Bailing out

I bailed out all my positions last Friday.  My acount was down more than 7k in just one day.

Fool me once shame on you.  Fool me twice shame on me.  Fool me thrice shame on ...

This is the third time.  I was fooled by market complacency to take a lot of so called setups.  And then forced to sell them all during a sell off.  I was not cognitively ignorant of the extreme risk and exposure I had.  But I believed in my stock picking capability.  I believed in my setups.  I believed I would be lucky enough to sell my positions before others marked down the market.

All elusive beliefs.

Areas for improvement:

1. Stock picking.  Obviously I am not a good stock picker.  I need to better focus on stocks (probably small cap ones) with superior accumulation characteristics.

2. Don't try to all in at support.  A support is a *real* support only if it is tested by the market.  Buy on strength after a support is tested.

3. Overconfidence.  Imagine that at least half of my positions would turn out to be a loss.

4. Mind your exposure.  Exposure means opportunity as well as risk.

Notes from reading Invest Like a Shark

The weakest part in my trading operations: selling

- Great investing results are a product of shrewed selling rather than smart buying.

- Selling is a form of insurance to protect your business.

- Selling is nothing more than a form of insurance that you buy when things look dangerous.  It might cost you something if your worries prove to be unfounded, but it can save you substantially should disaster hit.

My reflections on entering a position:

- It represents opportunity, as well as risk.

- Always be prepared that at least half of your entries will result in a loss.

Trade: MAS

I made the following trades yesterday.

Trade: 800 shares of MAS at $35.3

Setup: Breakout pullback.

Why I entered: Strong accumulation right before and after the July breakout.  It drove the stock to a multi year high at $37.38.  The stock has pullbacked on light volume to the lower bound of the breakout bar and appeared to have found support at $35.  Stochastics has been oversold and started to rise.

TM (Trade management): Stop loss placed just below 50 sma at $34.4, target at recent high $37.3, reward to risk around 2.2.

I was stopped out of RMBS at $13.54 for a loss of $1014.

Trade: EXAS

Trade: 600 shares EXAS at $19.24

Setup: Breakout pullback, retest of support ($17.5)

Why I entered: There has been strong accumulation since June.  Price has broken out from an 8-mth bottom and retaken the huge gap made last October.  OBV remains strong even amidst the pull back since mid-Aug.  Stochastics is now oversold along with a retest of the gap high and has just made a cross over.  I view this as a buy signal.  But I have made a mistake by not waiting until market close.  I entered in the morning as I believed it would surge quickly if I didn't action quickly.  Had I waited until the close I would not have entered it as it closed below 9 ema which was not as bullish as I have wished.  Hopefully this will not be a vital one given the strong accumulation.

TM (Trade management): Stop loss placed around support @ $17.5, target at recent high $22.8, reward to risk around 2.1 which is very nice indeed

Trade: RMBS

I am buying a slight pull back close to the breakout point.  I bought 1300 shares of RMBS at $14.32.  Stop loss just below the congestion region last week at around $13.7.  I target at the Jun 2015 high of $15.5.  This gives me reward to risk of 1.66.

Trade: RNG

I bought 650 shares RNG at $22.44 this morning.  The nice features about the chart includes:

- uptrend with nice accumulation pattern

- strong OBV

- pulled back closer to previous support level around $21 with light volume down days during past month

- successfully retested 50 sma

I view the cross in oversold stochastics and strong close above 9 ema on Friday as the buy signal.  I bought a slight pull back this morning.

Charts: Apparel stores

The weakness in the industry led me to drill down to several weak stocks within the industry:

GCO lost more than 20 pts in one day.  If you look at the weekly chart you will see that it has punched through the $50 support that extended back to 2011.

SCVL broke the $28 support leaving an island top formation behind.  In fact distribution started right at the island top.

There are also some strong stocks within the industry.  I believe strong stocks in a weak industry could be very bullish.  I will monitor for low volume pull back to support levels for entering.

TLYS broke out from its base at $6ish and its resistance around $8.7 all within August.  The accumulation in the couple of weeks before breakout and after breakout looks very appealing.  It's very bullish, yet overbought.

The appealing aspect about CTRN from a trading point of view includes:

1. Strong breakout from a 3 mths + base.
2. Breaking out price resistance at around $19.5 and 200 sma.
3. Low volume consolidation around support level.
4. Long tail hammer printed over price support and 200 sma.

I will probably enter a long position when Market opens.  Risk point is 200 sma ($18.3).

Chart: LULU

A very bearish chart.  LULU broke the support level at $70 on huge volume.  Note also the lower peaks in RSI as the stock made higher highs over the past several months.

RSI and stochastics are already oversold.  I will wait for a low volume dead cat bounce at overbought level to initial shorts.

