After a rough few days of paper-trading, I have made some adjustments. Back to the 3-minute charts after about 4 days of 5-min charting, and a re discovery of the importance of support and resistance. For nearly three months I have ignored S. and R. in favor of focus on Volume and Diversion from the Mean. Today, I started charting S. and R. and there before my eyes was the reason why I once charted it and why everyone else does it as well. A missing piece of the puzzle was found and I began to see the correlation of large volume spikes, maximum diversions from the mean, and support and resistance.
I still was caught in chop while trying to focus on so much information as compared to the bare-bones simplicity I had been trading. But, this added piece of information is going to be helpful, I believe. I now have to figure out what weight to give the three indicators in relation to one-another to achieve my best results. It is still possible to suffer the same problems with the added information. I had some early success today but for small gains, going 8 for my first 11 trades for a gain of 37 cents per share. Then, as has been the case lately, I got into a choppy phase in GS and was stopped out 3 straight times for hefty losses compared to the gains I had taken earlier. I played for a continuation of the down turn and to my dismay, it reversed. I was slow on the exit and the eventual reversal to the long play. I must learn to execute faster and avoid the bad entries that slow responses inevitably give a trader.
At this point of the day in GS where I made these 3 losses, lies a good example of the importance of Support in making a decision on a stock's direction. On a 3-min chart, the 1:18 pm candle is the second big red candle in a down-draft on GS. Note also the substantial relative volume of theat candle. Further, note that it is within 6 cents of the support line from the close and open prices of the 10:15 and 10:18 candles respectively. And, to go along with that, see the large diversion from the mean (10 day simple moving average) that the candle registers for a low price; approx. 84 cents, a nice push from the average for a mid-day move. The reversal did take place in the next (1:21pm) candle. While the down move did continue after that, it went only 18 more cents lower on un-impressive volume. The 1:18 candle with all it's supporting indicators, was a nice exit point. It later is identified as very near the mid-day low, which took place at 1:51 pm. In hindsight, I see all the indicators of a high-probability reversal. I did not heed the indicators and that is why I took big losses on the three GS trades I mentioned earlier.
From there, I managed to finish the day 7 winners out of the next 12 paper-trades, taking extra note of the importance of support and resistance areas in where the SKF and GS prices were reversing or breaking away with force.
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15 for 26, a 58% win rate. Gain of 28 cents per share.
