If you haven’t noticed, I’ve decided to shut down my day trading in the prop account, and I think it will be a couple months of paper trading before I venture back. While there are many things I need to work on in my trading (especially emotionally and with discipline), I have come to realize – in a good way – that I don’t really know what I’m doing as a trader. I have so many ideas and information in my head and with the adrenaline of the real market and trading live mixed in – I end up all over the place with nary a winning trade worth mentioning.
I swear – all week, in every trade – I should of bought when I shorted (at the bottom), sold when I covered (at the top), shorted when I bought (at the top), and covered when I sold (at the bottom). It was bizarro world – and my trade strategy should of been do the opposite of what my head and emotions were telling me to do. While you would think you would have a 50% success rate just flipping a coin, I would screw that up as I would not stay in the random winning trades, or I would keep myself in the losers – lots of user error abound.
But there is some hope – and forgive me, but I think I’m becoming a little bit of a TraderFeed blog groupie. Dr. Brett’s posts and twits are so illuminating no matter your trading style. I plan to buy and read his new book on being your own trading coach and self-managing your trading psychology. But on his free blog, there are several posts pointing me back to some trading basics that I skipped over along the way:
1) Trending Vs. Range-bound Market Days: He advocates that it’s vital to determine early in the day whether stocks are rallying or falling in a consistent trend versus chopping along within the range confines of a channel. Now I know the Green on the Screen method mostly trades momo stocks independent of the overall market, but if you have the Scottrade high / low of day list scrolling along – and you see either a majority of HOD’s or LOD’s showing – its a sign that many stocks, sectors and indexes are moving in the same direction. Dr. Brett recommends using things like a VWAP, pivot points on the SPY, and NYSE $TICK and Advance-Decline lines to confirm what kind of environment the day is turning out to be and how to trade it. This is important because:
…in a range environment, you tend to fade strength and weakness; in a trend environment, you tend to go with market direction.
Not understanding clearly the movement structure of the market or even the stock I’m trading is why I so often enter a trade at the top or bottom of a channel on a choppy day, or try to fade a stock’s direction when it is really time to jump on the train on a trend day.
2) Three Basic Trade Set-Ups: In this post, Dr. Brett talks about several simple trade types: Reversals, Breakouts, and Continuations. Put in a few words: 1) reversals are turn-around bounces off resistance, support, channels, etc. in which a stock is moving back to its recent average price point; 2) breakouts are moves that break past a trendline or similar bounding parameter to reach new price highs or lows from the recent past; and 3) continuations are trend trades in which you go with the momo of the stock’s direction. He gives more details on his blog and plans to do more write ups more about the intricacies of each soon.
So in the coming week during my trading and in my review of this past week in this post, I’m going to look at the the market environment and the setup types of the trades I made.
MONDAY: This was primarily a range day with a small downtrend after a gap up. It was choppy none the less; I was stopped out on a long (FAS) and short (BAC) for basically breakeven. Both of these trades I thought were breakouts (I didn’t call it that at the time), but in reality I would better off trying to time reversals at the top or bottoms of the channel rather than getting in on fake-outs in a chop-fest. John C. Lee of Weekly TA/Chart Addict really makes the case you shouldn’t day trade on doji days like this, but use them to position yourself for swing trades. In any case, I have to be more cautious – just going long or short on a non-trend day will get you whipsawed into losses unless you fade things right.
TUESDAY: I amended this post to put my trades up with some commentary. I really overtraded this day (17 transactions) and after getting behind, threw away all my rules and followed no logic – I basically decided I would try to scalp $5 profits in a fit of irrationality. What ended up happening was I stayed in bad trades too long and exited good ones way too early and missed the big moves. This day was a bullish trending day – though much of the bounce was in the first half hour; it continued rallying most of day but some equities faded in the afternoon. I missed a big opportunity here by overtrading – if I had simply longed FAS like I had the previous couple days (which where range bound) on this major trending day, I would of done fine. Here is a chart of TPX. I shorted on the red line. I exited for a five cent profit when I thought scalping would solve my problems. The result, I missed a half buck easy price move if I had been patient (this stock went steadily down – no pullups at all to spook shorts, I just didn’t want to wait).
WEDNESDAY – took the day off from trading. This was a doji/range day anyway, which is harder to trade.
THURSDAY (no post on those trades) – this was a perfect trending day – continuous rallying. This in an environment when you buy on pullbacks as a continuation trade set-up is the way to go. I made three trades for a total loss of -$133, my worse ever.
KEY -My deadly trade and what made me “hit bottom” was shorting KEY. I entered on what was a major pullback – I thought it was a reversal set-up. I should of entered a long at that price not a short. The bulls were out that day clearly and I should of went with the trend. On the daily chart, where it broke down was a major resistance trendline, and I did get a short signal to enter. Shorting on a day the DOW is rising 2,100 points isn’t going with the highest probability set-up, but that is what stop loss orders are for. However, the price spiked right past that order. Instead of manually exiting, I watched the price jump .25 cents and I decided to double my position. Well the trend continued and I was finally exited for a -$73 loss (giving my short a half buck to “breath” – which is crazy.)
MW – At open I identified this as a gap-up on earnings (break-out set-up); I jumped in a little early and was stopped out (.60 cent range 5 minute candles). These gap-ups almost always have a pull back 15 to 20 minutes in – likely profit taking and shaky new longs. It’s better to let these develop a little more and wait for these to settle down than to chase at open. I have written many times – enter long when price crosses back over the 10 minute SMA on the 1 minute chart. The stock nearly made a $2.00 move on the day, should of been able to capture at least $1.00 of that. Later, I tried to short MW – with no signal on a super bullish trend day. Total loss of -$29.
BAC – Longed but not on a pull back (which would of gave me breathing room) so my stop loss order was a little too tight, and was taken out on a long-wick to the penny at $5.19 – the low of the day from 10:10am on. Stock almost closed at $6.00. An exit like that is disappointing but there was plenty of bullish entry signs later but I mentally through in the towel – and missed a great overall trading rally. –$15 loss.
In retrospect now, this day wasn’t as bad as it felt at time. The $133 was nearly as much as I had lost in the previous four days of trading. I didn’t over trade but my emotions got out of control. If I hand just exited KEY when my stop was not filled and skipped the no entry signal on the short of MW, it would of been almost a hundred less in losses. BAC and MW were great set-ups, I just didn’t play them right. In any case, this day sent me back to the minors.
FRIDAY PM (paper trading – AM trades): This was a range bound/doji day. -$.55 total paper loss.
EBIX – I shorted on no signal thinking a $4 spike in ten minutes was too much. But there was news and volume – and no short signal. Instead, this was a break-out set up so a long was in order – and my rules are to enter after the price crosses back over the 10-SMA on the 1 minute chart, which would of gave me a $1.00 gain and not a -.31 loss. This rule typically will get you in after profit taking and consolidation as the break out goes back up.
HIG – I was a little late to the move, and entered at $6.99 – the stocked spike a bit and I made my stop trigger and was exited for a -$.05 loss. There was momo here but it was end of the week exhaustion around 3:30pm so it stalled. As a range day, it would of been better to go long earlier on the bottom of the channel.
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So lots to digest here. Next week, I am going to focus on not over-trading (10 minutes with egg time before each new trade) and using break-out and reversal set-ups on range bound days, and continuation and break-out setups on trending days.
