July 29th

Just barely had a chance to get in some market time today as day-job continues to be busy.

One paper-trade, a short on FAS off the big volume spike at 3:45 pm. This was a high probability signal but a trade which I should have stopped out of on any other stock because it went 16 cents above my short price... on this stock, a 3x multiplier, I extended my normal 7-10 cent stop to 20 cents because of its volatility. With only 500 shares, that's a stop-loss of $100 with the potential to make much more. I exited the drop in the stock when it stalled, but then it dropped again to a low of $52.77 in the next candle, offering me up to 36 cents of gain. I took half at 18 cents. Before last Thursday, what I might have done was double down (add to the losing position) in anticipation of the reversal I thought would come.
And that is why it was so powerful a drug to me. I would win big when it worked. And, it worked much, much more often than it lost. That entry signal has a high correlation of success but when it doesn't work during a big trend day, it is a BIG loss because of all the shares you have in and the fact that the revesal didn't come. I write this mostly as a reminder to myself.

Now, as further evidence of it being a good (but not perfect) sign of reversal, take a look at the drop in FAS from 12:50 pm to 2:10 pm on a 5-min chart. A really nice down trend of $1.33. At 1:00 pm, there is a big downdraft candle accompanied by a large volume spike. That would be a sign to me that a change of direction would take place. If you were already in the stock, it might be where you would take off half, or more conservatively, exit altogether. While the next candle (1:05) is red, you can see the run-up to $53.11 in the price before it resumed its downtrend. You'll also note that after that 1:05 candle, the next three candles are range bound as the stock consolidated after the drop which began at 12:50pm. The stock then broke down out of this brief consolidation to $52.32 with another volume spike at the end, albeit a shorter one than 25 minutes before. What did the stock do after this smaller but notable spike? It reversed direction over the next 3 candles, a 40 cent pop. - Momentum, retrace, consolidation; momentum, retrace, consolidation.

I should note that the volume spike as a probable indicator of pullback or reversal seems to apply only at the end of trends. Volume spikes at the beginning of runs may indicate a big trend move is coming in the same direction. Sometimes, it doesn't seem to mean anything. That's probability for you... and the reason I now am faithful about using stops. Lesson learned.

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1 for 1, a 100% win rate. Gain of $85 in .25 hours of paper-trading.

July 28th

Very little time to spend in the markets with the day-job being busy. Between appointments, I had a chance to stop at the office and get into the markets for about 15 minutes and took one trade in my live account, a long in SKF. Scalped $25 and scooted out to my next customer.

After completing my regular work day, I started watching the market again about 2:30pm. Then in my paper-trading account, my first trade went quite well, going long near the LOD around 2:35 pm. Indicator of potential reversal was the huge volume spike in the ETF at the 2:30 candle along with the overbought condition of the SPX and QQQQ in the same timeframe. On the five-min chart, I held through the tall 2:40 pm candle and into the 2:45 candle, selling when the 2:45 candle went red (the volume spiked during that 2:40 pm run-up candle). It started to re-trace so I decided I should grab and run with my 15 cent gain. Thereafter it did re-trace to within 4 cents of my entry but never did actually reach it before starting back up on a nice run. It would have been great to stay in but I couldn't pass up taking the winner.

The next two trades were stop outs and basically scratch trades. Both would have given a chance at gains had I stuck with the plan of exiting only on a stop-loss while in the initial candle. The second bail-out trade actually continued another 16 cents. There's a lesson... the problem is, I am still trying to formulate an exit strategy that will ensure long-term success. Call it "Road Under Construction." I should add here that after reading Scott Farnham's most recent post at www.fearand greedtrader.blogspot.com, I moved my QuoteTracker watch-list with its bid/ask quote boxes beside my 5-min chart and moved my 3-min chart out of the way. I was then watching all my stocks including the indices go green and red with the pulse of the market. It was quite fascinating and I felt it may have helped out. Not sure as yet, I have to continue to monitor it. I found myself skipping trades and just watching how the greens, reds, and blacks (stalled areas) behaved at critical points like S&R, and especially at places where changes of direction took place; reversals and pullbacks. An hour of watching it doesn't give me any clear sense of it's value but I am intrigued enough to keep watching. I liked what I saw as it brought some clarity to the movement on the chart. I checked and it appears neither QuoteTracker nor Interactive Brokers has an HOD/LOD list so a true reproduction of what Scott watches is not achievable with my current set-up. I know that ScottTrade has a scrolling HOD/LOD list but does not offer a filtering feature (at least it didn't when I had an account there and was using it last fall). As a side note, this ScottTrade list was a valued trading asset for the moderator and very effective trader at the old GOTS chat room. With Scott Farnham, that makes two successful day-traders who use an HOD/LOD list. I sense a trend... maybe an opportunity to go "long."

