Post-Mortem

All trades occurred in an up market for the day.7

PHM Short at 9.57 on a Gap & Trap, out at 9.43
I traded this one on the first five minute bar. It had gapped up on no news and was trading down. I took a flyer on it and - based on my results the rest of the day - assume I simply got lucky. I don't like depending on luck.

ESRX Short at 64.03 on a Continuation Flag, stopped out at 64.25 for a 1R loss
This trade occurred on the 6th bar. It looked like a continuation flag that had formed nicely: 2 long bars down, 3 consolidating in a down-up-down pattern, and then the 4th bar of the flag began trading down. This went against me within 10 minutes and my trailing stop got hit after 15. What did I do wrong? Maybe trying to trade a continuation was wrong, because the stock had gapped up on the open so we weren't technically in a downtrend at that point. However, if I look at the previous day, we were DEFINITELY in a downtrend coming into the start of day. The only reason it was NOT a downtrend was the gap at the open, and the first 5 minute bar was a down candle. Another possible weakness was that I should have counted the first bar of the flag as the last bar of the pennant. If that were the case, then I should have waited one more bar for the pattern to complete, and I would have seen that the pattern did not complete properly. That could have kept me out of this trade.

VRSN Short at 38.67 on 3 Black Crows, stopped out at 38.99 for a 1R loss
The trend was definitely up, and I got what looked to be 3 black crows. Howevber, in retrospect I can see that the 1st black crow actually opened below the close of the previous bar. In fact, none of the 3 bars of the crows opened higher than the close of the previous bar, which means it is NOT a reversal. 2 bars after the crows, the trade went against me and move up to my stop. Had I watched and waited, I would have seen a longer term trend that was violated around 10:45. I could have played short when the up trendline was violated around 38.98 and picked up a nice profit by riding it all the way to 38.28. I should habe been able to get at least 50 cents out of this by paying attention to the trendline.

UBS Short at 46.09 on a cont flag, stopped out at 46.59 for a 1R loss
The pole was 5 consecutive down bars. I came in on the 5th bar of the flag, right at the bottom of the fabric. I failed to set a stop at half the pole length and got hit when it went against me. The pennant of the flag was poorly formed. My stop loss should have been at 46.36. Poor formation, poor use of the stop loss.

TEVA Short at 43.74 on a prayer, stopped out at 44.01 for a 1R loss
TEVA Long at 44.00 on 3 white soldiers, stopped out at 43.67 for a 1R loss
This one was pretty good - I lost both directions.
The prayer was exactly that. I had two long down bars so I shorted against those, even though the trend was up. I need a much stronger signal to short against the trend. Had I not gotten into the trade short, I probably wouldn't have traded it long either, because the so-called 3 white soldiers weren't a true reversal pattern because the basic trend was up anyway.

Today's trading shows what happens when I want to trade more than I want to trade well.

Find the GOOD setups. Trade the good setups. It is better not to trade than to try to make something be there which is not there.

S&P Negative YTD

Just saw that the S&P is negative year-to-date:
http://bigpicture.typepad.com/comments/2007/11/weakness-contin.html

So if you are net positive in trading you are out performing a buy-and-hold benchmark. Neat.

-f

A week of review

Best two days ever were last Thursday & Friday. Monday I felt lousy and traded only part of a day, Tuesday I was sick and didn't trade at all. Felt much better today, but the trading doesn't prove it.

THURSDAY
ESLR
Cont Flag SHORT at 15.80, stopped out at 16.50 for -1R loss
I entered on the 3rd bar of a Pole & Pennant formation, hoping to get in early. I basically did this all wrong. First of all, the Pole had not carried me past the previous price action at all. Secondly, the "pennant" was not drifting up, as it should have been for a valid pennant. Finally, I placed my stop way to high. A valid stop should have been in the 15.90 - 16.00 neighborhood.

Lesson: Be patient and let the pattern form. If the pattern is wrong, then don't bother. Something else will come along.

