundand traded at  141  3/4, activating my stop loss, but I didn't get executed until140  1/2, as the stock fell down  fast.  This  is a good reminder that you can al-ways  lose more than  you  anticipate even  if you  have a stop  loss in place.  Noone knows where their order will finally get executed.  In fact, I have heardof, and seen, horrifying incidents in which stocks were in a total free fall.There was this one stock, ONSL, that was trading at  104.  Many of the trad-ers in the stock had their stop loss at 99 7/8, 99 3/4, 99  1/8 etc., which wasjust under 100.  The stock broke through  100 and fell sharply,  It dropped allthe way down  to 44  in a  matter of 14  minutes.  Traders who had stop  lossesat 99 and above were  executed at 50!  Another incident was with QCOM  latein  1999.  The stock opened  for trading at 740 and went down to 639 within24 minutes.  That was  more  than  a  100 point move  in  24  minutes.  Tradeswere executing at 30 points below best bid.  I  had to go out of market almost20 points  myself to get out of QCOM  at 720  15/16, right at the open.  It  isextremely important to understand that a stop loss order doesn't necessarilymean that you will get out of your position once the stock triggers the stopprice.
I had two open positions left which I liked for a possible overnight hold:RSLC and MRVC.  RSLC was not doing much.  On the other hand, MRVCwas approaching the price target of 122.
The stock hit 121  and pulled back, I really thought that MRVC could gomuch higher the next day, so I was trying to give it some wiggle room.  Thestock went down to  119  1/2,  so I sold  100 shares.  I wanted to lock in someprofit and  give  the rest of my position a chance;  however, the stock wentdown to  118, which was the trigger of the stop loss on the remainder of theposition, so I sold the last  100 shares at  118.
The final bell rang and the second day of the challenge was now officiallyover.  The Nasdaq was up  101  points from yesterday*s close.  It was a greatday for the bulls.  The driving force behind the rise in stock prices was thecompletion of the FOMC  meeting, and the announcement that followedshortly after.  I felt very good about my trading, and a potential upward biasfor the next few days.  However, I did not want to take a big overnight risk.
Open  positions:  300  Shares  of RSLCTotal  profit  for  3/21/00:  $2,470.11
While I was in both MRVC and CIEN, YHOO showed up on my PowerScan.  The stock was racing up as it just broke out over 188.
I bought  100 shares at  189 31/32.  My price target was  195.  I placed a stoploss at  187 3/4.  The stock went up as high as  193  1/4.  I noticed that thestock could fall hard if things were to turn around, so I sold on the first signof weakness.  I sold  100 shares at  192  1/2.
CHAPTER 6
Working  on  My  Golf Swing
DAY THREE
Wednesday, March 22, 2000
The market gapped up at  the open and  pulled back.  I was watching bothMRVC, which opened at  125  (I knew  I  should have given it a chance), andCIEN, which opened at  141.  I had both  these stocks on my watch  list, be-cause  I  traded  them yesterday.
CIEN  took  out  its  morning  high,  after a  very early bounce,  and  I  bought100  shares  at  142.  What  happened  next  was  a classic  breakout play,  Thestock pulled back,  and  I  dumped  it at  140  1/2  for a  loss,  This  is  one of theproblems of trading a breakout.  More often  than not,  the stock will pullback and  stop  you out.  The solution  is  to  try and  buy the pullback or givethe stock more wiggle.  In hindsight,  if I placed my stop loss at  138  1/8,which  was just  below  today's  low,  I  would  have  been  very fortunate,  sinceit ended  the day much  higher.  Nevertheless,  a point and  a half was  all  Iwas willing  to  lose on  this  trade.
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I just took my first loss  in  this challenge.  It is  important to put losses behindyou  quickly and  to  be  ready for the next opportunity.  I  was  now in  mysniper position  and  my  target  was  MRVC.  I  was  waiting  for the  right  time  tolake  my shot.
The stock went up  to  124  3/8  and pulled  back a little.  There  were a  lot ofbuyers at  124 -  124 5/16.  All of a sudden, the Dow broke through the low ofthe day and sellers showed up on MRVC.  I sold  100 shares at  123 7/8 withthe  intent  to  buy  it  back  if it breaks  over  125.  I was  very quick on  the  trig-ger,  after  beginning  my  day  with  a  losing  trade  on  C1EN.
MRVC held  119  1/4  and  turned back up.  I was carefully studying the tickertape  once  the  slock hit  121  3/16  around  10:17 AM  EST.  The stock  pulledback  a  little  and was able  to hold  120  1/2.  What I  am  looking for at  thispoint is  for the stock to trade higher than  121  3/16.  This will confirm a newuptrend with rising bottoms and rising tops. The stock traded higher than121  3/16,  and  [ bought  100 shares at  121  1/4.  My price target was  128  -  135if it could break out over  125  (morning high).  I placed  my stop  loss  at1197/8.
I always watch  the indexes  very carefully when I am  in a trade.  Althoughstocks  can  trade against the indexes,  and  the indexes themselves  can  tradeinversely to each other,  I like  to exit positions  if one of the indexes breaksdown  through support to  make  an  intraday low.  It is a part of my risk man-agement philosophy.  In this case,  it was  the Dow that crumbled, so I cashedin  my chips  and  took my profits of the  table.
