The correct way to buy Citigroup

In general I do NOT advise going long when the weekly trend is down but C clearly presented a risky but potentially rewarding trade. However many people got burned buying the first leg down which is not the correct thing to do. After watching the price for a while I too was tempted to buy some for a pop. After many requests here I post my entry and hopefully it will serve as a reminder the importance of patience and discipline. 

The most impatient people bought intraday on Mar 2 (see the two tall bars to the left) mistakenly thinking that price was recovering. This is a firstclass sucker bet because intraday swing means nothing if you aim for the big profit (which is what you look for buying a $1 stock in the first place). Always place the bet at the close. 

Second grade suckers bought on the close a day later thinking they got a sweet bargain. However the closing hour sported a huge downside volume spike indicating big players liquidating their positions, creating a new intraday low. My philosophy is never buy on an intraday low or sell on an intraday high, because they are inherently instable and is suspect to be broken quickly. I prefer to wait for a retest, which never came for that day and C closed on the low, which is a red flag for me. 

The important point I need to stress when fishing for a bottom is looking for accumulation, which can be tracked using many indicators. I programmed my own indicator but traditional indicators such as Larry Williams's ADL works just fine as a substitute. Over the next two days C went from a period of distribution to a period of accumulation (see last panel) with the price locked in a very tight range. This convinced me that some large players or insiders are accumulating the shares. 

On the last day C closed at the high of the range, I placed a market order at the close which was filled at $1.05. 

The next day my suspicion about insider buying came true. Big Loser Vikram P announced some bullish news which popped C up by a fairly large percentage. But since the accumulation is still not done yet I am still holding C as of March 11. 

Here is my advice:

Be patient. Money is made, ironically, by sitting and not by trading. It is made by sitting tight and wait for condition to become favorable to enter. Then you need to sit patiently and wait for the condition to turn around, then it's time to run fast for an exit. You need to ignore all the news, predictions or other gossip people keep throwing out on CNBC and only base your decision on your own deductive reasoning. Even if that means missing the trade, it's worthwhile from a risk management point of view. 

This method is dull and uninteresting, but in my experience this is the only way to make money CONSISTENTLY, which should be every trader's goal. 

--UPDATE (3/11/2009): Although I am convinced that C can continue to rise at least for a couple of days, I am pessimistic about it's short-term ability to rise above $2.5. Therefore this morning I sold March 2.5 Calls @ 9c a piece. For whatever little time value is left I believe this call is ridiculously overpriced. I am still holding C therefore creating a covered call strategy.