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

Virtual Office, $4349

Evolution Trader, $1677 on 70,200 shares traded.

TradeWhileWorking, $1472 on 3000 shares traded.

Misstrade, $1,000 on 4000 shares traded.

Me, $543 on 15,000 shares traded.

One Bad-Ass Trader, $172 on 4200 shares traded.

NYSE Scalper, -$515 on 17,000 shares traded.

A good day for the VO overall, as we had 3 traders break $1000 in daily profits. Evolution Trader worked hard for his money today as he traded over 70,000 shares, while TWW and Misstrade booked good profits while trading very lightly. There are many ways to crack the nut.

Me and OBT finally broke out of our mini-slumps and the NYSE Scalper had a half day since he hit his loss-limit and split. I have big respect for those traders who are disciplined enough to follow their own guidelines in that way.

So far, so good

Outside it's gray. The rain is beating on the windowsills. But, for today at least, inside the cave things are quiet and warm.

I haven't broken a rule today and things here are about as calm as they get. I even managed to make a "good trade" in RAS which I'll share in some detail after the close. For those inclined to make swing trades, you may want to take a glance at the 60 minute graph for this stock... it broke a downtrend it's been in since late March in strong volume.

I went back to an old practice from when I started trading, that is, I took my p&l off of my screen. It helps me focus less on the money and more on making the right trades. I know I'm not up size or anything... it's hard to be up size when you're trading with 2 and 3 hundred share positions, but I'm happy and not panicked, which is nice... and rare lately.

Another thing I used to do was walk away from my station for at least an hour a day in the middle of the day. I'm going to do that now, sip some green tea and read a chapter from the book I'm reading, Our Man In Havana.

Strict Buy and Sell Rules Today

After yesterday's debacle, it is time to stop the bleeding. I began this blog after I got smoked badly twice in early March and spent the rest of that month having to make money back. I can't let that happen this month.

So today, I am starting all positions with 200 shares only. If I am in the money in a trade I will allow myself to buy 100 more shares. That's it. I'm starting over, if you will. Trading light... float like a butterfly, sting like a bee.

I was working on my next "history" post last night. I'm at a point in the history where I'm studying for the Series 7 and papertrading once a week or so at the office. Everything then was so wide-open with possibility, there was so much potential. Anyway, just thinking back on it gave me a sense of hope.

Sometimes I feel like I've already written the end of my stock trading story. Based on my performance since December that the ending goes something like, "And then the hybrid market came, he couldn't adapt, and blew up." But I can actively work to change that ending. It doesn't have to be the meteor that mades this Dinosaur go extinct.

RIP Kurt Vonnegut

An early favorite author of mine. I remember taking Welcome To The Monkey House with me away on a vacation when I was 12 or 13... it was the first book of short stories I had read like that. I was hooked and hit Slaughterhouse 5 and Cat's Cradle soon after.

Then, I hit video games and put down books for a few years... too bad. Wasted time.

Anyway, voices like his are hard to come by.