Down Moves and Losses

I can’t afford to make these $1000-$4000 losses anymore. Be patient with your buys, wait til it retraces and if you miss it then oh well, move on. Keep that risk reward and stop tight, no more than 3-5%.


HK Trade

Got into HK a natty gas company. The reasons I got in are, huge downmove in stock and UNG. Volume solid on a big up day and has since been flagging. Weekly looks waterfallish and capitulative, daily chart sitting at long term bottom channel, Hourly chart looks good for entry. Looking for an initial pop to around 6, then depending on the developments a possible hold to 8. At mid daily bollinger band and low weekly bollinger band. Made a buy cry and the die move was hopefully this last weak downturn to higher high. Stochastic divergence along with the same in UNG.

Another reason I got in was because UNG double bottomed after a big downswing and as Jesse said, UNG is a big inverse to smallcaps, which could see some downward pressure soon.

Stop at 5.40

WLT Trade results

My WLT trade got stopped out at 6.55 for a loss of $2000. What did I do wrong? I think I may have jumped in too early and at the same time, importantly, I had not set a tight enough stop. I should be more patient with coal names next time and not buy them when they are riding their upper bollinger band. You know a shake out is likely so enter accordingly and protect your funds with a tighter stop and a more conservative entry. So what if you miss a move? There are plenty of others, or just stay in cash for the next opportunity in a stock. Be patient and don’t fall in love!

How did the Walter trade go?

I hopped into WLT after breakout retracement at 6.47. I know WLT is a volatile stock with many head fakes and traps but I also didn’t want to miss an explosive move, so I got in right at the support line. While picking a stop, my intuition told me that price might come down to around the 63% fib line of the last move, also testing certain moving averages, I set it to 5.90. This morning, price came down to test 5.92 in early trading and is now still oscilating between 5.95-6.02. Of course I hope that it reverses before my stop is hit but I will definitely cut my losses in case it does get to my stop point.

What can I learn from this experience? Well, I am increasingly becoming keen to my own intuitions about the market, especially in the coal space since I have watched daily fluctations so much. In this case, I think I could have reserved my buy at 6.47 and instead extrapolated my thinking to my stop, 5.90. If I were to set my stop there, thinking price could visit near that area, I should be patient and wait for price to get to that area first. Indeed it did, and it perhaps could move lower, but in being patient, I could have limited potential losses and increased potential gains in the process.

There are many stocks to trade, and there is no benefit to rushing into something when you feel it has a good chance of coming down to knock out weak hands.

When to Get in and When to Get out

This is in reference to MAJOR inflection points in the market:

Buy when price is not at a high, and when there is record buy volume on a nominal basis on the DJIA monthly chart. This may happen after some sort of capitulation or near the end of a bear market.

Sell when price is high, there is price expansion, and there is record sell volume on a nominal basis on the DJIA monthly chart.

Examples of this include the bull run of 1982, the warning before the 87 crash, the up volume in 96 (this time it was at a high but after a long consolidation), the up volume of 98, the record price expansion and volatility + volume of the 2000’s (large ranges and price swings at a high usually is bearish and it was in this case), record buy volume of 02, sell volume of 08, buy volume of 09.

These mark most of the largest inflection points in the markets last 30 years. It is interesting to note that volumes have dropped off to early 2000 levels in the past 3 years. When will volatility come back?