I've decided to abandon stiff trend lines as a timing device for entries and exits. Instead, I'll be using price as it relates to exponential moving average (EMA) lines. I'll still use the rigid lines for general slope evaluation to make sure a stock is trending sharply enough to make a difference over a relatively short period of time (less than a year), but it just seems too - I don't know - 'artificial' to use as an exclusive tool. With the EMA, I don't have to try to figure out how to handle a stock that has broken up and out of its channel. Price movement in and of itself has a much more prominant roll to play now, which is the way it should be. No more locking myself into a maximum average growth rate over the time I hold a stock. They now have a chance to improve themselves.
There is no one-size-fits-all EMA to use. Different stocks (and markets) tend to follow different time periods. However, I have pretty much settled on a 23 and 30 day combo scheme for entry and exit timing. In a nutshell, if a price bar closes above or below both lines and then confirms its intent to stay on that side of the lines the next day by moving higher (above) or lower (below), I buy or sell. Before I buy, I make sure the price has a history of respecting the lines.
Why 23 and 30 EMA lines? Well, it wasn't my idea. In a book I'm reading - "Trading Commodities & Financial Futures" by George Kleinman - the author discusses these lines as being a happy medium between a short-term line and a long-term line. Basically, using an intermediate line attempts to limit the wipsaws while not giving up too much of the trend at the extreme ends. I've looked at charts of a bunch of stocks and several futures markets with several combinations of lines and, while no combinations worked all the time (duh!) the 23/30 combo really does seem to be at the top of the crop. Also, for stocks, I've noticed that prices that break through the 23/30 band too often are not trending fast enough for me to want them in my portfolio anyway. So, if a stock needs a slower band to keep from wipsawing, I don't want it anyway.
In other news, I've requested a check from Scottrade for the whole balance. I owe my IB account another $5K plus the $330 of profit I made during the short time I had Scottrade funded. So, my starting total is about $10,300 or so. I'll post the exact starting total soon and I'll disclose real dollar gains and losses in that account. My IRA will remain a mystery.
So far, I have been getting drubbed in my trading account, mostly due to short term trading disasters. However, I have a good December wheat short cooking at the moment. It has the ability to pull my butt out of the deep hole I've dug for myself. With the sort of leverage I'm playing with in the futures market, recovery (or the opposite) can happen in a hurry. I need to add up the damage in each of the types of trades I've closed so far, but I know it isn't pretty. There will be few enough trades going forward that I'll be able to post almost real time.
Right now, I have one position. I'm short December wheat at 487, which means $4.87/bushel. I failed to let my system work and locked in a few hundred dollar loss yesterday. I had a stop set and it got hit. It was a stop that shouldn't have even been in play until the following day. That's the danger of small account trading. Survival plays too large of a role. Then the price reversed and headed well below my stop price. I re-established my short close to the market close, but locked up some loss. Today, however, was a very good day for the wheat bears.
One bit of IRA news - I'm kicking butt. I'm on a streak of several days where I'm outperforming the market. Some days by a very considerable margin. My unrealized gains are significant and with the EMA band working, are much more protected than before.
I did decide to cut BER loose. Upon further review, I should not have bought that one. It is moving way to slow and cuts through the 23/30 band far too often to be of any use. I chopped it early to make way for a better position.
