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Trading stocks based on breakouts of chart patterns


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Trading stocks based on breakouts of chart patterns

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  #1 (permalink)
 MichaelWesten 
Petah-Tikva, Israel
 
Experience: Intermediate
Platform: MultiCharts
Broker: Interactive Brokers
Trading: Stocks
 
Posts: 20 since May 2011
Thanks: 0 given, 16 received

Hello All,
I am starting this thread to share with you my current trading activity. This is my first try of online documenting my trades and I hope it will contribute to my "trader's personality" and will provide an interesting reading for this forum. This is a real money account.

Background
I am 31 years old and I have a full-time job as an Embedded Software Engineer. Before I continue, I would like to tell you that I'm not a native English speaker, so please be lenient with me about my writing.
I have been introduced to the world of trading about two and half years ago by a friend and since then, I have tried to learn everything I could about trading. Because I believe that you must try before you decide if you like something, I tried to trade stocks fundamentally, tried to do option strategies, tried to trade stocks according to technical analysis and maybe some other things as well.
As you can probably guess, in the end, I lost money. No point in sugar coating it.

In the past year, I have been exposed to 2 books that changed my way of thinking. I am talking about:
1. Diary of a Professional Commodity Trader: Lessons from 21 Weeks of Real Trading by Peter L. Brandt.
2. Trade Your Way to Financial Freedom by Van Tharp.

The main point in these books, as I understand it, is that it doesn't really matter what method of trading you use. The important thing is how you manage your risk, how you handle your losses, what is the size of your position and what is the expectancy of your trading system.

Based on this understanding, I am now trying to trade and hopefully, this time it will be different.

Trading system
My trading system is a discretionary system. I am trying to identify classical chart patterns (Triangles, H&S, Wedges, etc.) in stock charts and trade the breakouts of those patterns.
I use two different time frames for each stock, weekly and daily, with a preference of trading patterns on the weekly charts. I don't use indicators, nor do I use volume. The take profit target is determined by the size of the pattern. The stoploss is based on something called Last Day Rule. This means that if I go long, the stoploss will be 1 tick below the low of the day of the breakout. If I go short, the stoploss will be 1 tick above the high of the day of the breakout. The stoploss can be moved only in the direction of the trade. The position size is determined by my risk management (see below). This method was taken from Peter L. Brandt book. I will try to detail more in the following posts.

My risk management is as follows:
1. I trade only potential moves of more than 200 ticks (2$).
2. For trades with target between 200 ticks to 1000 ticks, I risk 0.5% (half a percent) of my total equity.
3. For trades with target above 1000 ticks, I risk 0.8% of my total equity.
4. I try to take into an account the commissions.
5. In any case, the maximum distance between the breakout point and the stoploss can't be greater than half of the distance between the breakout point and the target point. This is something that I might change in the future.

The major problem, for me at least, with this trading system, is that most of my trades will be losers. That is because I aim to win only %20-%30 of my trades. This percentage will be sufficient, I hope, to have a positive expectancy. Therefore, I will have to be mentally very strong because most of the time I will be wrong and this is a part I fear most. I hope you will help me overcome my fears.

One final point before I continue. I chose to trade stocks on daily and weekly charts because I have a full time job and I can only dedicate between 1-2 hours per day for trading. This time should be enough to follow my current trades, enter new ones and try to find patterns on new and existing stocks.

In all honesty, if I had a 100K account I will probably move to trading futures instead of stocks with this system and maybe do it full-time and with shorter time-frames. BUT, I don't have a 100K account so this is just a thought for now.

Current status
I have an account with Interactive brokers. The starting value for this journal is $23,000. I use multicharts DT to do the charting part but I enter the trading commands using IB's program.
I started my trading on the 10-Nov-11. Since then, I made 7 trades and I currently have 10 open positions. I will add the documentation of each trade in the following days.
I live in a GMT+2 area, so the start of the trading day in the NYSE is at 16:30 my time. The good thing about my system is that I can put the trading orders when the market is still close so I don't have to be online during trading hours.

That's it. I will now finish this post and try to add as quickly as possible posts documenting my previous and current trades. Hopefully, I will finish describing them before I make new trades so I won't play catch-up.
For future trades, I will try to upload them as soon as I make them.

I will appreciate any comments and/or suggestions.

