I was happy to get a chance to paper-trade today, given my day-job schedule. While I didn't get much time in, I did pick up three opportunities at gains and watched a couple more get away, including the break of the $115.57 support in POT at 3:45 pm. I had a strong feeling it was going to break down past that level... in fact, I had a short earlier at 3:23 pm that went down through this level but it showed reverse to the upside so I sold it about 8 minutes later at $115.45. It went on to push against this support three more times over the next 12 minutes (3-minute timeframe) before it finally broke at the aforementioned 3:45pm candle. The move below the break of support bottomed at $115.14 at 3:57 pm; a gain of 43 cents per share. A nice trade, but I was watching SKF briefly then attending to the chicken I had cooking in my crockpot and I missed the move. Oh, well... can't get them all! [That chicken will be very tasty though, cooking on low all day in a blend of barbeque sauce and chicken broth :-) ]. The POT trade I did make was a satisfying trade because I found POT late off the retreat from the HOD but still took the trade short in the direction of momentum, rode it until it seemed to run out of steam, and covered near the eventual bottom of the short-term move. I didn't "chicken" out on the trade, I just watched the signals. My other two trades, both in SKF, were less satisfying. I ended up getting out too early on both after very good entry points. [*see chart above. green line is entry of trade, red is exit. The line which joins the entry & exit lines is green indicating a gain on the trade (a red line would indicate a loss). Lines slant up to the entry point for longs, down to the entry point for shorts. ]
Why did I pick these as entry points? Take a look at the distance the wick of the candle is from the mean (orange line, 10 sma)... Also look at the volume levels. Both of these are my primary clues to a high-probability reversal on a stock. They indicate extremes in buying or selling emotion and are very often accompanied by impending changes of direction. Fading high divergence from the mean coupled with high volume and an eye toward what the indices are doing will give you a great feel for reversals of direction.
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As to my bailing out too early on good trades, Mark Douglas states this in Chaper 11, page 192 of "Trading in the Zone:"
"Believe it or not, of all the skills one needs to learn to be a consistently successful trader, learning to take profits is probably the most difficult to master... I point this out so that those of you who might be inclined to beat yourselves up for leaving money on the table can relax and give yourselves a break. Even after you've acquired all the other skills, it might take a very long time before you get this one down pat."
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Needless to say, I need work on recognizing exit signals.
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3 for 3 winners, a 100% success rate. Gain of $367 in 1 hour of paper-trading.
