There's great money to be made fading overextended moves, but you need to wait for a price action signal and definitely close the position immediately at a breakout level. VRUS gapped up Tuesday after a strong uptrend had been underway for days. This can be a great exhaustion fade setup if price either begins dropping at the open or moves up very slightly and stalls. If price begins selling right off the open, you can jump in with low risk, stop loss just above the high. If price stages a small bounce and stalls, you can short a break of the opening range (usually the opening 5 mins), again with the stop loss just above the high. In each of these scenarios, there is overhead resistance to contain your trade (either the opening print off which the selling began, or the opening range high that didn't go much higher than the opening print). Because VRUS opened and ran immediately with conviction, and the stock is trading at all-time highs, you have no fixed overhead resistance level to work with. Fading is a pure gamble with your risk management the only thing containing your end result. Neke, putting on a short position when price stalled after the strong opening run and began pulling back slightly is not actually a bad trade because price hit the upper channel line. The problem lies with your lack of a hard stop loss at the key level that would indicate your short position has entered very dangerous waters. In the case of VRUS that would be a break of the opening range high. That's a with-trend breakout setup. I would guess that over 90% of automated trend-following systems had buy triggers to initiate longs or add to their existing winners at a break of that level. Trend-following retail traders like me can't wait for our buy stops above the high to be triggered so we can let all that programmed trading volume carry us into easy money with low risk (tight stops on breakout trades in case they fail). What makes the break above 90.00 especially powerful is the fact that on a stock trading at highs with no overhead resistance, technicians determine a level where potential resistance might be found by drawing trend lines. We connect the lows then print a parallel line at the pivot high level between those pivot lows to create a channel that creates an artificial resistance level that might spark some profit-taking when price gets there. Sure enough, that's exactly where the opening push on VRUS stalled Tuesday. When price didn't sell much off that level and instead consolidated in a narrow range, that's a "screaming buy" breakout setup to the upside. You can't fight that kind of power except through the use of a protective stop. Consider what your result on VRUS would've been if your stop loss on the short position was 90.00, or if you covered and reversed long @ 90.00.
All the "experts" come out after Neke has a bad week, using their hightsight analysis to explain why Neke was wrong.
While I respect NoDoji as a trader, I can't really agree. If I wouldn't take a trade when an analyst upgrades or downgrades, I'd miss a whole lot of good ones - let's not forget these are analysts and their track records are well known... There are many ways to trade and sometimes the methods clash.
The trades he put on weren't wrong until proven wrong by what price is doing at key levels. If you're a RTM fader who averages down, you have to understand technical levels that are very likely to fuel a move further against you and implement serious risk management there. What's wrong is Neke's risk management is inadequate for his average win rate (57%). If 57% of your trades are winners, then profitability is attained by ensuring the average winning trade is not less than the average losing trade. Most successful RTM faders who average down have win rates in the 80-90% range to cover the cost of the occasional large losses that occur with this strategy. I was such a trader for several months and I had something like a 90% win rate and was well on target for an annual return of 150% or better. Then I got stubborn and held some positions long after price had totally invalidated my position (I didn't understand trends and breakouts at all at that time) and I wiped out over 30% of my profits from the previous 3 months. But my high win rate meant I was still quite profitable after taking the large hits. Of course, none of this matters because Neke has a full time job that pays the bills. If trading for a living, he'd be forced to implement a business plan for trading profitably. There's no way around that.
While many RTM traders have high rates in the 80%+ range, it's not a must. In the end what matters is profit factor, Sortino ratio and annual return.
I went back to my hindsight crystal ball and was devastated: it is indeed a hightsight analysis crystal ball. I don't know what's wrong with those people. I clearly marked on my purchase order that I want a hindsight analysis version. My world is crumbling... All this time I am trading using wrong analysis. In any case, thanks for pointing out.
For every buck he makes on a winning trade, he can afford to lose $1.32 on a losing trade and still come out ahead. He doesn't need to make, on average, more per winning trade unless his winning percentage was 50% and under. I'm all for constructive criticism, but technical analysis after the fact is pretty pointless. Why? Because you can essentially rationalize what has happened until you're "right". Bring up another chart for another symbol and your same analysis can be wrong. It's about what you do in the present and how you manage it that will make difference. Had the VRUS trade turned around I suspect there would be no "analysis" or even perhaps a praise. Neke has a very wide "uncle point", whether it will be ruinous to him, who knows. All I know it is infinitely harder to trade out of a hole and the deeper you your financial prospects become exponentially bleaker.
Every trade has a shelf life and knowing when to fold is the most important thing in the game. How you integrate this into your trading will greatly influence your performance and is entirely unique to you. If anything can be said of neke's trading is that he didn't fold his position soon enough! You can rationalize it however you want, news, technicals, level 2's. Whatever. The moment you know you are wrong side of a trade, FOLD FOLD FOLD FOLD. If you don't learn to quickly fold your trades, you will never make it out alive.
Because he trades options and scales into stock trades with fairly large size, the slippage and commissions will eat whatever profit margin that slim win rate would provide if average winners/losers were equal. That's right, anything can happen, and the best setups can fail. That's what the protective stop is for. One thing technical analysis after the fact does for you is help you define high probability setups. If you study the way high probability technical price patterns look at the right edge until you know them in your sleep, you are far more likely to position yourself on the right side of price movement. A bull flag in any time frame is NOT a long setup unless it fails.
this is semantics. you have to impute commission costs into your analysis. With a 57% win rate, he can afford to lose $1.32 (after commission) for every $1 he makes (after commission).