AA 3 Black Crows short at 38.47, hit trailing stop at 37.76 for .71R gain
I think I may have gotten lucky on this one. I had three black crows coming off of two previous consecutive highs, but the general trend was actually down. My stop was a shade too tight as well. I could have picked up another 75c with a little looser stop. I moved my trailing stop tighter when I saw the price reversing against me, but it was reversing on lower volume. I could have been a little more patient and let the weaker volume peter out.

The UP bars prior to my entry were on lower volume, and the DOWN bars prior to my entry were on higher volume.

Lesson: On these candlestick patterns, try to confirm the predicted direction with the volume - particularly when the pattern isn't perfect. Also, be patient with your stop losses; if it appears price is moving against you, check to see if volume confirms, or if you might be able to ride it out.

CY
3 Black Crows Short at 41.89, hit trailing stop at 37.60 for a 5R gain.
I did this one right, but I also got lucky. I caught it just before it fell off a cliff, and rode it almost all the way to the bottom. This is how to do it. The formation was very strong, not contradicted by the volume, and I got stopped out not just on a rising price but on rising volume as well. My best performance so far.

AA
I thought I got stopped out too soon, (and I did), so I jumped right back in with a too-tight stop for a .07R loss. The lesson is that my stops were too tight.

FRIDAY
ODB
Continuation Flag Long at 17.82, hit trailing stop at 18.50 for a 6,8R gain.
The flag pattern on this was just right. I got in several bars late, but the "pennant" formation had not yet been broken - it was just an extended consolidation that I picked at the right time. My trailing stop maybe could have been looser, but I got almost all the rise on this one.

Lesson: Perfect formations are worth the wait.

WB
3 Black Crows Short at 39.52, hit trailing stop at 39.10 for a .8R gain
This was a good formation and I caught most of the move. My one regret is that I missed the reversal. It also gave a good strong signal, (3 White Soldiers), but I was already out and looking elsewhere.

Lesson: Perfect formations are worth the wait, and when you get stopped out, see if the trend is actually reversing with a strong signal to go the other way.

XMSR
No Good Signal Long at 14.67, hit trailing stop at 14.74 for a .3R gain
I should calls these NGS trades. I don't know why I pulled the trigger on this one, other than that it was rocketing up, and I was pretty sure I could protect myself on the downside. As it was, I got lucky. There was no strong signal here. I'm not saying a moonshot bar is not a valid signal, but it is not a strong signal.

Lesson: Sometimes its better to be lucky than good, but luck runs both ways. NO UNDISCIPLINED TRADES!

MER
3 White Soldiers Long at 53.17, hit trailing stop at 53.69 for a 1.5R gain
Again, I had a nice strong formation. I got into it a little late, but I still caught a nice ride up. The stop again may have been a little loose, but I am very satisfied with this trade. However, I missed another 3 White Soldier and hour or so later.

Lesson: Good patterns are worth the wait. When you get stopped out, watch for reveral confirmations.

MONDAY
AEL
3 Inside Up Long at 8.85, hit trailing stop at 9.10 for a 1.25R gain
I actually got into this trade thinking it might be a multi-day trade. I chose it because it had created a Three Inside Up pattern on the daily chart. I was right about the direction but wrong about the timing: as it turned out, AEL went my direction right away and I got stopped out with a nice gain.

Lesson: The perfect pattern is your friend.

HL
Cont Flag Short at 10.87, closed it at 10.80 for a 1R gain
Cont Flag Long at 10.71, hit stop at 10.68 for a -1R loss
Cont Flag Short at 10.69, hit stop loss at 10.82 for a -1R loss
I just screwed this one up royally. My first trade I intended to go short. When I realized that I had done the "wrong thing", I immediately closed the trade for a small profit. If I'da been paying attention, I would have realized that my initial idea was wrong and that the Trading Gods had been merciful on my stupidity by letting me get out with my hide intact. But no, I was so keen to trade trade trade that I jumped right back in, this time long, and got hammered. So now I've done two trades wrong and managed to still be at Nothing Lo$t. But I wanted the trifecta, so I jumped in AGAIN, for no good reason that I can see, and The Gods took my head off this time. I deserved it.

