Terrific Tuesday

In the spirit of Karl Denninger, here's how today went:

I shorted SOHU twice today, the first time at the open on a Gap & Trap and the second time on a nicely formed continuation flag for a total of 2.5R. The first trade lasted a grand total of 57 seconds before my trailing stop was hit for a 1.5R gain. I took that one because the stock was up waaaaay too high for two-day-old news, particularly in a market that was showing down to start the day. I was right. The second time I saw a good continuation pattern and caught it in time to make 1R in a little less than 4 minutes.

Let's see - that's 2.5 R in a little under 5 minutes. If I could do that 8 hours a day, 200 days a year.... Uhm, not likely.

Anyway, that's the good news.

I gave the ole' RBMP a try again - three times - with ANPI, PIEX and QI, for a net loss of 1R. I broke even on one, lost .1R on a second and .9R on the third. Did I do anything wrong? You betcha:

ANPI had a humongous gap less than two weeks ago. I just plain ignored it. Stupid, stupid, stupid. (That's the one I broke even on.)

PEIX actually had a decent setup. It printed solidly up during the first five minutes, but then fell out from under me. My stop loss got hit on the way down for a .9R loss.

QI was a little different. The pre-market setup was good, but it printed a spinning top on the the first five minute bar, then followed that up with a down bar, which is where I chose to get in. I didn't violate any of the entry rules, but in retrospect, that spinning top shoulda been a warning flag to me that the market wasn't sure which way to go. Had I waited on some confirmation of the actual directional momentum, I would not have taken this trade. Although the stock actually traded higher in the first five minutes, a little more patience on my part would have rewarded me by keeping me OUT of the trade.

As I analyze my trades this month, I am significantly more profitable when I play short than when I play long. I've succeeded playing short in a rising market as well as in a falling market. But I am no better than 50/50 playing long in ANY market.

Lots to think about.

I am determined to crack the nut on this RBMP.

More Lessons

I made 1.4R on two continuation pattern trades today: lost .35R on NTAP and made 1.75R on PAY. Although I'm pleased with the result, I would like to figure out how to set my stops so that I capture profits and keep them, rather than have them and lose them like I did with NTAP. At one point, it was actually almost .30R positive for me, but then it went the other way. Perhaps I am just being too greedy and have to recognize that these small losses are the price of success. If that's the case, I can handle it.

So lemme see, the ATR on this guy was 1.12. It had already made a move of .58 cents when I got into it, so that was more than 1/2 ATR before I got in. That flag pattern was strong: I had a strong move down followed by a 3-bar consolidation. I got in on the fourth bar after the pole and got my stops taken out in a very short upswing. The price then marched steadily downward the rest of the day, so I was on the right side at the wrong time.

If anyone has any insight, I'd like to hear it. I think I did everything right and was just wrong, but if I did something wrong, I want to know so I can correct it.

Seven R Day

Yesterday I traded one Gap & Go and two Gap & Traps.

The Gap & Go was ECA. When I decided to buy, (yes, I go long occasionally), it had already made most of a 1 ATR move, but since their earnings announcement was coming up, I decided to "buy the rumor and sell the news". My stop-loss got hit for a 1R loss.

Lesson: "buy the rumor, sell the news" is a rule-of-thumb. It might have made sense if the stock hadn't already made almost a full ATR move for the day, but in retrospect, I need to not try to trade when a full ATR has already been made for the day.

I shorted DD on a Gap & Trap. The setup was good but not great. I got jumpy and moved my stops tighter yet again, and got stopped out for a .37R gain. In retrospect, the jumpiness kept me from incurring a 1R loss, but I have got to be more disciplined about how and when I move my stops.

I shorted AXP as well and made 2.2R. This was my most disciplined trade. I waited until I had a 1R profit in the move, then cancelled my stop-loss and put in a 1/2R trailing stop. I was pleased with my execution on this trade. I picked the setup well, set my stop-loss correctly, and took profits in a disciplined manner.

All told, it was 1.5R day. Since my initial short-term goal is 6R per month, I feel pretty good about that.

Today I decided to try a Parabolic SAR trade. I was looking for one that had the stop-loss set really close to the entry, just so that I could watch how the trade works. I shorted KG at 10.26 with a Stop-Loss indicated at 11.10. This is a trend-following trade, so I'll see how it goes and report.

