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