April 27th Re-Discovery

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.

A day away from the market...

I just returned from the day job and took a look at my overnight SKF long position. It was down quite a bit but off the lows of the day. I did close it out just a bit ago. It appears it was in the money for a few minutes between 10:20 and 10:23. As I blogged this morning, I would have sold it there, had I been able to be in front of the computer. So, that's how that has played out. It really doesn't matter anyway. It is paper-trading, after all. Loss of $27 per share on the trade but would have been about even or slight gain IF I been in front of the computer. Of course, as the old saying goes, "...and if I had wheels, I'd be a bicycle!"
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I have the charts up and this blog running but I am not trading. I must attend to business admin deadlines today. In fact, this is one which MUST be done within the next 2.5 hours or I won't have any phone book advertising for my business in 2009-2010! When I state that I have let everything lapse for my time in front of the markets, I assure you I wasn't kidding. Also, I filed an extension on my taxes! Didn't make the time to do them!
As I write this, SKF is making a monster move up (2:00 PM) and now retreating. Now it is nearly at my breakeven point (2:10 pm). I can't take my eyes off the charts... I am obsessed with and haunted by the idea of being a trader for a living...

Priorities & Balance

Since February 1st, I have been blogging about my progress trying to learn to trade the stock market through paper-trading. During this time, actually about two weeks prior in mid-January, I set my mind to give as much as possible to this endeavor. Nearly all my free day hours are spent in front of the computer, in the evenings I read blogs, work on this blog, and study resources related to the stock market.

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Last night, Mrs. Blue Collar and I attended a minor league hockey playoff game. During dinner out prior to the game, we discussed at length my frustrations at repeating the same mistakes, my inability to focus, and the inevitable discussion of when I might move to live trading. I feel I am not ready because I see in myself the lack of discipline and the aforementioned penchant for repeating the same mistakes over and over. I have shown some paper-trading gains since I started keeping track on March 1st. I've had 26 winning days out of the 31 that I've traded. Paper-gains (not counting my current open position) have been $23.41 per share over the same time frame. Yet, I don't feel I'm ready to risk real money. I haven't mastered my trading strategy. In fact, I haven't settled on a trading strategy as yet. I had some good results from fading high-volume, strong diversion-from-the-mean moves, and still that tactic seems to have validity. But as the volatility has shrunk, so has the force of those moves and it is not nearly as easy to quickly profit off them. As I have often blogged about this strategy, it is prone to big losses when a stock doesn't reverse as expected. My original intent has been to be a momentum trader. From my months following and participating in the outstanding old GOTS chat, I saw the importance of riding "momo"moves in garnering profit. Then in late January, I was referrred to Scott Farnham's Fear & Greed blog and it cemented the importance of joining momentum and the real power of harnessing this strategy of trading. More recently, I have decided to make my tactic of trading reversals a secondary one to learning to spot and ride intra-day trends. The past few days have been frustrating. I thought the transition would be a clean one; flick a switch in my head and voila'. AS most of you know, this is not a reasonable expectation. At times, I fell as though I am starting over... Do I think I'm back at square one? No, I don't. But, my goal of trading profitably with real money seems much farther away than it did a month ago.
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So, back to my dinner last night. Our discussion did turn to the finacial realities of life. I have devoted an inordinate amount of time to trading. So much so that my small business has suffered. It requires marketing, and administrative time. It deserves that since it is the primary vehicle by which we survive. I write this post because when I told Mrs. Blue Collar about my intent to postpone today's day-job appointment to close out my overnight position, I could tell by the look on her face that this was a mistake. The fact is, I have been giving my work-life short-shrift since February and it is starting to show in the bottom line. I have been lax in marketing and I have been filtering work projects out in favor of spending time in front of the computer. My administrative duties have been suffering some also as evenings formerly reserved for them have been taken up by stock market study. Needless to say, the soft economy has played a part as well.
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I love this stock market thing and I see it as my eventual career. I am approaching the point where I must decide on what my life priorities are and what balance I must strike between trading and my personal financial health. Clearly, if I am going to be switching trading strategies every month or two, I will slowly destroy my business. I have to focus and settle on one trading strategy, learn it, and apply it! My financial health depends on it. I also must not act as though paper-trading is supporting my household.
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How many of you have gone through this or a similar conflict? I'm curious...

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Addendum: I am holding my 9:00 am day-job appointment and not sticking around to trade my open position. For the record, I would trade it at the first opportunity after it goes positive gain. Right now, it appears to be holding at a loss because of the Ford earnings report. If the postition stays negative, I'm inclined to hold it until it does go positive.