Lesson: Undisciplined trades and trading is the sure road to ruin.

DOW
Three White Soldiers Long at 41.54, hit trailing stop at 41.58 for a .08R gain
This is supposed to be a reveral pattern, and I think I actually hit it right. The problem is that it was a really short and small reveral. I managed to get out without losing any money - just covered expenses.

Lesson: Perfect patterns are not infallible. That's why we have stops.

DELL
Continuation Flag long at 27.39, stop loss at 27.34 for a .17R loss.
This pattern was good, but not perfect. I set my stop loss just below the fabric of the flag, where I got taken out - thank God - and only suffered a small loss for being wrong. In retrospect, although the pole of the flag was plenty long enough, it had failed to take me to a new high past the previous swing high - which is one of the rules. I violated that rule and was fortunate to have a tight stop in place.

Lesson: Those rules are there for a reason, son. Don't be a dope.

WEDNESDAY
This was my "I got up early for this?" day. I hate to even write this stuff down, but it is instructive to do so. And since I'm not gonna get anything monetarily positive out of the day, maybe I can at least learn something.

OVTI
Gap & Trap Short at 20.98, hit trailing stop at 20.53 for a 2.25R gain.
This should have been my one and only trade for the day, but I took this trade because I was practicing my execution. I wanted to try to place a trade that was a combination of One Cancels Others and One Sends Others. I wanted to place a trade that would trigger Long if the price went up and Short if the price went down. Whichever one got triggered, the other would cancel. Then, whichever one got triggered, I wanted to send an automatic stop loss order. I picked OVTI mainly because it was cheap and I thought it would be "safe" to practice on. I only did 100 shares on this guy - because I was practicing - and watched my trade execute perfectly. The only problem? This guy decided to RUN and coulda made me a boatload of dough if I had been playing a normal position size and using normal Trailing Stops. But I was just trying to figure out how to execute the trade, so I got out pretty quick. Stupid, stupid, stupid.

Lesson: Don't leave money on the table for stupid reasons.

PCS
3 Black Crows short at 17.84, hit stop loss at 18.20 for a -1.2R loss.
I mistook a continuation flag for 3 black crows and got rightfully taken out.

Lesson: 3 Black Crows should follow a smooth uptrend, not a flag pole.

NTAP
Cont Flag short at 26.56, stopped out at 26.96 for a -1R loss.
I don't think I misread this one. I was just wrong.

AES
3 Black Crows short at 21.95, stopped out at 22.05 for a -1R loss.
I think read the pattern correctly, but I was just wrong. When that happens, I just accept it as the price of playing the game. The one possible signal I missed is that the downward movement occurred on lower volume.

Lesson: Check the volume to confirm the price direction.

Three Sucky Days

I've had three sucky days in a row. If I can't make money in amarket with this kind of volatility, then I am doing something wrong. Time for some post-mortem analysis:

All trades for November 7, when the market was showing DOWN most of the day.

CY
Gap & Trap Short at 39.03, stopped out at 38.97 for a +.3R gain
No news of interest. This had gapped up, then closed the gap and was continuing south. I entered when the second bar showed it was continuing down. It continued in my direction for the duration of the 2nd bar, so I changed my stop loss to a trailing stop. I got stopped out on the third bar. The action continued up to the level of the previous day's close, and then bounced its way down on the first bar when it was about 40c below yesterday's close.

Lesson: In retrospect, I had no good reason to enter this trade. It had already closed the gap, and it was too early to call a continuation flag.