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  #3 (permalink)
 MichaelWesten 
Petah-Tikva, Israel
 
Experience: Intermediate
Platform: MultiCharts
Broker: Interactive Brokers
Trading: Stocks
 
Posts: 20 since May 2011
Thanks: 0 given, 16 received


Hi,
Before I start to describe the trades I did, I want to say that each post will describe what happen in a specific day. For each post, I will have the following sections:
1. "New Orders" - describe the new orders that were entered in that day.
2. "Changes in existing orders" - describe changes in existing orders (cancellations, update of quantity or price).
3. "New Positions" - describe the new positions in that day.
4. "Positions closed" - describe the positions that were closed in that day.
5. "Changes in open positions" - describe changes that were made in existing positions (mainly changing the stoploss).

OK, now I will describe the 1st day, which was the 8th of November, 2011.

New Orders

ESRX - Identified Bottom H&S on Daily chart, pattern length is about 2 months. see attached file "esrx pre-market".

Breakout to the upside was set to 46.86, stoploss at 45.08, target at 58.85. Because the target was more than $10, the risk was 0.8% of $23K, which is $184. Therefore, I set the order for 108 units.

The order was given before the market was opened.

New Positions

ESRX - Buy order was executed on the same day at price of 46.86 for 108 units. Stoploss at 45.08, target at 58.85. See attached file "esrx"

That's it for 8-Nov-2011.

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  #4 (permalink)
 MichaelWesten 
Petah-Tikva, Israel
 
Experience: Intermediate
Platform: MultiCharts
Broker: Interactive Brokers
Trading: Stocks
 
Posts: 20 since May 2011
Thanks: 0 given, 16 received

On the 10th of November, I looked at the charts only after the trading begun, because I was occupied by my work. I usually try not to work like that and to set up my orders well ahead of the start.

New Orders

AAPL- Identified bearish flag, pattern length is about 1 month. see attached file.

Breakout down was set to $394, stoploss at $397.3, target at $377. Because the target was more than $10, the risk was 0.8% of $23K, which is $184. Therefore, I set the order for 45 units.

New Positions

AAPL - Sell order was executed on the same day at price of 394 for 45 units. Stoploss at 397.3, target at 377. In the attached file, this day is represented by the last bar on the chart. You can see the open at about 397 and from there it went downhill.

Positions closed
AAPL - I closed the position at $384.45 for a net gain of $427.75. In retrospect, it was a mistake to close the position because after a few days, AAPL hit the $377 target, without going to $397.3 in the way. However, since it was only my 2nd trade, I think I got nervous and because of that, I moved the stoploss during the trading day and it was executed.

That's it for 10-Nov-2011.

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  #5 (permalink)
 MichaelWesten 
Petah-Tikva, Israel
 
Experience: Intermediate
Platform: MultiCharts
Broker: Interactive Brokers
Trading: Stocks
 
Posts: 20 since May 2011
Thanks: 0 given, 16 received

Hi,
Before I start describing this day, please understand that I'm now describing past trades and although most of the data that I write is written in my excel sheet, some things I need to recreate from memory, so there may be some minor mistakes. Therefore, I decided to avoid describing new orders or changes in orders because I don't have this information. I will describe new orders when I have finished describing the past.

Another thing is that I used to calculate the risk from the current equity value at the time of entering the order. Therefore, you will see some minor inconsistencies regarding the number of units in the order description of each stock and the amount of risk I specified. However, starting from 28-Nov (which is when I write this post), I will calculate the risk as a percentage of the equity value at the start of the month, e.g. all the trades I will do in December will be according to the equity value I have on the 1st of December.

Beginning with this post, I will add two horizontal lines on each chart that will show:
1. The location of the stoploss - Red line.
2. The location of the Buying/selling point - Yellow line

New Positions

DISH - Identified sym. triangle on daily chart, pattern length is about 2 month. see file "dish pre-market". Buy order was executed at price of $26.2 for 89 units. Stoploss at $25.44 (see file "dish"), target at $29.2.

LOW - Identified up channel on daily chart, pattern length is about 2 month. see file "low pre-market". Buy order was executed on the same day at price of $23.94 for 89 units. Stoploss at $23.19 (see file "low"), target at $26.75. Because the stoploss was much closer than was anticipated, I could afford buying more units, so I bought 68 units at $23.44, making it a total of 157 units at $23.723439

That's it for 14-Nov-2011.

