It's a good thing that I didn't go out to lunch today because the best trade of the day came right at lunch time. It's also a trade that saved my buttocks because I was in the hole $1500 bucks until I took it.
I got into the hole early by trying to fade the opening gap. I was a bit over-anxious and got in right after the open hoping that the market would go down and fill the gap. I refused to take a stop loss as the market climbed higher and I nearly doubled the loss that I would have had if I had kept a solid stop-loss in place.
As price continued to climb, I started thinking that we were heading for a trend day and I started buying. I bought on three pullbacks and had made up my loss and more several times as I stubbornly held on. Price eventually crossed the 50 period moving average and bounced along the bottom. I had a chance to get out, but I was so biased to the upside, that again I held on past my stop and ended up losing more.
I was ready to throw in the towel, but thanks to my mentor-ship with Corey Rosenbloom, I saw a nice setup forming (the cradle trade as Corey calls it) as the moving averages crossed. I sold short and held on for dear life as the bottom fell out and the market went down in nearly a straight line.
I exited when price seemed to slow down forming a doji as the move lost momentum. Another pattern that I've learned from Corey is the "three push pattern" where price makes new lows or highs three times in a row, but the price moves are not confirmed by momentum. Often a reversal follows this pattern. I'd say we got one of those reversals today. Holy cow.
I had lunch with a friend today and left while this bull flag pattern was developing. I had even put a Fibonacci retracement on it thinking that it might be a good place to get in. It set up perfectly about 10 minutes after I left with a bounce off of 61.8% and went on to make its target right before I got home. More proof that the market hates me.
I don't think I was alone in expecting this to be a down day. After the massive gap up, I was still doubting this rally--toxic debt relief and all.
I dipped my toe in after the doji at 11:30 (first green arrow) and quickly took my profits at noon. As price flatlined I ran some errands expecting the market to regain some sanity over the lunch hour.
I felt a bit vindicated when I got back as price head downward and started licking the 50 (blue line). I was sure we were headed down and that the trend would end. After the buyers and sellers painted a doji (second green arrow) just above the 50, I started getting uneasy. Should I get in!? Can the buyers push this thing higher!?
My indecision cost me a lot of money as price bounced between the averages and then rocketed upward through the 20 (green line). After that, there wasn't a safe place to get in and we ended the day after a massive trend day up 7.21%.
Once again my bias has cost me a lot of money. I'll probably never learn.
I was able to make my monthly goal during the first few days of March. After an awful February, I thought it would be nice to sit on my winnings and trade with a simulator to test some strategies. I found a strategy that was working very well. Yesterday the strategy was up over 8R.
I decided to do some more testing this morning. The market opened kind of scratchy anyway. So I took several trades to test out how the strategy performed right after the markets opened. I found out it performs quite terribly. After losing a bunch of "sim" cash, I decided to switch back to my real account and take a trade on SPY.
I found out switching was unnecessary, because I was ALREADY USING REAL MONEY!!! I had forgotten to switch the account and took hit after hit using my real account. I felt sick.
The rest of the day was spent trying to earn back what I had lost. This never works, and it didn't work this time. I added another 500 bucks to my losses.
Of course my father called after the market closed. He really doesn't understand what I'm doing as a trader. He asked me how things went for me today because he assumes that whenever the market is up I make a lot of money. I didn't have the guts to tell him that I'm a moron and I lost a bunch of money while I thought I was pretending.
They say a loss hurts much more than a win feels good. They are right.
It looked like we were going to have another trend day today. I wrote to Corey at Afraid to Trade and lamented that I wasn't playing for a trend day even though the market was having one. He wrote me back and said that he highly doubted that we would end higher--there was just too much against another trend day. He ended the e-mail with, "Got some major confluence overhead that could stop this rally any second now."
As soon as I got his response (about 1:45 EST) the market began its tumble down. That guy knows his stuff.
Despite the day ending lower, there were still opportunities out there for nimble traders. I highlighted the flag patterns that occurred today and met their targets. I also played for a gap fill today. I managed 1R before heading back to break-even.
There wasn't much action in the major indexes today as we kind of churned after a huge day yesterday. I did notice a nice bear flag at noon that met its target. I've been playing around with Fibonacci retracements on flags lately, and I've notice that they often provide concrete areas to place stops.
In this instance, there was a nice doji around the 50% retracement that provided a good entry. Placing a stop just beyond the 61.8% retracement would have provided a nice risk/reward ratio.
Let's say you sold short at the 50% retracement ($69.70) and placed your stop 10 cents above the 61.8% retracement at $69.89. That gives you 19 cents of risk.
The trade worked out and your exit would have been at $69.15 giving you a 55 cent profit or 2.89 times your original risk (of 19 cents).