ONXX
Gap & Trap Short at 52.29, stopped out at 52.58 for a -1R loss
Continuation Flag Short at 54.58, stopped out at 54.99 for a -1R loss
This had gapped up on a good earnings announcement, that I misread. The announcement said that projected earnings were (.21) and actual earnings were .01, which shows that they beat by .22, but I somehow read it as projected of .22 and actual of .01, which I interpreted to mean they missed by .20.

Lesson: Obviously I was on the wrong side of this both times. Had I read the news correctly, I could have ridden this guy up for about 12R. Ouch!!!

TSO
Continuation Flag Short at 59.70, stopped out at 60.15 for a .9R loss
This was a case where I was right about everything but the stop. Had I set my stop at or above the day's open, I would have been able to ride this puppy down to less than 57.00. Again, I missed a ton of dough on this one.

Lesson: I need to do some more analysis about the size of my stops. I was too conservative for my own good here.

BTU
Continuation Flag Long at 54.83, stopped out at 54.32 for a -1R loss
I had a nice big pole to play off here, and tried to get in on the second bar after the formation of the pole. In retrospect, the previous bar was a spinning top, which should have warned me that the stock was ripe for a turn. Had I gone short instead of long off the spinning top, I had more than a dollar of movement.

Lesson: On a CF, let the pennant form two bars before deciding to play. In addition, do NOT play off a spinning top until the direction is established.

JASO
Cont Flag Long at 62.51, stopped out at 62.04 for a -1R loss
This one appeared to be a well-formed flag. I had a nice long pole - more than 50c - followed by a 3 bar pennant moving opposite the direction of the pole. I looked perfect to me, but I was completely wrong. The "fabric" portion of the pennant was admittedly not very good - perhaps that was my mistake. As I look at it, the first bar of the fabric was nicely formed and closed down, the second bar was a spinning top with very long stems and the third bar was an inverted hammer. IOW, I guess the fabric was not a strong pattern after all.

Lesson: Pay attention to the fabric of the flag. This was a weak pattern to trade on.

Mediocre Monday

Some days are better spent in bed, or on the golf course, than trading. Today was one of those days for me.

In spite of the fact that the S&P futures showed strongly down in the premarket, I found NOTHING that interested me to short on a gap. So, like an idiot, I found a couple of stocks I could go long on a gap with. The best news first:

DELL had gapped down and looked to be a pretty safe bet to close that gap, given that tech stocks are leading the charge right now. I got in at 29.60 and set a 1/4ATR stop, which was 19 cents. I felt pretty comfortable with that. If I was right, I had a long ways to go to close the gap. If I was wrong, I would know pretty soon. As it turns out, the stock just fiddled around after I got in - up a little, down a little, up a little, down a little. It approached but never breached my stop loss. In the meantime...

...CROX had gapped down too, and I decided it was "due". (I think there is a "trader's fallacy" lurking in that thought.) So, like an idiot, I jumped in long at 45.57 and set my stop at 44.40. I watched CROX wander aimlessly for a while before it decided to head south and take out my stop for a lovely 1R loss to start the day. This led me to...

...the decision to try to capture at least a little profit in DELL once it turned positive. Once I was up a bit, I set a trailing stop at 10c. I ultimately got stopped out for a .8R gain. But, after looking at the rest of the chart, I got fidgety too early. Had I left my initial stop loss, or even trailed at 19 cents, I would have picked up at least an additional dime, if not an additional 16 cents.

The lesson is patience and compartmentalizing. I allowed the CROX loss to get involved in my DELL trade, which resulted in me leaving at least half my profits on the table. If I had let my profits run, I'd be a happier guy right now.

I also shorted WFC late in the day on what appeared to be a nicely formed continuation flag, but I was wrong for a 1R loss.

I also tried a couple of swing trades today with little downside and what appear to be strong upside: NOK and AMAT. I'm short NOK at 39.49 with a 40.01 stop and long AMAT at 18.73 with a stop at 18.43. I'll report on those when the positions close.