I'm excited about my "bad trade." I don't remember being so thrilled at a mistake since the early days of my practice trading in January... and I'm not being sarcastic. Explanation to follow at a later time.
We're taking the bike out for a ride and to grab some dinner.
For the first time in many weeks I am encouraged and re-energized.
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I didn't get a chance to update this post last night... the ride was great and the dinner was casual. A little rain fell but only while we were in the restaurant so we managed to not get wet... A good evening to that point. Unfortunately, later my beloved Red Sox fell to the Evil Empire. I shut it off before the end and just moments ago learned the final score... wow, that was ugly.
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Anyone who has read this blog knows that I am a big fan of Scott Farnham's trading skills and a student of the trading style to which he adheres. With that in mind, I have read and am now re-reading the highlighted passages of "The Strategic Day Trader" by Robert Deel; a book which he mentioned last year in his blog. In it, Deel outlines the use of the 7 & 17 EMA to evaluate trend, among other relevant concepts. At FNG Day Trader, Farnham mentions that he doesn't pay much attention to the 7 & 17 but still uses it to remind him of trend.
Moving Averages are based on old information, of course. As such, decisions derived from them will tend to be late. However, Deel's approach focuses strictly on capturing as much as possible of primary trends of stocks and is very critical of scalping. He recommends the 7 & 17 EMA as a way of taking the meatiest parts of long trends. I decided to give it some attention and see if it was a tool I could use. On the first trade yesterday, I shorted ARO when the 7 crossed down over the 17 EMA. I exited at $39.04 where I thought the price would find support (see: low of 12:05pm candle) and netted a gain of $97. The stock did stop there but descended to a stronger support area about 6 cents below (see: 11:25 and 11:30am candles, and 12:00 candle).
Moving Averages are based on old information, of course. As such, decisions derived from them will tend to be late. However, Deel's approach focuses strictly on capturing as much as possible of primary trends of stocks and is very critical of scalping. He recommends the 7 & 17 EMA as a way of taking the meatiest parts of long trends. I decided to give it some attention and see if it was a tool I could use. On the first trade yesterday, I shorted ARO when the 7 crossed down over the 17 EMA. I exited at $39.04 where I thought the price would find support (see: low of 12:05pm candle) and netted a gain of $97. The stock did stop there but descended to a stronger support area about 6 cents below (see: 11:25 and 11:30am candles, and 12:00 candle).
As mentioned earlier, this trade had a late entry on the full trend move but that is the nature of trading moving average crosses. This represents something different for me because I am ususally very early on entries and far too early on exits, playing the first parts of a move. This one was playing the back end of the move, a good lesson, I believe.
The second and final trade was one where I was trying to play the next move after the success on the prior one. I looked for price to stabilize (consolidate) or reverse to the upside right away after the pullback of the huge, all-day runup. The large spike in volume during the 1:15 time period was my clue to the probablility of it happening. I watched to see which would take place; reversal or consolidation... Consolidation was the result and continued for 25 minutes. I started to feel something was going to happen during the 5th candle; volume ramping up after dojis on the three minute chart. Then came a quick drop near the end of the 5-minute candle. I shorted, the price stopped on a dime, and started up. I was suckered by the head fake, something all my basketball coaches had told me never to do when I was younger. (Farnham also warns of this fake-out in the comment section of his 10/31/08 essay entitled "My Set Up," where he states, "I do pay close attention to the clock. Many times when the clock is about to change to a new 5 minute period, moves happen that are not real, as in a nice down trend and then the candle shoots up 10 seconds before the change over, only to drop back down afterwards.")
The second and final trade was one where I was trying to play the next move after the success on the prior one. I looked for price to stabilize (consolidate) or reverse to the upside right away after the pullback of the huge, all-day runup. The large spike in volume during the 1:15 time period was my clue to the probablility of it happening. I watched to see which would take place; reversal or consolidation... Consolidation was the result and continued for 25 minutes. I started to feel something was going to happen during the 5th candle; volume ramping up after dojis on the three minute chart. Then came a quick drop near the end of the 5-minute candle. I shorted, the price stopped on a dime, and started up. I was suckered by the head fake, something all my basketball coaches had told me never to do when I was younger. (Farnham also warns of this fake-out in the comment section of his 10/31/08 essay entitled "My Set Up," where he states, "I do pay close attention to the clock. Many times when the clock is about to change to a new 5 minute period, moves happen that are not real, as in a nice down trend and then the candle shoots up 10 seconds before the change over, only to drop back down afterwards.")
I nailed the last lowest price of the primary pullback/consolidation of the stock all day! It was perfectly, beautifully wrong! The next candle was a doji, and then an eight cent pop, 15 minutes of conslidation, price crossing the 7 & 17 EMA during the 2:10pm candle, then trend. The 7 never really got close to a cross of the 17 from that point on. I stayed with this trade and played it as if it were a long, exiting during the 3:50pm price spike, only 15 cents from the eventual top and 5 cents above the end of day consolidation area. A big losing trade? Yes, the biggest I could make it. What I take from this, and what I find encouraging is that I am getting a feel for motion, trend, and the interplay of price with S & R. I'm attempting to play each trend in succession instead of waiting for the perfect, favored set-up, trying to identify patterns of movement and the influence of volume on that movement. I am NOT about gains and losses; I've descended the ladder well below that level. I'm tearing down in hopes of rebuilding. The last time I started fresh, I went about 7-8 months without trading my real account. I am now back there... in the practice account where wins and losses are irrelevant. It may take 6 months, a year, maybe more. But I believe I am learning every day and I know I won't just wake up and be suddenly able to do this well, like a flick of a switch. The learning curve is a gradual trend and not a price spike. I am in consolidation. And those are all the trading metaphors I can stomach right now...