For those of you who enjoy seeing the market go up, today was your day. It's nice to have some good news once and awhile.
This was a trend day, but it was difficult for me to trade. I was chomping at the bit after the opening gap of over $1, but I couldn't find a decent place to enter. I took a trade on the first pullback of the day (first green circle), but I had a hard time finding a decent place to put my stop after that huge run up.
I ended up placing it below the low of the day, right at the 50EMA. The market was already up 250 points at that point, so I didn't feel like there was a lot of upward potential left, especially with the size of my stop.
We drifted into two periods of consolidation that each lasted a long time. After the first consolidation we broke through at noon with some huge volume and I thought we were off to the races. But price couldn't break though the highs of the day and continued to bounce up and down along that channel until the final leg of the day began at 3pm.
I was tempted to call it quits as price broke the 50EMA. Fortunately, it didn't stay below it too long, and I finally made some decent money by the end of the day.
Any of the green circles were decent places to take trades today (in my opinion). I took two of those trades. If you were smart enough to buy right after the opening gap, you had a tremendous day--congratulations!!
Visit Isthisthebottom.com for answers about whether it is time to call the bottom and jump into the market.
DinosaurTrader linked to a site with some excellent articles and charts dshort.com. Check out this cool Bear Market chart they posted:
For those of you who have friends and relatives who think you are just "gambling" when you trade, here's a site that allows you to do just that--bet on stocks--RawTrader.com.
Except for the little bump at the end of the day this was a perfect trend day. Unfortunately, I was hesitant to trade it and I lost out. I've circled the high probability trades (shorting). I took the pullback in the third red circle and held until the end of the day for a wimpy 1R gain. I wish I had taken those three dojis just after the open and held on all day with a nice big position.
I've made decent money this week, and after blowing good gains on several Thursdays and Fridays, I was reluctant to risk too much. Oh well, at least I didn't lose my shirt today.
Is this market a mess, or what? It's crazy for me to think that I made my first short trade only 6 months ago.
One type of trading that I've been working on for the last few months is a "trend day" in DIA. I've had real trouble trading trend days because I second guess every decision and usually end up making a whole host of mistakes.
I nearly blew my chances again today at about 1:10pm where DIA's price dropped down to the 200 SMA (red line). I had a stop set just above the 200, but fortunately after my 4th entry of the day, I cancelled the stop order to add the additonal shares I had purchased. Price dropped quickly through my previous stop and I watched as my dialy positions dropped to -$2000. I held on and after price formed that nice little hammer, I set the stop under the 200. Fortunately the price climbed from there.
I got spooked at 3pm when volume surged and price formed the bearish hammer, and I dumped all my shares. I was regretting my decision a few bars later, but the drop at the end of the day through both the 20 and 50 period moving averages made me feel glad that I had dumped my shares when I did.
Corey at Afraid to Trade was recognized today for his diligent (some say "insane") work on and understanding of Elliot Wave Theory on Andrew Horowitz's blog The Disciplined Investor.
After the article was published (you can read it here), Corey told me that his blog was inundated with traffic and he and his web team had to work hard to keep the blog from crashing. It was down for a bit, but they have got it up and running again.
Corey has been a mentor and advisor to me over the last 8 months, and although his knowledge goes way beyond what I can fully comprehend, he has been able to dumb down many market concepts. I even kind of understand Elliot Wave Theory.
I would encourage anyone who is interested in trading for a living to seek out someone who is doing it. Anyone who has survived this past year is a good start. Many bloggers offer their services for ridiculously inexpensive rates. I have consulted one on one with successful traders who charge me less than the guy who fixes my car. I've been able to transform the money I paid for trading education into winning trades that paid for my education in a day or two.
So get out there and find someone who can teach you the ropes of this difficult profession called "trading". I think Corey still offers mentoring opportunities, but you might have to hurry as he becomes more well known.
My first trade was a gap fade on DIA. I wimped out and got out before it met its target for a decent (1.4R) gain.
The rest of the day was pretty choppy so I stayed out and traded EQ's narrow 30 minute candle. I placed a stop above the candle (orange dotted line) with plans to sell at the lows of the day near the close. I wimped out on this one two as price moved up and I jumped out. If I would have held until the end of the day I would have made 3.32R. I made about half that.
What a frustrating day. After the gap didn't fill, I went long on DIA only to be quickly stopped out with a stab beneath the 50 EMA. Then price formed a nice bear flag at 12:00 (first set of blue dotted lines) and I attempted to short and was told that the stock wasn't easy to borrow by my broker. A stock that trades 31 million shares in the day and it isn't easy to borrow?!!
I assumed it was a glitch and watched as the bear flag met its target. Price then set up another bear flag and I attempted to short it. Same message. I couldn't short it. Again the flag met its target as I sat idly by.
