Today, I wanted to post about some observations I made in the market. As you know, I have retired my bottom bounce strategy and was actually looking at a buy side strategy to replace it.
The strategy involves a couple of factors:
a) A strong catalyst
b) Strong volume on the buy candles
c) Pattern clues for a buy signal (Tight consolidation or a wedge pattern)
d) Potential risk-reward ratios of 1 : 5 or more
I have been observing this for around two weeks now and really have come close to pressing the trigger on these. I have not because I promised myself to do some observation first. My intention is to start pressing the trigger with small size (20 dollar risk) and then working my way up.
Below is an example of how a stock that had the above factors today:
ASTC was a stock in play. Pre-market volume was strong and buys were 8 am onwards – signalling some institutional interest. Nice wedge pattern started forming around 8.45 and magnet level of 6 was holding as support. Intra-day resistance was close to the top of the wedge – making it a good buy signal for many traders (A confluence point). Stock had a low float which suggested it had potential to run up quickly. My mental target was 7.30 based on pure intuition. I obviously need to understand a little bit more of how to target accurately but I think that this will only come with experience. Next time I just might play this.
Completely flat and random day. NMM didn’t move and VSTM was a feeler that didn’t work and started grinding up.
Hard work and more hard work to follow.
Small loss here. My adds pre-market did not work so I had to cut them. Then I kept playing around with a position with an add when I felt it was a good time to do so and covers when I thought it wasn’t working. I was constantly adjusting my position to ensure it was within my risk levels.
I am slowly learning that this is what most professional traders do. (From watching videos of how they trade) The good part to this is that you can adjust according to what you see on the charts and it gives you more flexibility in your plays. The bad part is obviously commissions.
Hence moving forward I will restrict the number of adds and focus on trying to slam the trade yet allow some room for flexibility. I do need to continue to do this with some conviction and if you notice, one of my adds was a literal top tick. That was very important psychologically for me as I was having some trouble adding on the first push up to resistance levels. I hope I can continue to abide by my strategy.
Oh and yes I did forget to include my equity. Bite me. Next time it will be there.
It took some time to do this review as I have been a bit busy recently. So the results for May 2018 are a bit mixed again. On first glance, this was another negative month where I effectively lost after commissions. However upon deeper dive, I realised my loses were all coming from the bottom bounce strategy. I think fees structure and me being a new trader, makes it much harder to capitalise on this strategy.
The next table explains more.
The above is my statistics for Top Reversal. As you can see, I closed May consistently higher than Apr. This strategy seems to be improving consistently and I think that is a good sign. Hence my aim moving forward is to just focus on this and drop bottom bounce completely. It is super painful to do this because, like Top Reversal, I developed the bounce strategy on my own and it took a year of trial and error to tell me this is a no go. I guess you have to be pragmatic and focus on what you do best to be good as a trader. This leads me to my goals this month.
- I seriously want to size up the Top Reversal and by the end of this month start risking up to a maximum of 120 – 150 USD per trade
a) I think I will have to understand tiering better to enable me to do this
- Continue and maintain consistency by doing more research on the strategy to understand how it plays out more
a) Understand the success rate of my strategy better using my stop out line
- Start exploring momentum set-ups that have a HIGH risk vs reward ratio – hoping to start betting tiny size on these next month
These 3 things should really keep me busy.
Trades : 3
Good play, decreased size as I saw strength and then took off as my resistance broke.
Feeler trade pre-market that started going against me. Took it all off once chart stopped looking right.
Good trade here but down sized a tick too early and a little disappointed with that.
Overall a good day even though it was red. I achieved my goal of increasing risk though conditions did not work out.
Today was an emotionally tough day for me. I felt I traded according to plan but kept getting screwed over. My first trade on ACRX – Why did i get scared out? Well I looked at the history of this ticker and every-time it gaped up, it ramped and ended green on the day. Because I wanted to avoid that risk I took it off pre-market. It did work in the end but I feel my decision had some base and I was actually proud of myself when I did it.
The next two trades were also losses. The first, I tried to take a short on this bouncer to play the opposite side as I saw it failing. Instead it hit support and ramped. I cut the loss and then I bought on a quick dip expecting a ramp up. When it did ramp, I did not sell as my target was a bigger move. This reminds me of the mistake I made the last time as well. Either ways, I had a hard look at my recent bottom bounce trades. They were far and few in between. My overall stats was poor as well – a 50% win rate with a slightly above >1 profit ratio. This would be ok if I had no commissions. The fact is that I do!
This leads me to the decision to retire my bottom bounce strategy. It sucks to retire this but it is something I have to force myself to do. I have to focus on the Top Reversals which seem to be gaining some traction for me. I am actually net positive on the month and have a 61% win rate with a 1.14 profit loss ratio till date. This tells me that I got to move into the direction that is working for me and forget LONG-ing for a while. It is super tough to let go of something that I put in almost a year of effort – refining it, collecting data and practicing my trading. I think my personality does not suit it.
Hence my final decision is to park this strategy aside for 3 months and focus on two things for the next 3 months. Consistency in my shorts and building up my size.
These bottom bouncers keep screwing me over. I do not see the early success I once had with this strategy. I will keep my size small on these guys.