I shorted PTV on a Gap & Trap and hit my trailing stop for a 1R gain. I shorted GENZ and got jumpy, (again) and got my trailing stop hit for a .67 gain. I got upset with myself and said, "don't do that anymore!" So GENZ still had a decent setup and I jumped in again. I was wrong this time and hit my Stop-Loss for a 1R loss, but I felt better about it because it was a DISCIPLINED trade this time.

The big winner of the day was AAPL. I watched it form a nice continuation flag pattern, was patient as the second bar of the flag confirmed, and entered a short trade just like the book says. It took a while to move in my direction, but I set my stop well, and though the price approached my stop, it never it hit. Once it started in my direction, though, it went like a rocket. I canceled my stop-loss and put in a trailing stop once I had a 1R profit, but the thing just kept going. I didn't get stopped out until I had a 6.4R gain.

I know those don't happen often, but it sure is fun when they do. It's a 7R day!

Learning to Not Lose Money

Hey, I think I'm starting to get it. Yesterday I traded more than at any time up till now, and - for the most part - traded right. Not that I hit all winners, but I executed correctly and limited my risk correctly.

One exception: when I left town on Thursday, I had one open position on a swing trade I had put on Thursday. When I got back yesterday, I checked my position and discovered that my stop had expired. Yep, I had put in my stop as a "Day" rather than a "GTC". That cost me almost one full R. Lesson learned!

Anyway, here's yesterday's results:

HAL on a Gap & Go: I made .4R but realized in my debrief that I had set my stops too tight for such a volatile stock. With wider stops, I'd have made more. The lesson is to make certain that the width of my stop matches the volatility of the stock; not too big for smaller volatility, not too small for bigger.

COP on a continuation flag: This was my big winner, 4.5R. Strangely, I also realized my stop on this one was too small for the volatility. I left some money on the table, but at 4.5R, I'm not unhappy.

ERTS on a continuation flag: I lost 1R, but I played it right and limited my risk correctly.

Overall, it was a 3.5R day. I can make a terrific living with days like that!

Thursday was "too many choices" day. I had a pile of things to choose from, and didn't choose too well. Shorted both VOD and INFY on gaps up. Both were positive for a while, but ultimately went against me. I had a 1R loss on BOD and a net zero on INFY after my trailing stop got hit.

Lessons: It's certainly possible to short into a rising market - many of the stocks I watch were moving down after gapping up this morning - but you gotta be decisive and you gotta be ready. I didn't get into VOD until 15 minutes after open and INFY until 23 minutes after open. Most of the big action had already occurred. Plus, there were stronger candidates than the ones I chose. In the future, I should choose higher volume over lower for my day trades. Neither of these were slow movers, but it woulda taken less time to find out I was wrong on bigger volume movers.

VOD I think I handled okay, because it was legitimate trade and I was simply wrong. I had a set a 1R stop and my stop was hit. INFY it looks like I got jumpy. It ended up making a significant move down later in the day - just as I had anticipated - but not before a brief spike up that took out my too-close stop. If I'da left my original stop where it was at 1R, I would have had a 1/2R excursion go against me before it finally went my way. This could have easily been a 2R trade - and certainly 1R - if I had followed the rules.

Today I shorted IVN on a Rubber Band Morning Pop and made 1.75R. The trade moved almost 1/2R against me before turning around. I was a little frustrated because what I thought of as my trailing stop was not moving with the price of the stock. I had to keep manually moving my stop, which is not optimal. OTOH, 1.75R is a good trade.

I also missed a couple of trades due to waiting a little too long for confirmation. I was going to go long on HANS on a Flag Continuation Pattern, but waited a shade too long to pull the trigger. I watched it rise 80 cents past the entry I had picked, which would have been almost 4R if I'da just pulled the trigger. I guess missed profits and missed losses on trades never taken cancel each other out. At least I hope they do.

Looks like a lot of interesting RBMP trades investigate tonight.

Question: Which strategy are you guys using most? Why?

Next months seminars

Hey guys just wanted to find out how many of you are going to be at next months Van Tharp/DR Barton Seminar. It is just for the emini which is what I primarily trade so I'm excited. Hope to see some of you there.

Thomas Quick

More Lessons

Monday and Tuesday were about learning to (a) learn to control losses and (b) learn to execute trades with Tradestation.