I then switched to SPY hoping to trade the next bear flag setup (I was pushing it with three in a row--that's pretty rare). I set my stop way too close to the 50EMA and barely stopped out as the 50 was breached for a moment. DANG IT!!
I immediately shorted again when SPY formed a couple of dojis near the 50 (first blue arrow). Price took a dive, just as predicted, but I was too bothered by my other trades and I move my stop to break even so that I wouldn't lose any more money.
Of course the price bounced off the 200 MA, came back up, took out my stop, formed a doji and then headed hard down. I was too exasperated with my losses to take the best trade of the day that would have made all my losses back (and more).
I'll need to pick myself up and brush myself off and see if I can do better tomorrow. The Office is on tonight, and that show usually seems to boost my spirits. I hope your day went better than mine.
If anyone out there has a system that picks stocks like these the day before, I'd be interested in hearing a bit about it. This one would have made my decade.
I love trading narrow 30 minute candles for several reasons:
The narrow candle at 11:00 provides a great entry point. If you placed your stop right above the candle (red dotted line at $43) and sold short when the 11:30 candle broke down below the close of the 11am candle (orange dotted line at $42.40) you would have risked 60 cents per share ($43.00-$42.40). Holding on to your MOS trade until the end of the day (about $35.95) would have made you $6.45 per share. That's 10.75 times your risk ($42.40-$35.95)! Risking $1,000 on the trade would have made you $10,750. Nice.
At the exact entry point in our 30 minute chart, the 5 minute chart shows two edges--a bollinger band break and a moving average crossover right at yesterday's closing price. To manage risk you could use the 5 minute chart to trail your stop along the 50 EMA. If you are more agressive, you could just leave your stop all day. I like to move my stop to break-even as soon as the stock has made 1 times my risk (in the case of MOS 60 cents). 
It's kind of crazy to think that we are now at the same point we were in 1996. How awful for people who trusted others to manage their money.
Like others, I didn't have the clairvoyance (or the opportunity) to move my retirement money to the safety of cash. Most of us don't have many options when it comes to our retirement and even if we have a little bit of market knowledge, we are still extremely limited in our choices. I had 10 funds to choose from, and was discouraged from keeping my funds in cash (it was a rigorous process to sell the funds and place them into a cash account--and I was too lazy to the paperwork).
I decided last week to cash out my accounts after seeing how decimated they were over the past year. I haven't been saving for retirement very long. I started in 2003, so I didn't have much of a nest egg built up. But what I got back (after taxes and penalties) was half of what it was a year ago. The 10 percent penalty added to my frustration. I'm paying a penalty because I'm tired of market "professionals" losing all my money!
This might be extremely irresponsible of me, but I'm not planning on keeping a retirement any more. With the insanity that has happened in the government and the markets, I don't feel that I can really trust that the market will "always go up", or that my account is safe from a desperate government that has run out of ways to raise capital.
Our "coiled spring" is now broken--to the downside. That's not good if you're a bull.
Today's action was difficult for me to trade. For the most part I avoided dumb impulsive trades. I didn't make money on any of the 5 trades I took today (the red arrow is one of the short trades that I made and stopped out). My chart on Tradestation didn't look as bad as the one above does. Today was much more choppy than I realized.
The blue dotted line at the bottom is the low of November 2008 (on a closing basis). You can see how the bears kept pushing us to the breaking point, but we didn't manage to bust through until the close. That makes tomorrow an interesting proposition. Will the bulls see this as reaching "capitulation" and try and take over, or will the bears see this as the bulls giving up and push the market down further?
I've included a bonus "narrow candle" chart for a trade that I didn't take today on EOG. If you would have sold short when the narrow 9:30 candle got broken (red arrow) with a stop above (orange dotted line) you would have made 2.7 times what you risked.
There weren't a lot of trades out there today after that awful gap down. Tomorrow should be interesting.
The market's wedge has been narrowing for a long time now and seems poised to break out pretty hard. The premarket chatter points to the down side today and there doesn't seem to be anything positive to counteract all the negativity. The November lows are well within reach, so I'm looking for at least a retest of those lows.
I don't know if it will all come in one day, but even though I'm supposed to be waiting to let my account settle, I just might have to trade if the market opens itself up and gives us a strong trend day. Stay nimble out there. Be patient and wait for the opportunities to present themselves.
The snow is still piling up. I made a few pretend trades this morning. I don't feel the pain of losing as bad when I'm paper trading, but I had to look to make sure that the account was not real several times just to make sure.
I was up $1,000 for a bit and then ended up down $700 by the time I was finished. I'm not sure what my problem is, but I'm glad the money wasn't real today. Maybe this three-day weekend will give me an opportunity to re-evaluate everything and make some changes.
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