Thursday, April 12, 2007

Only add to winning positions

I made that rule the title of today's post because it's the reason why today was the first day I made money all week. Also, after today, I feel I've learned that my constant violating of that rule is also a major reason why I have been in such a slump for so long.

I'm not saying that I've completely isolated my problem that easily and quickly, but today, simply because I was conscious of adding shares only to winning positions things went much smoother for me.

First and foremost, this rule prevented what could have easily turned into a disaster for me in BTU in the early morning.

I bought 200 shares of this stock near the open at 45.35. I bought it because it had pulled back for the last 2 days on light volume after a strong run-up on strong volume. Anyway, it went up and so I bought 100 more shares at 45.48 a couple of minutes later. I decided to take some profits right away because it broke above .50 and the market (at that time) was acting jumpy. I sold 200 at 45.59 and stopped 100 at the low. I was stopped out of that 100 shares seconds later at 45.27. So, it was a small winner.

The stock bounced off a trend line that I had drawn on a 60-minute graph that had held since last week. So, I bought again and was filled at 45.40. Less than 10 seconds later the stock came down and took my stop out at 45.25.

I bought again, this time at 45.33. Again, the stock broke the low of the day and stopped me out seconds later at 45.17.

The key here is that I only lost $41 in the stock even after getting all choppped up. That happened because I only added to my position once, and that was on the trade off the open that I made money on. On every losing trade in BTU I kept my losses small because I never added to the losing positions.

Most important, because I wasn't adding to losing trades, I never felt like I was "fighting the market". I was losing, yes, but I was accepting the losses and moving on, not building bad positions and getting caught up mentally in them.

Of course, if you check that graph I was basically stopped out near the lows of the day and then the stock ripped 80 cents. Frustrating? Yes, but not debilitating.

I don't like to lose more than 20-30 cents in a trade. It means I get stopped out a lot, but as long as I can keep the losses small, I can make money.

Anyway, so here's my good trade.

I was watching RAS today because I saw he was close to breaking the downtrend line, that has been in place since late March, on a 60-minute graph . When MTG, another stock that I feel is loosely related, began to rally despite a poor earnings report, I bought a couple hundred shares of RAS at 26.21 and then 100 more at 26.23. This was right around 10:05.

This was clearly an example of me anticipating a trade, a topic that Michelle B. tackled today over at Trader Mike's site. The trend line that I was hoping to see RAS break was still a quarter-point away, so I figured this would be a safe place to initiate a position. Even if he didn't break the line I would be able to get out with a small gain or, in a worst case scenario, break-even. And I figured with the market looking stronger and with other stocks in it's sector rallying that it was worth trying to buy RAS a bit "early" in anticipation of a break.

Anyway, it worked. A few minutes later, RAS ran up to 26.50, breaking the trend line and stopping me into 100 more shares at 26.52 so I had 400 shares of a stock that was acting how I wanted it to. When he traded below 26.50 for a couple of minutes without breaking it's uptrend line for the day, I took the opportunity to buy 200 more shares. So now, I had 600 shares and the stock was breaking the 60-minute downtrend line. I felt pretty good about it.

When the stock advanced to 26.67 but then slowed, I sold 400 shares at 26.61, taking some profits. But I kept my eye on the stock. When it broke 26.67 I added again to my position at 26.70 and again at 26.78 bringing it back up to 400 shares. I held through a base between 11:30 and 1:00 and once the stock broke out of that base, I was in the clear. I sold towards the end of the day at prices ranging from 27.30 to 27.47. All told, it was the best "feeling" trade I've made in a long time.

Anyway, here are the numbers:

P&L, $543

stocks traded, 16: 8 positive, 8 negative
total trades, 172
volume, 15,000 shares


FX said...

I think that you will be pleased with information that your blog are now first blog that I open when I come home in the evening. The second, previously first, is NYSE scalper than Trader ZBS and evolutiontrading. I just want to give you with this feedback on your quality blogging.

Dinosaur Trader said...

Thanks for the kind words, FX.

Things worked like this. I hate the hybrid market, so I read the HybridTalk blog everyday. One day, Ray linked NYSE Scalper. I read NYSE Scalper's blog and was impressed enough by what he was doing to start my own blog.

So that's no small praise to hear you compare my blog to his, thanks.

FX said...

LOL, NYSE Scalper's blog was the main reason why I started blogging, I liked it so much.