In the waning minutes of the session, I took a trade long with the feeling that the market might continue to divert from the mean causing SKF to pop as it reverted to mean (10 day sma). It did although it was sketchy... I held the trade as it touched the stop-out point a couple times before going my way. I sold for a small gain in the last minute of the day as the stock continued to climb beyond my exit. I had gone long at a good spot after the reversal, as it turns out.

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3 for 5 winners, a 60% win rate. Gain of $ 105; $25 in 15 mins of live trading and $80 in 1.5 hours of paper-trading.

July 27th

Ok, my first day trying to catch momentum in a bottle, so to speak. Didn't go as well as I had wanted. I did not add to losers today, although with so many manual stop outs, I sure had plenty of opportunities to do it. My average stop-loss was a shade over 7 cents so that seems ok. Largest stop loss was 10 cents. In a number of cases, I took tiny gains rather than letting it stop out and in virtually all of them, I was right to do so, preventing the inevitable stop-loss. On one stop-out that I remember, it turned out to be a pullback. I stopped it out, then it promptly turned back to trend and kept on going. That was a bit frustrating. I think the most frustrating thing is looking back at a terrific trend and knowing that I had managed to lose on it. But, as all of you know, it's not necessarily a trend while it's going on...only when it is done.
So, I was hoping to get a good start today but the market said no. I hooked into a good trade of 18 cents at 11:01 am through 11:11 am. That felt great and got the day back on track after a slower than necessary stop-out just prior. It was tough going from there with only one winner out of 6 until after 2:00 pm. I was looking at all the right things, it seemed. I was constantly asking myself, often out loud, "what is volume doing? Are the indices in my favor? Is price stalling here or is it just resting? Is that change of direction just a fake-out?" Etc. Talking to yourself does not help, as I found out. I hope this isn't coming across as defeatist, it's supposed to portray frustration. Some days, like today, I think the opportunity costs are too high and that I should be working on my business instead. Yet, I keep plugging along. Trading will have to yield to my day-job soon. I have been neglecting my work in favor of the markets and for a couple weeks really felt like I was on the right track... that is until last Thursday. Clearly, I have a long journey in front of me to learn the markets and I must work the day-job more than I have been. I have been taking the day-job for granted over the past two months in anticipation of making up the difference by trading for winners. I'm sure many of you have encountered the same thing in one form or another.
I wonder if I'm fooling myself by thinking that if I study enough FNG charts and map enough volume spikes off today's charts that I'll get the answer. I still have the notion that it is like cracking a safe; you try and try and try, then finally you get it!! You've stumbled on the combination! "There it was all the time, and now I've got it, " you would say to yourself in that glorious moment. After all, I and many of you are looking at the same things (for the most part) as the people who do this successfully; five-min candlesticks, charts of the indices, average day range, volume bars, etc. What are we missing if we see the exact same picture as them? Is it one of those optical illusion pictures where you can either see the Old Hag or the Pretty Lass depending on your perspective? If so, I'm ready to see the pretty lass. That Old Hag is making me sick! Ha! Ha!
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Mrs. Bluecollar and I were having this discussion on the way home from an errand about the apparent "mystery" or "hidden secret" and I thought I would vent it to the blog.
I just seem to have a hundred questions today and no answers... Without a clear sense of direction, I wonder how long it will take? I think of all those people who have been lost in the Maine woods over the years and died wandering in circles, never knowing that they were only a few hundred yards from the logging road that would have led them to safety.
My kingdom for a compass...
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7 for 14 winners, a 50% win rate. Loss of $181 in 6.5 hours of paper-trading. Average loss was $77.29. Average gain was $51.43.