Duh!
This is an official “Duh!” post.
Sometimes I wonder how I manage to get through an entire day without accidentally killing myself with a bottle of water or something. Many, many stocks form trends, clearly visible when bottoms are connected by a straight line. Very often, a parallel line can be drawn along many of the tops within the trend. These trend lines serve as terrific and reliable support and resistance lines. Duh? Duh!
Why in the freaking hell did I choose to ignore that bit of bargain basement common knowledge from June 1st through September 15th?
I started June 1st deciding I was going to catch trends and ride them as far as they’d take me. I decided to come up with my own definition of trend to be a series of higher highs and lower lows. Well, not my own definition by about as many years as stuff for sale has been charted, but I decided to make it my own by ignoring everything else. All that was to matter to me was the lows are getting higher. Nothing else. A low was only a low after another high was made. It seemed logical at the time. It was not.
Stocks trade in rising ranges when they are trending (dealing with long trades here). These rising ranges are called …..everybody now….. channels! I chose to ignore these. Not consciously, I just didn’t include them in my thought process when I decided what would make up a trend. Forget that almost all of my stocks are currently riding channels, I just didn’t care apparently! The problem is, within these channels, my definition of a trend breaks down very often. Little downtrends (lower lows/lower highs) within a very strong dominant uptrend happen all the time. That’s often how stocks trade down from the upper (resistance) line to the lower (support) line. Well, I was selling stocks that were making a very normal and healthy correcting move from the top line to the bottom line. See TXU for one example. I sold it a couple trading days ago because it broke my definition of a trend. What happened? It bounced hard off the REAL trend line today. I watched it just to see what would happen after I noticed what I had done late last week when I woke up from my alternate reality. Well, it performed beautifully! In fact, I’ll buy it later this week if it is still around its support line when I get enough cash cleared.
Anyway, now that I’ve come back to my senses, it is time to get to work. I’ve made a couple decisions about how I’d like to proceed, and I have one open item remaining. I stated up front that I haven’t spent a lot of time trading longer term like I’m trying now – that all of my trading to this point has been very short term in nature. I suppose it isn’t out of the realm of possibility that a major oversight like this can happen. Well, the work in process continues, although most of the pieces are now, hopefully, in place for a long-term run at the market.
The strategy is two-fold, really. The overall strategy is to jump on these trends as close to the support line as possible and ride them until they end. I’ll move stops up as often as necessary to keep up with the support line, probably once a week or so depending on the stock and how fast it moves. The second part of the strategy is what is somewhat open ended at this point. I plan to continue trading breakout patterns in stocks that have been consolidating and are not in organized trends. These are such good money makers and very explosive and quick. I don’t want to abandon them. The problem I have is how to work this strategy into the trend following umbrella. I don’t have time during the day to be monitoring positions to see if I need to switch from a stop loss to a limit sell order and vice versa. In a perfect world, I’ll come up with some sort of stop loss strategy for the breakout that lets a trend develop if it is going to. I believe many breakout stocks are strong stocks that will trend up. I want to allow that trend to develop. I just don’t know how well this part is going to work. It seems like it may be marrying two strategies that just won’t mate.
The good news is that most of my capital is tied up in trending stocks. I think what I’ll do is let the few positions that are in breakout patterns play themselves out by keeping the stops reasonable and taking the positions off the table only if I wouldn’t want to own the stock if it trades below a certain price. For instance, I won’t let a non-trending breakout trade below its support level. It is always possible I’ll decide to abandon non-trending stocks entirely if I can’t seem to get them to assimilate.
That’s enough beating myself up over this. Lesson learned (again!). I have some reasons to believe I’m going to love this trend business a whole lot that I’ll share tomorrow. Again, nothing that isn’t commonly known, but part of the reason for blogging this stuff is so I can go back in time and see what I was thinking “back then”.
Sometimes I wonder how I manage to get through an entire day without accidentally killing myself with a bottle of water or something. Many, many stocks form trends, clearly visible when bottoms are connected by a straight line. Very often, a parallel line can be drawn along many of the tops within the trend. These trend lines serve as terrific and reliable support and resistance lines. Duh? Duh!
Why in the freaking hell did I choose to ignore that bit of bargain basement common knowledge from June 1st through September 15th?
I started June 1st deciding I was going to catch trends and ride them as far as they’d take me. I decided to come up with my own definition of trend to be a series of higher highs and lower lows. Well, not my own definition by about as many years as stuff for sale has been charted, but I decided to make it my own by ignoring everything else. All that was to matter to me was the lows are getting higher. Nothing else. A low was only a low after another high was made. It seemed logical at the time. It was not.
Stocks trade in rising ranges when they are trending (dealing with long trades here). These rising ranges are called …..everybody now….. channels! I chose to ignore these. Not consciously, I just didn’t include them in my thought process when I decided what would make up a trend. Forget that almost all of my stocks are currently riding channels, I just didn’t care apparently! The problem is, within these channels, my definition of a trend breaks down very often. Little downtrends (lower lows/lower highs) within a very strong dominant uptrend happen all the time. That’s often how stocks trade down from the upper (resistance) line to the lower (support) line. Well, I was selling stocks that were making a very normal and healthy correcting move from the top line to the bottom line. See TXU for one example. I sold it a couple trading days ago because it broke my definition of a trend. What happened? It bounced hard off the REAL trend line today. I watched it just to see what would happen after I noticed what I had done late last week when I woke up from my alternate reality. Well, it performed beautifully! In fact, I’ll buy it later this week if it is still around its support line when I get enough cash cleared.
Anyway, now that I’ve come back to my senses, it is time to get to work. I’ve made a couple decisions about how I’d like to proceed, and I have one open item remaining. I stated up front that I haven’t spent a lot of time trading longer term like I’m trying now – that all of my trading to this point has been very short term in nature. I suppose it isn’t out of the realm of possibility that a major oversight like this can happen. Well, the work in process continues, although most of the pieces are now, hopefully, in place for a long-term run at the market.
The strategy is two-fold, really. The overall strategy is to jump on these trends as close to the support line as possible and ride them until they end. I’ll move stops up as often as necessary to keep up with the support line, probably once a week or so depending on the stock and how fast it moves. The second part of the strategy is what is somewhat open ended at this point. I plan to continue trading breakout patterns in stocks that have been consolidating and are not in organized trends. These are such good money makers and very explosive and quick. I don’t want to abandon them. The problem I have is how to work this strategy into the trend following umbrella. I don’t have time during the day to be monitoring positions to see if I need to switch from a stop loss to a limit sell order and vice versa. In a perfect world, I’ll come up with some sort of stop loss strategy for the breakout that lets a trend develop if it is going to. I believe many breakout stocks are strong stocks that will trend up. I want to allow that trend to develop. I just don’t know how well this part is going to work. It seems like it may be marrying two strategies that just won’t mate.
The good news is that most of my capital is tied up in trending stocks. I think what I’ll do is let the few positions that are in breakout patterns play themselves out by keeping the stops reasonable and taking the positions off the table only if I wouldn’t want to own the stock if it trades below a certain price. For instance, I won’t let a non-trending breakout trade below its support level. It is always possible I’ll decide to abandon non-trending stocks entirely if I can’t seem to get them to assimilate.
That’s enough beating myself up over this. Lesson learned (again!). I have some reasons to believe I’m going to love this trend business a whole lot that I’ll share tomorrow. Again, nothing that isn’t commonly known, but part of the reason for blogging this stuff is so I can go back in time and see what I was thinking “back then”.
posted by mccrok @ 5:54 PM
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