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See the markups on the chart. On a gap up (false breakout) the stock generally fills the gap, which this one did, before continuing higher. A downward trend line was formed from the gap up. I would have bought on the break above this line. The stop should be put below the trend line. in this case there was a new trend line formed (see blue line). I would have put the stop a nickle below it.
When it filled in the gap it formed a double bottom. This is a bullish sign. I still would have bought here I would have waited for the trend line break.
The key to trading is knowing where price is going. On the longer term chart there is a convergence of two channel lines. This is where I would have sold. If this was today's chart then there should be (but not always) a pullback tomorrow.
Knowing where the trend lines and support and resistance lines are is key to placing stops. Just be careful not to be to precise. Place where you think it should go then back it off a few ticks. This will give you wiggle room.
You were spot on with your assessment. The stock pulled back heavily where you indicated (Sorry about late reply, can only access this site from work........)
It also pulled back after reaching my expected target of $1.90.
I am clearly having issues with my stop losses being incorrect and stopping me just before the move. I have gone back over my trades that were stopped out, and some of them have reached their intended targets...
This is something I am working on now, and have some new ideas for trades in October. I will continue with my current set up till the end of September.
My Trades for the past week. I wish you could update them more often, but home computer will not access this site???
1/9/12 Closed LEI (Leighton), It initially broke through support of $15.29, but had a large move up on 14/9/12, and stopped me out. Still moving up strongly.
17/9/12 stopped out of SHL, it went up initially, and then went back down, broke through my original stop loss of $13.27 on 16/9/12, but I thought I will try and lower my stop loss slightly, because lately I have been stopped out of stock that went up straight after I exited... I moved my stop to a close bellow supporting rising line. That was broken the following day.
17/9/12 Went long on PRU 100 shares on 17/9/12 at $2.82, on friday 14/9/12 it closed above a sloping s/r line, target is around $3.40, stop loss is $2.75
19/9/12 Stopped on BWP, I looked back at that trade recently, and probably should have waited for a break above $2.03, that is where the long s/r seems to be, and stock has not broken through that level recently. It also looks like consolidation at current levels, so it may still be a buy, but at the moment it closed bellow my stop loss, and closed bellow a recent trend line.
One issue that is emerging from this month, is I am being stopped out prematurely, and missing the moves that I initially predicted. I end up taking a loss, on a stock that I correctly predicted where it will go. There have been a few stocks that I have noticed that have moved to reach their intended target, very shortly after I got stopped out......
I could widen my stops, but then my risk/reward ratio drops, and my losses are potentially increased. My stops are closely tied to my entry point, which is based on drawing s/r lines, and looking at volumes. I have been playing around with charts and have noticed something which I will be trialling in October. My s/r lines are drawn on candle charts, and generally I will draw a line of best fit for the peaks. However, I noticed if I switch my chart to closing prices only, and then draw s/r line it is slightly different to my original lines, and in some stocks gives me a different entry point and stops.
Example is PRU 1 st chart is candlestick with original s/r line in blue, second chart is closing price only with s/r from 1st chart in blue, and 2nd line that touches closing price in red. 3rd chart is candle chart again with both blue and red lines.
Looking at 3rd chart, my entry signal (s) would have been 2 days earlier, and with an entirely different stop loss.
It times out, it all started after we got new Belkin router (3-4 weeks ago). There are a few other sites that we have same issues with (ebay, some news site). Otherwise same computer, same browser (chrome)... I cant work it out yet.....
Firstly update on positions. Still having issues with accessing this site from, but hoping to get it fixed this weekend. Dad's health has taken a turn for the worse, and that has been a major distraction. I decided not to make any new trades in this time, and mostly managing existing positions.
I am continuing my education about the basic charting principles, and have reasonable understanding of reversal patterns, as well as continuation patterns, and what they all mean. Now comes the fun part of identifying them on charts, and finding a good place to actually trade them. With this new knowledge, I am starting to look at the much bigger picture to see what is the stock doing over the past few years, is still in a trend, has there been reversal, is there a consolidation patter. With this new knowledge, I can now see how some of my previous positions were actually going against the trend. The plan is to implement all this in October.