I was  watching  INTC, which just made a 52-week high at  145  3/8,  thismorning.  It ran  very strong  from  the opening  price of 140 3/8  and I waslooking to buy a pullback.  INTC hit 142  1/2 on its pullback and startedbouncing up.  I  bought  100 shares at  143.
The  All  Mighty  Ax
The Ax is  the  leading Market Maker.  Market Makers make their moneyfrom trading profits.  This causes competition, which  is good for the generalinvestor.  This competition also brings in another element that is important tounderstand.  They all want to be on the right side of the market.  In manycases,  a stock can be controlled by a leading Market Maker, who  is  wellcapitalized.  Me can sell or buy a very large number of shares,  He can standin the face of a rally or support a stock during panic selling situations.  Theimportant thing is to learn how to locate the leading Market Maker, the Ax,and avoid getting caught on the wrong side of the fence.  The Ax will nor-mally spend  more  time on  one side  of the  inside market (best bid  or bestask),  than on  the other side of the  inside market.  They will appear to doboth selling and buying, but the key thing is to pay attention to how muchthey are buying versus  selling.  When you  look at a  Level  II  montage  for awhile, you will be able to sec and  follow the movement of Market Makers.Pay attention  to which side each  Market Maker is spending most of his time.Using the Time & Sales Print Report will help in pointing out the Ax.  Theeasiest way  to  spot an  Ax  is  when  he  is  present on  the  best offer or best bidwith  a  size  of  1000  shares,  yet  the  print  report  shows  several  1000  sharestrading at his price, as he is continually refreshing his quote, and he does notleave his position at the inside bid  or offer.  I  have seen situations where100,000 shares or more traded at that price,  yet the  Market Maker never  leftthe inside bid or offer.
The stock went up as high as  144 3/16.  Since it was trading in all time highterritory,  I  wanted  to  give  the stock a chance  to move higher,  or at least a re-test.  My stop  loss was i n i t i a l ly set at  142 3/8, which was below the  142  1/2level  the stock  hit at  11:10 AM  EST.  Once I  was  in  the money, I  moved mystop  loss up  to  143  1/4.  The stock dropped  to  143  1/4  and activated  my stoploss order,  before  trading down  some  more,  and  I  got my fill at  142  5/8.
RSLC  broke  out over 23  1/4  at  10:30  AM.  Volume  increased and  the  stockhit a ceiling at 23  5/8.  DLJP was  the only visible seller on  the Level  II mon-tage.  He  was  the  Ax.  I  didn't  like  the  fact  that  the  stock  was  not  progressing
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in price on the big spurt in volume.  That is what I would call a waste of ef-fort.  The bid strength started to deteriorate and sellers came in on the offerusing the ECNs at 23  1/2.  DLJP was not going to be denied from being atthe inside market and he down-ticked his offer to 23 7/16.  The bid was23  1/4 at the time.  I decided to enter a sell order immediately.  I sold 300RSLC at 23  1/4.  I  was  not going to stand in the way of the Ax.
It was lunchtime in New York, and 1 was playing around with a my PowerScan.  I was changing the price criteria to see if I could find a low-pricedslock that had an attractive setup.  J don't normally trade low-priced stocks,but I wanted to see if there is a "new kid on the block" that was making amove.  This is how I spotted AMBI.
AMBl  had a nice run from 2  1/2  to 8, where it topped on 3/13/00.  The stockpulled back to 4 7/16, which was the low today,  and then reversed on strongvolume.
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The stock was consolidating and looked ready to breakout,  I bought 300shares at 5  19/32.  The stock  looked good, and  I  bought another 300 shares at5  23/32.  I  placed  a stop  loss  at  5  5/16.  My price  target was  7-8.
Wliat to do When Frustration Strikes?
You  will  hear many traders  tell you stories of how they bought a stock at 20,sold  it at 25, and watched the stock go up to 300.  This  is  the devil of WallStreet - looking back.  How do I know when  to sell  a stock?  The truth is thatI don't know.  I don't think anyone does.  I do know one thing, though.  Imust manage all risks in accordance with my trading system.  This meansthat if a stock triggers a sell price, I have to execute  it.
Today was a very frustrating day  for me.  As  you  recall,  I sold  CIEN earlierfor a  loss at  140  1/2.  The stock was at  148  1/2 now, and  it would go all  theway up  to  158  before day's  end, as seen  on  the chart on  the previous page.
I sold  MRVC at  123  7/8, at resistance.  Shortly thereafter, the stock went upto  141.  I tried to buy it when it broke over  125, but I didn't want to paymore than  125  1/2 for it, so I missed it.  I waited for it at 125  1/2 when itstarted pulling back around  11:20.  I missed the entry there as well.  Itwasn'the end of the world, just frustration, so I decided to do what I always do inthis case - call  it a day.  I have found that it's best to walk away from situa-tions like this, so that I may recharge my emotional energies and be in apositive frame of mind for the next battle.
I called (he local golf course and got a tec time.  I had a stop loss in place foimy open position on AMD I, so my risk was being managed.  It was off to tlrgolf course  to  work on  my swing.
I didn't hear the final bell ring today, but when it was all done and finished,it was another strong day for the bulls.  The Nasdaq closed the day up  153points