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.
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.
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.
Accuracy : 0%
Initially no shorts available for BOOT or HEAR. Then the shorts opened up later. I missed the first move but I decided to go in for the bounces. Unfortunately, I could not crack the code on these. It worked for me initially but both of them started to step ladder up. I am sad I missed the move on both of these.
Now since this is my fourth loss, I gave back almost all my winnings last week. I will have to downsize in my next trade until I get my mojo back.
A short an important lesson to myself today. I did not trade today! I am saying that proudly. I sat at my screens and shorts were not available for this play I was eyeing. Instead I just learnt and accumulated some screen time.
I know by doing this, it forces me to look for A quality set ups and only trade the best.
Trade the Best. Fuck the Rest.
Strat Check –
Finally back to the excel models after a while. I realised in the last two months I have been shitting quite a bit on my strategy and taking bouncers that were not gaping down enough.
I did some revisions and the stats popped back up to the good numbers that got me to play this set-up in the first place.
Only going to look at >15% gap downs for bounce plays henceforth. The problem with this is that these set-ups come rarely. The road to success is a long one and I will have to keep growing as a trader.
This was a bloody month as I clocked in my biggest losses since July last year. So what happened?
- I got cocky! – The first two weeks I started taking trades rashly and quickly. I jumped in way too early and my timing was waaaay off. I simply did not respect my strategy.
- I was chasing stuff and that is definitely a bad sign.
- I did not wait for the trade to come to me and maybe was too eager to succeed
- Risk Management! – This is a big one! This resulted in my overtrading. I forgot about risk management and should not have taken trades with only a 1 to 1 risk/reward ratio or less. I have to think about this more next month.
- Sizing – When I got scared I downsized. I also downsized when I was playing pullbacks and that was definitely not a good strategy.
Next month I will be different and change my ways. The market has certainly humbled my dumbass this month but I continue to persevere, learn and strive forward. I will be more careful this month and make more wise choices as I continue on this long, tough, arduous but ultimately rewarding journey from zero to a hopeful hero.