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.
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.
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.
Today I did not take a trade because the set-up was not perfect. There were some variables I was just unsure about. The open sat right on support and I was not used to that. Usually it drops to support before the reversal. I was also a little uncomfortable with the Average Daily Volume even though the last few days was strong. Either ways I learned more about my favourite set-up and it re-emphasized the power of the set up and how it worked even though the conditions were not perfect.
I am still sticking to the less I trade, the more gains i’ll make mentality.
I just had a bit of an Epiphany while in the shower. Cliche? Yeah maybe but suck it up. I am simply not going to play set-ups that I have not tracked anymore.
That sounds simple and easy but somewhere somehow after dropping the whole momo stuff I started off with in the beginning, I got back to trading on a whiff. Going to start a fresh excel sheet and find a way to capitalise on the gap-ups. There is opportunity but I need to find a set-up that shows consistency. However long that takes, I am not going to make a single trade until that happens.
Cheers, I hope this would then give me some more opp other than the rare bottom bounces that I feel I am getting a little hang off.
Hurray! There goes my Sunday 😉
So today I tried this dip-up strategy again I was kind of eyeing. I cannot deny that I am in a bit of a trading rut. In the last 10 trades I have had 20% accuracy, which is pretty disgusting.
However, there were a couple of things I did correctly today. I put orders at target entry points and waited for the stock to hit there. It felt way more controlled and calming and I think I will employ this for my bottom bounce strategy if it comes by. Secondly, I also managed my loss super well because I was in with manageable size. When the stock washed hard I waited for a bounce as you can see in the second trade. They were both the same strategy and hence I put it as the same trade. I figured by timing was off on the first try.
Either ways, I need to commit myself to taking only set-ups I have tracked. This one felt like something I saw worked 2-4 times and assumed it was the norm. I really got to stop doing that though.
On the other side of things, ever since I got back I realised I have lost about USD $280 but only USD $30 before commissions. This speaks volumes. MY accuracy has not been up to standard but it does show that my winners are quite strong and an average win is significantly more than a loss. Now I just to work on making em more consistent.
So I have not been around for a while. Many reasons but mostly because I needed to regroup my thoughts. Admitting that I had failed on the first try was tough. I knew it was a possibility but its something you only can feel and overcome once you reach there. I had about 900 left in my account or thereabouts. I had three choices:
- Fight till the last dollar
- Top up
- Give up
Choice 3 was quickly out of the question. It was at most a passing thought. Throughout this whole journey, I had loved every step of the way. I paid a tuition for that education for sure but I knew it was just not my time yet. Fighting till the last dollar felt like i was being desperate and using terrible economics. Opportunity costs started to increase as there were many trades I had to forgo and many that I could not take the correct size on. So what did I do? I took choice number two. I topped up. But this time I knew I had to change something. That was back to the books.
I created excel models and filled my spreadsheets with values. I knew I had to take on a very analytical approach and focus on three main things.
Am I done researching those things? NO. I still need time before I can say properly that I am fully back in the markets. Will I ever be done researching? Probably not, but I do need a threshold amount of data points for my analysis to be even mildly significant. Hence time. So I will be back!