Sunday, February 24, 2008

Study Your Trades

I went through each of my trades on Friday. While I made money, it was only because of the "Gasparino Lottery" at the end of the day and not because of any legitimate trading skill. Here's what I learned.
  • I’m still adding to positions wrong. It’s okay to add to a position when it’s going in my favor. However, adding after a position corrects back close to my entry is a losing strategy even if that position is technically still a winner. 
  • Don’t trade thin stocks in the hybrid market. The odds are too stacked against you with the spreads and illiquidity being what they are.
  • Unless a trade looks perfect, a major news story breaks, or there is excellent volume in the market, DO NOT TRADE between 12 and 2. This is free time. Move away from the monitors and read a book or something… seriously…
  • In a choppy market environment, don’t short the first breakdown or breakout. Often the stock will chop back up to your entry. If the level holds the second time, then enter the trade. Of course, in a market with good momentum and volume, this rule would change.
  • Short failed breakouts. If a stock attempts to break out of a base and then stalls, heads back into the base and breaks that base, short it. It’s been working well in this environment.
  • Know the bigger picture. I wasted $250 on Friday trying to short DV for a break of $44. Each time I tried it, I lost 25 or 30 cents. Meanwhile, a quick glance at a 15 minute graph would have showed that even if he broke $44, he most likely would have found support at $43.40. So I was risking 25 cents for a possible gain of 60 cents… that’s just not enough incentive…
So, more of the same... trading and hopefully evolving.  Working hard to keep a positive outlook but it's been a brutal month.  I'm working for a strong close this week. We'll see.

16 comments:

Rob said...

Out of curiosity, do you read the ticker tape or just watch chart action? I am pretty new to this blog and from what i've seen you look to the chart for confirmation, instead of support/resistance (hence the ass-rape candle). My goal over the next few weeks is to only tape read aapl. I have my reasons for choosing aapl, but i just wanted to see what you thought about tape reading.

todd said...

DT,
When you talk of shorting failed breakouts are you including breakouts from a Daily technical perspective? Thank you for your blog, I enjoy it.

Market Monk said...

DT, glad to see you reviewing your trades. By the sounds of it you do so within the context of how you performed using your rules, that's the best way to look at past trades.

Good luck,
MM

Dinosaur Trader said...

Rob,

I used to tape read first and foremost. You will seriously have to explain how you can tape read a stock like AAPL whose quotes change a billion times a minute.

I've found that post Hybrid tape reading on the NYSE is a waste of time since most quotes are 1x1 or 1x2. They've removed the information from the quotes that once made "reading them" worthwhile.

-DT

Dinosaur Trader said...

todd,

Mostly intraday. Just two big ones I've noticed from Thursday and Friday were MON when it failed to crest $120 and MA on Friday when it failed to break $200 around 3pm.

Of course, the Gasparino rally saved MA's ass, but still...

-DT

Dinosaur Trader said...

MM,

Thanks. Yeah, reviewing my trades is something I need to do daily. Whenever I do it, it's very instructive. However, it's also something I put off...

No doubt though, it's the best way to learn from your mistakes.

-DT

BudFox said...

Hey Dino,

What's the logic behind no trades over lunch?

Cheers

P

Dinosaur Trader said...

bud,

In my experience, the most tradeable moves come in the first hour and a half and the last hour and a half of the day.

In between, I find I'm mostly churning or giving money away.

-DT

BudFox said...

DT,

Other bloggers avoid the first 30 to 60 mins. I take it you don't subscribe to that?

I'd be really interested to know how you act at the open.

Thanks for the info.

Bud

John Forman said...

I find it interesting that you referred to DV as "he". Are all stocks male, or are some female? :-)

Dogwood said...

DT,

I've had the same experience with time of day. Most of my money is made between 9:30 and Noon. After that, I just start throwing profits away, so I like to stop mid-day. I'll check back in the afternoon for a possible reversal, but I have lost enough money in the middle of the day that I am just giving it up.

Budfox,

As a day trader, I need maximum volatility to make money. Most volatility is in the first and last couple hours, while lower volume and churn characterize the middle hours.

Pull up just about any intraday stock or index chart and you will see that volume forms a U throughout the day. High volume at the open and close, with decreased volume in the middle hours.

This is not to say you can't make money in the middle of the day, but it is not the most optimal time of day to be trading because there may not be enough volume to maintain a move in either direction.

Reviewing your trades will help you determine the most profitable time of day for your system or method. For me, most days I am better off quitting at Noon and not trading until the next day.

Dinosaur Trader said...

Dogwood,

Perfect response, thanks.

-DT

Dinosaur Trader said...

john,

Yeah, there's a lot of debate about that subject.

I'll throw up a poll and let the readers decide.

-DT

BudFox said...

Thanks Dogwood.

Michael Lomker said...

I totally agree. I trade futures but the volatility factors are no different. The first 30-45 minutes and the last hour of the day are optimal when it comes to trending.

You can scalp ticks outside of 10-12 but it is generally just a good time to give back your profits from the morning.

Move the Markets said...

DT why won't you share your virtual office with me if we share a bed I should be good enough to be on your site. Are you embarrassed to love a real woman in public where your friends can see?