As of late, the apparel stores industry is very weak.  It failed to challenge the old high made in early April and displayed some distribution patterns lately.  It's now at oversold level.  Not a good time to short.  I will post some charts in this industry that I'm interested to monitor in the next post.

Chart MKTX

Since late 2014, every time MKTX dropped below 50 sma was a buying opportunity.

Weekly chart showing a longer term perspective:

Trade: EXK (Silver miner)

I bought 1000 shares EXK at 4.96 on 2 Sep.  This is a play on strong recovery upon touching an important support.  As can be seen on the chart, EXK (and many other silver miners) pulled back since mid-Aug along with silver spot.  It tested the support at $4.2 in end-Aug when its stochastics has also reached oversold level.

Overselling is never a good reason to buy a stock.  EXK bounced on heavy volume on 1 Sep, printing a bullish engulfing candle.  It gapped up on heavy volume, retaking the 50 sma and 9 ema, on 2 Sep.  I took this as a confirmation of the bottoming action on 1 Sep and entered a position.  In the very short term I won't be surprised to see some pull back.  A pull back on light volume to the gap ($4.59 - $4.69) region would be another buy opportunity.  I set a stop just below $4.2.  Target is the recent high of around $6.  Reward to risk around 1.3 is not a screaming buy.  However, looking backward this year, there were 4 times stochastics falling to oversold and then recovered strongly.  Each time EXK was able to make a new high.  Possibly silver miners are in a major bull market.  I will be a buyer at these situations until the Market tells me the phenomenon no longer holds.

This is the chart for silver miners ETF (SIL):

Weekly chart showing SLV printing a bullish engulfing candle right at support:

Lessons from the Market

In this post, I want to consolidate what I have learned about trading and the Market.

1. Before a *support* is tested, it is only hypothetical.

2. Never catch a falling knife.  This is the game for bold traders, not risk managers.

3. (Corollary to 2) Oversold is never a good reason to buy, wait for strength to signal your buy orders.

4. Similarly, having a *support* successfully tested is not a good reason to buy, wait for strength to confirm resumption of original trend.

5. Market tends to surprise you towards close, be patient.

6. Listen to the Market.  You can have a view about the Market.  But wait for the Market's signal to trigger your orders.

Trade Review: M and LCI

I made a couple of foolish trades this week which I want to document and distill some lessons from it.

M made a nice breakout with huge volume from the base that it has formed from May to Aug upon earnings report.  It shooted above the 200 sma as well as the resistance at $37 then.  Subsequently it pulled back on light volume for the ensuing 2 weeks.  I tried to play it as a breakout pullback set up.  I believed that $37 should provide strong support and could act as the stop loss level.  The recent high of $41 could be a swing target.  On 30 Aug it has pulled back very close to 200 sma and stochastics was already oversold.  I decided to place a limit order right above the 200 sma (38.01) the next day.  This should give me 3 to 1 reward to risk.  Very nice indeed.  My order was filled shortly after the market opened on 31 Aug.  Soon after I received the order filled message from IB, I viewed the quotation and found it was trading around $37.5.  I had a feeling that this might be a falling knife.  But when I thought about the reward to risk, this was really a good deal.  So I entered the other half position at $37.5 (total 700 shares with avg price $37.8).  But then it continued to tank, all the way down to around $36.1.  Towards the end of the day, it printed a big red candle on heavy volume.  I bailed out my position at $36.16.  I lost $1148 catching this falling knife.

Lessons learned:

- Before a *support* is tested, it is only hypothetical.

- Never catch a falling knife.

- Market tends to surprise you towards close, be patient.

LCI is another breakout pullback candidate that I traded unsuccessfully this past week.  The pattern structure of LCI is similar to M.  It has also formed a giant island formation and was pulling back on light volume post earnings breakout.  I believed the support was around $33.  And the several candles that it printed prior to my entry did show some suport at $33.  On 31 Aug (yes, the same day as the M trade), it broke below $33 but then rose again towards market close.  Having absorbed the lesson from the M trade, I decided to wait until market close before entering.  I bought 400 shares at $33.91 at market close when it has printed a beautiful long tail hammer over an important support ($33).  Taking note of M's experience, I decided to use a looser stop to allow for more surprise from the market.  I believed I have done a good job this time.  Oops!  It tanked 2 days and stopped me out at $31.77.  I lost another $856 in this trade.

Lessons learned:

- A valid test of a hypothetical support is good, it's even better to wait for a confirmation of the validity of the test.  For example, another day's close above the high of the test day.

Overall reflection:

I seemed to be believing in something that the Market disapproved (the support levels) in the end.  Perhaps I should be more humble and patient to wait for Mr Market to reveal how he thinks.  Listen to the Market!