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 MichaelWesten 
Petah-Tikva, Israel
 
Experience: Intermediate
Platform: MultiCharts
Broker: Interactive Brokers
Trading: Stocks
 
Posts: 20 since May 2011
Thanks: 0 given, 16 received

Positions closed

DISH - I closed the position at $23.36 for a net loss of $76.76. If you calculate the difference between my entry point and the exit point, you will reach to a loss of $253. However, the actual loss is really $76.76 because the stock payed a dividend of $2 a share and the 15th of November was the ex-date. That's why stock tumbled and my stoploss was hit. In the future, I may have to check this in advance. See attached file

LOW - I closed the position at $23.19 for a net loss of $86.75. See attached file. Regarding this stock, I think that I entered the buy order before the 14th, and I didn't adjust it according to the advancement of the pattern. This means that although the entry price was once beyond the limits of the pattern, on the 14th, it was inside the pattern and it was wrong to enter the position then. I should pay close attention to orders for stocks with patterns that are slanted up or down.

That's it for 15-Nov-2011.

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 MichaelWesten 
Petah-Tikva, Israel
 
Experience: Intermediate
Platform: MultiCharts
Broker: Interactive Brokers
Trading: Stocks
 
Posts: 20 since May 2011
Thanks: 0 given, 16 received

New Positions

CAT - Identified rectangle on daily chart, pattern length is about 1 month. see attached file. Buy order was executed at price of $98.09 for 57 units. Stoploss at $96.02, target at $107.09.

Positions closed

ESRX - My stoploss was hit at $46.152 for a net loss of $78.46. This is not the original location of the stoploss because I have changed the stoploss location to just below the low of 10-Nov. This was done because on the 10th there was a breach of the "ice line" (term from Brandt's book), following a breakout above the ice line on the 11th. Following this kind of breach and breakout, Brandt wrote he usually advances the stoploss and so do I.

CAT - My stoploss was hit at $96.02 for a net loss of $119.99. Apparently, I bought almost at the high of the day.

That's it for 16-Nov-2011.

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 MichaelWesten 
Petah-Tikva, Israel
 
Experience: Intermediate
Platform: MultiCharts
Broker: Interactive Brokers
Trading: Stocks
 
Posts: 20 since May 2011
Thanks: 0 given, 16 received

New Positions

SPY - Identified sym. triangle on daily chart, pattern length is about 1 month. see attached file. Buy order was executed at price of $123.49 for 120 units. Stoploss at $124.49, target at $115.49.

That's it for 17-Nov-2011.

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 MichaelWesten 
Petah-Tikva, Israel
 
Experience: Intermediate
Platform: MultiCharts
Broker: Interactive Brokers
Trading: Stocks
 
Posts: 20 since May 2011
Thanks: 0 given, 16 received

New Positions

MU - Identified double top on weekly chart, pattern length is about 2 years. see attached file. Although the price reached $4 on October, I decided it might be worth while to try and catch this move again. It is against the rules but I did it anyway. Sell order was executed at price of $6.37 for 105 units. Stoploss at $7.43 (above high of week of 16-Sep), target at $3. The target was set randomly by me, because the pattern height indicated the price should go to zero...

USO - Identified up channel on daily chart, pattern length is about 2 months. see attached file. Sell order was executed at price of $37.8 for 173 units. Stoploss at $38.44, target at $34.2.

That's it for 18-Nov-2011.

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 MichaelWesten 
Petah-Tikva, Israel
 
Experience: Intermediate
Platform: MultiCharts
Broker: Interactive Brokers
Trading: Stocks
 
Posts: 20 since May 2011
Thanks: 0 given, 16 received


New Positions

AA - Identified broadening ascending triangle on daily chart, pattern length is about 2 months. See attached file. Sell order was executed at price of $9.47 for 300 units. Stoploss at $9.87, target at $7.5.

AIXG - Identified rectangle on daily chart, pattern length is about 2 months. See attached file. Sell order was executed at price of $12.25 for 170 units. Stoploss at $12.9, target at $7.3.

AMZN - Identified broadening ascending wedge on weekly chart, pattern length is about 1 year. Attached file shows this pattern on the daily chart. Sell order was executed at price of $186.06 for 28 units. Stoploss at $193.4, target at $125.

BP - Identified symmetrical triangle on daily chart, pattern length is about 1 month. See attached file. Sell order was executed at price of $41.75 for 89 units. Stoploss at $42.94, target at $38.3.

YHOO - Identified up channel on daily chart, pattern length is about 3 months. See attached file. Sell order was executed at price of $15.1 for 220 units. Stoploss at $15.7, target at $12.2.

That's it for 21-Nov-2011.

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