I went hog-wild on Monday morning and traded AAPL (twice), CAT, RIMM (twice) and WNR on opening gaps. Because I am dispositionally disposed to going against the crowd, I shorted them all on something less than stellar signals. The net results were:

AAPL: -.12R
AAPL: -.06R
CAT: -.84R
RIMM: +1.17R
RIMM: -.28R
WNR: -.57R

As you can see, I didn't make any money. I had 5 losers and 1 winner, which is proof that I still don't know what I am doing as far as picking trades is concerned. OTOH, none of my losses exceeded 1R and only two were as much as 1/2R. I am getting a better handle on how to limit my losses. I was tempted to be down about my results for the day, but frankly, I was pretty dang happy that I had figured out how to cut my losses short.

Tuesday was "learn to execute trades with Tradestation" day, and I had an execution error that was the result of not understanding my tool. I traded GES and LDK twice. Results are:

GES: +.65R
LDK: -.63R
LDK: +1R

The loss on LDK was four times higher than it needed to be, because I thought I had set a stop loss, but in fact had not. Today was a 1R day, and woulda been closer to 1.5R if I had understood the tool. After the markets closed, I spent some time with Tradestation's video tutorials and learned what I should have learned before trading. Ah well. If it was easy, everyone would be doing it, right?

I have an observation that I would like my fellow bloggers to respond to: It appears to me that Tradestation exceeds Interactive Brokers Traders Workstation in every regard but one: execution time. When I trade with IB, my trades are usually filled in less than 2 seconds. In Tradestation, it takes a good deal longer. Otherwise Tradestation beats IB in every area.

Remember that basket...?

Hi all,

You're doing a great job with this blog. I'm sorry I haven't contributed so far, but I'm still on the side lines, stopped trading the week before the seminar and haven't come back yet... I will start posting as soon as I have anything interesting on (first I have to get back to trading).

Have any of you heard from that basket of stocks that DR said it would be emaild to us?

Intestinal bug whacked me in the middle of the night. No trading today.

Another Day, Another Lesson

I played two Rubber Band Morning Pops this morning: HOXL and DHI. DHI went against me immediately, HOXL went my way for quite a bit, then reversed. Stupid me, I sat and watched my loss on DHI mount and my profits on HOXL evaporate, wondering what was happening with my stops. I finally realized I had set my stops wrong - roughly twice as large as I had intended.

Yet another execution error. I have a spreadsheet setup that lists the various entry, stop loss and trailing stop points I intend to take. When I setup these two trades, I simply looked in the wrong column for the Stop Loss. This is primarily because I am still not familiar with this trade. Another day, another lesson.

I'm still in the Learner stage. Thank God that DR suggested we not adhere to Van Tharp's position-sizing rules until we had become competent traders. I took that advice and - as a result - am down a total of only $170, rather than several thousand I would have been were I using the position sizes I intend to once I become competent. That advice alone saved me more than the cost of the class.

Mark asked me where I got HOXL & DHI. I thought it was on the Stockcharts site listed on the blogroll to the right, but I may have gotten it off of the WSJ's Markets page. Yeah, I buckled to the pressure and got a subscription to the Journal. Actually, the Markets page is pretty cool. I recommend it. 99 bucks gets you a 1 year subscription to the paper and the online version. Not bad, especially considering the amount I have spent on books I have only partially finished reading.

For TradeStation users

I have created of few custom symbol lists that are useful. I have one list I call Liquid_Nasdaq, it has 28 of the most Liquid stocks on the Nasdaq. I created 4 workspace's and have added by sector breakdown all of the Russell 1000 and Russell 2000 stocks. When I created the sectors using both Russell's I added the sectors together from both of the Russell's. In other words, the Russell 1000 may have had 10 stocks in the Internet sector and the Russell 2000 may have had 20, I created on sector called Internet and it contained 30 stocks. To me it didn't matter if it was in the Russell 1000 or Russell 2000.

I then made an Indicator called morning pop. I apply this Indicator to each of the workspaces I created that have the Russell stock's mentioned above. Each work space has around 800 stocks each. The last one has less than 800. I open each workspace ever evening and look for ScanDay results based on D.R.'s requirements. The ones that have a hit, I then open each chart and look to see if they qualify.

The only caveat is you need RadarScreen to apply an Indicator to all the stocks. The reason why each workspace has 800+ stocks except for the last workspace is that RadarScreen seems to have a limit of about 888 stocks that can have historical data applied.

I do not remember how many sectors the Russell was divided into, some where around 30, I am at work and do not have the exact amount.

If anyone is interested in the custom symbol lists, the workspaces and the easylanguage pop me a note letting me know what you want and I will send it. For those who have TS and RadarScreen and are not familar with setting up worksaces let me know and I will give some instructions.

Contact me at: dlintz8@msn.com

dwight