What I learned (relearned) in the last few weeks is: One, figure out the face of the market then to match the setup with the market face; Two, do the reward/risk number, a 2:1 ratio is a minimum. Any setup can give you better than 50% advantage, but really not high enough, 60% 70% typically. With a helpful market in the same direction, the odds is probably at 80%. Another thing the market has influence on is the number of opportunities, setup scan may not turn out any results in the wrong market. You may say it does not hurt, but it does, one thing is that you are wasting limited mental energy, second thing is that you may push for a trade and relax the setup criteria, ending up taking the trade with less than 60% edge, minus the commision and slippage, the true odds is around 50%, which makes it effectively a gamble. Naturally I want to be an all-weather trader, the setup I can think of are: breakout up, breakout down, following up, following down, S/R reverse etc. The third thing I am thinking is to ride the position a little longer - what is the condition to ride longer and what kind of stop? Going through my own past trades, it firmly shows that if I 'd ride longer, the performace 'd be much better. This is just one another mental deficit I have to pass. Ride it longer, Ride it longer, Ride it longer !
I am very satisfied with this aspect of the operation that I built. Every night I go through my pool of a few hundreds of charts and setup the price level to real-time alert. One day this operation is going to be like running a machine. A printing machine that prints money. I read from many sources that a mature trader feel calmness and even bordom when he is operating. So the daily routine, as I imagine, shall be: Preparation 0. Update the pool of interested stocks. 1. Determine the current market stage/phase. 2. Determine the directional bias. 3. Look out for market chaging events. 4. Pick the suitable setup. 5. Find the individual stock. 6. Calculate the risk/reward. 7. Setup alert. Execution
Today is another day of frustration and struggle. I did anticipate the market move correct, which is hard to make a move up, but can go down as the feeble rally is getting tired, but there won't be downward momentum. I moved my 401(K) to cash and setup alert for two kinds of trade: One. low volume drifting up against resistence, which give me BRKS at 22 and ANAD at 6.75 Two. setback to a support established by previous strong volume day, which gives me CCBL at 13.5 and AMSC at 13.5.
A couple of momentum breakdown trades did not work out for me today. I am trying to think if there is anything to learn from. One thing I can say is that the breakdown chart I picked is not strong enough, if previous day is heavily down and there is some feeling of scare in the air, it might have worked. They are valid chart, just weak. What hurts is after I was stopped out, then the price came back down to where I shorted. Another thing that might be called a lesson is that when the breakdown had no follow-through and just stalled, I should have called it miss and closed and saved me that stop. The theory of breakdown/breakup is that particular price level has great phychological impact. If it went through it, people should panic and sell everything. So on the other hand, if no one is panicing, the price stalls, that means it is not a valid breakdown setup, which means close the position and save the cost of a stop.
Tuesday's trading was a mess. It really hurts my feeling, if not so much about loss. I anticipated its coming, the fall down, I moved everything in 401(K) to cash on Monday. But Monday night something in the household costed me whole night, I was emotionally distracted and could not make any preparation. Tuesday's signal was out on Monday's alert setup, reasonably OK but my execution was hurried and my nerve was fragile. Overtraded also - before the day began I told myself not to trade at all but eventually traded 6 (!) positions in total. Unprepared. Lost a few hundreds. If I made preparation or had better nerve to stand by my original stop, it would be a sizable net gain. Shit! Well, at least I did not blow my stop this time and I recovered my sense today. Similar distraction happened quite a few times before, taking away many thousands of dollars and depressing me for weeks and months every time. Oh, man, life is not easy.
Say ABC has strong support at 7 established a few days ago, it comes down from 8, it is going toward 7, my alert goes off at 7.05, how do I trade it ? It could go to 7.03 and reverse to 7.23, a small local resistence, or it could go through 7 and reverse at 6.83, where my planed stop is at 6.93. Fine, how about a looser stop at 6.73. Now that the reward/risk ratio is 2:3, less than 1:1 ! Now I think about it, I 'd better watch for a intraday bottom pattern after the alert, the alert should not be used by me to immediatly buy. I shall use the second touch-down to buy, with the first down + a few cents, on the 5-minutes chart, as the stop. The above is about the intra-day bottom, if this holds, then this intraday bottom could develop into the daily double bottom, signalling a trend reverse for the daily chart. At the end of day, check the volume and other aspects of the chart to verify. So at the time of taking the positon, I have the coordination of both daily chart and the intraday, and the stop is clear-cut. The market should be non-adverse.
Momentum is back, but it is going to the down side. Last Friday I put on a few long positions, two are bouncing off support setup, one is pull-back after strong upward momentum. Now think back they are wrong pick for the time. Friday was a strange day, but the whole picture would be still clear if I had spent time studying it. The market was bouncing off low for almost two weeks and was stalled against a resistence. I bought something at the support price, which means it was performing worse than the market. The right setup should be watching for the range breakout, up or down. At the Friday close, the force of bull and the force of bear is the same. Bull has the long term bull market behind it, bear has mid-term trendline. Today clearly showed that bear is in charge again, probably some big mutual fund is dumping large tech. Now the right setup is certainly short-breakdown and short-bounce. Searching for support-bouncing or momentum-pullback needs to wait a couple of days at least. NASDAQ is likely to hang on at 2000 for couple of days and go down again within the week.
On Jan 27th, and Jan 28th, the first two days of this correction, one day my email was borken, the other day my PC was frozen and the brokerage site broke down. Big loss. Yes, I know, if I had prepared for the right setup and not so lazy to put in a die-hard stop-loss, things would be quite better. The bounce on Feb 5th, got it, loaded up on my 401(K). Feb 19th, got it, made some on shorting, and unloaded 401(K) in a previous up day. Feb 23rd, got it, loaded 401(K). Made a few bucks in trading. March 8th, today, wrong direction, at the expense of three stops. Days like last week, should be market neutral, one long setup and one short setup. I had actually thought about it when doing the preparation Thursday night, but none of the short alert went off on Friday, so I ended up with 3 longs. Man, both trade level execution and account level planning need to be right. Some days account level planning does not matter, the market is drifting mindlessly. But in days like today, it is going to save a lot. What if I just did not find a good balancing short like last Friday ? Dunno. I have to think about it. Short QQQ ? But I don't have so much buying power. Anyway, one more lesson learned, not the first time.