For the past 1 week, I mostly got stopped out of some positions. I also learned about a shake out candle (sharp dip bellow/above a s/r , but still close somewhere around/above/bellow s/r line with a long tail) Labeled SO on chart (apolgies about child like writing, but I a dont know what to use to take snaps of screen shots, and annotate it).
I believe I saw that with WDC, I traded it recently on a pull back, but got stopped out. I went back in long 50 shares at $10.17, with stop around $9.95, and target still $12. It also looks like it may be a small consolidation pattern occurring. A sharp break out up, with large volume, and I may add to my position.
NUF stopped at $5.96, loss of $-16 all commission.. Another plan for October, is to go back into the stock if it goes back up above/bellow s/r line for the second time. I noticed from my past trades, second time the moves is strong/sharp and reached some of my targets. On a 5 yr chart it is still an uptrend, and probably consolidation around this major level of $6,
CTX stopped at $15.79, again slightly above my entry so only loss is commission $16. Also still in uptrend. I was not very comfortable with the stock before, as there was only one previous peak for s/r reference. Now there are 2, and if it goes up again, then I will trade it again. Another lesson for October, only make trades that have clear signals.
OSH stopped at $7.41, again only commission loss. This has showed strong s/r at $7.60, broke through, went up sharply, and then fell back past my stop. If it goes up above s/r again soon , then I am back in.
PRU stopped out at $2.75, commission loss only this is a stock I mentioned recently, that I may have used an incorrect trend line. If I entered this stock based on my new theory of drawing lines based on closing price, then I would still be in this position. I may sit this one out, and watch it (it will probably go where I predicted it, since I will not be in it....)
So September is complete, and I can now look at my data
Total Loss for September is $25.80, I also received a dividend of $35 for SHL, and paid back $10 of dividends for a short position. Interest paid for open positions net $16.53. Commissions for September 2012 was $224,
Net for September trading $-249.33
Trades (Closed)
Total Trades 14
winners 2
Losers 12
% 16% winners
Average Win $86
Average Loss$16.5
My statistics have significantly improved. I am fairly comfortable with my average loss, and I am happy with the average win amounts. The problem is I only had 16% winning trades. At this levels I need to have at least 30% winning trades to break even. Judging from the above, it will be hard to reduce my average loss per trade. I need to work on my winning %, as well as increasing my winning amounts.
A few things emerged from September trading.
1.I have correctly predicted majority of my trades, and a few have reached their targets after I was stopped out. I am reworking my drawing techniques, and this may possibly give me a better position. ( I will go back through most of my trades and see what happened)
2. Break outs so far have not been effective for me, stocks break out and then in nearly all cases retrace back, and close bellow/above my stop, and a few days later head back to where I thought it would go in a first place.
3. In a few stocks I actually traded against a major underlying trend, that could be seen on a very big chart (5-10yrs).
Lessons for October
Same as for September, No stupid trades, stick to stops, control position size for limited risk
1. New lines are drawn on closing price only.
2. Not trading the break out in October, look for a break out, wait for pull back, buy on the second break of the s/r line. (somewhat opposite of one of my rules from August, but I got to try it)
3. Look at a bigger picture (5-10 yrs) identify the major trends, has the stocked bottomed out, completed top, sideways , and trade with the trend.
4. Start looking at volume
Looking back at August trades. 4 stocks have continued moving in the directions that I predicted, and 3 have hit their tartgets within 2-3 weeks, after I was stopped out. All dipped after the break out, and then reversed and continued in their original direction.
The plan for October is to find that 2 entry point, and mange the risk properly
-I understand what you mean about stock breaking out and then retracing before making the move. It seems like that's what Wall Street likes to do. When the breakout occurs, it draws in supply. They know where the stops are, and they like to hit them. I try to make sure that my stops are at an odd level, and not at a whole dollar amount. I try to keep them from obvious places like everyone else, or I just keep them as a 'mental stop'.
Have you ever tried using standards of deviation to determine stop placement?
