January Review

I'm done trading for January. My performance has declined over the last few months. I haven't been seeing many good setups and even the ones that look good don't fully extend. And of course when there aren't good setups there is always that temptation to trade less than stellar setups. I overtraded at the beginning of the month because I had too much of a preconceived idea about January's. One would expect an increase in volume and for certain sectors to start pulling ahead of the crowd. This is usually the month when new money goes to work, but that hasn't been the case. Over the last few months I've been trading less and trying to wait it out until conditions improve but now I have to assume that this is how conditions may be for the next few years. I need to find a way to trade low volume, choppy, directionless markets--the achilles heel of any trending system.

I reviewed my trades during a successful period last year. What I noticed was that not many entries were that great, but most trades at least went my way for a little while and I was quick to bale out of trades that weren't doing much. Lately, I've been "going down with the ship" too often and stubbornly staying in trades that I know aren't working in the back of my head. I'm considering using time stops. For example, I will start a stopwatch at the beginning of a trade and move my stop to the point where I would only lose .25R after 10 minutes. Then I would move to break even after commissions after 30 minutes. I'm going to be paper trading some new ideas in February so I might not be posting much...

Weekly SPX chart - disturbing symmetrical triangle

I don't focus much on the long term but I noticed this symmetrical triangle on the weekly SPX chart. If this resolves to the downside, we could see the S&P at 500. It's not too unrealistic if you consider several of the financials/banks could be nationalized like AIG and approach zero.

Having too much directional bias

Am I the only one who has trouble going long? I'm like Paul Giamatti in Sideways, "I am NOT drinking any Merlot!" but substitute drinking any Merlot with going long. That was a stretch, I know. I've heard that a lot of new traders have trouble shorting, but I have the opposite problem. The majority of my trades are shorts. I like how fast stocks can go down. When a stock goes up it pauses retraces, goes up some more, pauses. With a good short you are often in and out on one bar. I don't have any long overnight holdings (except for Motorola, don't ask) so that I can be market neutral, but I'm thinking about actually going long a token amount just so I can even out my bias. Short covering or not, if the market's making a move I should be in on it no matter which way it's going.

Friday trade - WYE

This was a pretty nice setup that didn't work out. I was sensing more choppiness today so I wanted to trade a gapper that was in play so it wasn't as affected by the overall market. WYE broke out but couldn't get past the open range low. I stayed with it because buyers weren't coming in even while the market was beginning a choppy rally. It got stuck in a tight range so I kept tightening my stop. I wasn't sure which way it would break but odds seemed to favor breaking down. It got stopped out before CNBC announced that the merger with PFE was more certain than initially reported in the WSJ, supposedly something will be done Monday. In retrospect I should have just closed out the trade so I could focus on stocks that were actually moving. I told myself I was being patient but I think I was truthfully being stubborn. This one trader always says treat your capital like it's your employees. You don't want your employees standing around doing nothing. I took a small .4R loss but it distracted me from better trades.

Setup:70

Thursday missed trade - DRYS

I have a bad habit of staring at the indexes instead of shuffling through the stocks on my watchlist. I simply missed this divergence between DRYS and QQQQ. You can see at 1:45 that DRYS fails to rally along with the overall market, and the other shippers: EGLE, DSX, and TBSI.

Friday trade - AXP

Going into trading this morning I wanted to be open to the possibility that yesterday was a key reversal day. There was some enthusiastic buying at the open but the TICK never exceeded 554. Financials continue to weigh down this market, so I started focusing on the credit card companies. JPM, MA, and AXP are all headed toward their November lows. There was a nice bear flag in V but I let it go and instead shorted AXP after a couple of narrow range bars with volume contraction. There is also a miniature C&H on the 5 minute chart. I exited as my 3R target was approaching. It looked pretty clear that the PDL would be tested, but I wasn't going to push it. A good trade is like a gift. If someone gave you a $20 gift certificate, would you tell them you were hoping for $40? I'm thankful for a 2.83R trade in this market.

Setup: 75

Wednesday trade - ACI

I traded this as a symmetrical triangle at the base of a wide ranging bar. It was slow to break out, stalling at the ORL, but then it accelerated at 10:30. That's when I remembered about the oil inventory report. I wouldn't normally trade ahead of that but it worked in my favor this time. It felt like a gift, so I exited pretty quick after the thrust down and big volume bars. This was a 1.43R trade. Today was nice because there was no question that I wanted to be short after the weak defense yesterday of the 850 area.

Setup: 65

Tuesday skipped trade - CI

This is a setup I was looking at but today was just insanely choppy and I try not to trade during lunch. Going forward, I'll be focusing on stocks that are "in play" in order to cope with the chop. As much as I like trading stocks on my watchlist that I'm familiar with, if they aren't getting unusual volume, they are going to be off limits.

Thursday skipped trade - CF

This is the trade I would have made if it wasn't such a chopfest today. Break of 53.50 with target of 55. CF was getting a lot more volume than POT and MOS today.

Wednesday chart of note - TIE

This setup is similar to the DRYS trade I made on November 10th. There is just a complete lack of buyers after the move down in the morning. There was probably one buyer showing a lot of size at 8.70 that finally decided to lift. You can see the bearish candlestick at the top of the range on high volume where the bulls threw in the towel. I passed on this one because the risk/reward just wasn't there as I wasn't expecting TIE to get below the strong support at 8.50.

Wednesday skipped trade - DAL

With the choppiness we've been seeing, I've been more hesitant to trade. This isn't really one of my normal setups, but you could see the lower highs and the symmetrical triangle. There is an NR7 on minuscule volume right before the breakout. The overall market was actually moving slightly higher at the time, so I passed.

Monday trade - AAPL

This was a good setup that just didn't work out. I did feel like the overall market was short term overbought at the time, but a couple narrow range bars with volume contraction at the top of the ORH is too good to pass up. I was looking at trading ACI from 19 to 20 (looked very good on the daily charts), but it didn't set up properly.

Setup:70

Fear vs. Greed

I'm feeling philosophical with the start of the new year. I've been thinking about the old axiom that stock prices are moved by fear and greed. But when you think about it, greed can really be thought of as another form of fear. There is the fear of losing money and the fear of missing out on an opportunity to make money. So before you put on a trade you have to accept the risk involved and realize that it is possible for you to lose money. But you also have to be relaxed and not be afraid of missing a big move. Like in surfing, there is always another wave coming right behind the current wave.