Spy Trends

anyone else been having a bad week?

Time to make some decisions.

When I traded into SH at 791, I stated the following:

What invalidates your assumptions? Breaking back into the last up-channel would signal another trend-change. There is high possibility of sideways action, fake-outs. We’ve seen one lower high, and have now broken the downside too. To shift this trend, we’d need both a higher high and lower low.

here is a look at my market trends in the S&P when I bought it, then (3/30/09):

Well, based on the assumptions I made when I bought it, this trade has gone kaput. However, I’m tempted to hold on to see it test the prior up-trend from Feb 9, around 870. If it passes this, then that’s a good case that the bull market could end. That would be a higher high, and to confirm the uptrend, we’d see a higher low.

This was, primarily, a channel trend, and the price action has broken out of the channel. I need to look and see how hard I should hold to the trend integrity principle: If it breaks out of the trend, the trend is likely to fail. So I look and see : How much has it broken out by? Has it broken out and re-entered before? Did I draw the channel incorrectly?

I redrew the channel. It actually works nicely and makes me sort of want to keep holding onto the short. This could be the exact pivot point for getting short:

Here is one of my lessons learned.

To restate what I said in the picture, incase the graphic is lost ever:

“The ‘channel’ trade is good as long as the price pattern stays inside the channel. There are a few things I’ve learned to keep in mind from now on: The upper and lower limit of channel trades is dynamic. Prior to each day, or each week, determine what price level invalidates your price range. Today, it was around 830. I mistakenly had 845 in my head as a sell point, but that’s the limit from a few DAYS ago. Had I sold at 835, I would have saved myself from a 23 point short squeeze, as we ended today at 858. “

I’m going to hold onto my position. The downward trend hasn’t been broken yet, and we’re at the top of the upward channel I drew. I think selling right now might possibly be the worst thing I could do.

I’ll review this in a week to see how it went.

On a separate note, keeping charts and blog posts of my trades and market outlooks has pointed out nearly half a dozen serious mistakes I commonly make. Many of them, when they’re pointed out (by myself through reflection, usually) seem obvious and glaring, but they never were until I attempted to explain my thought process. I’m definitely getting better at this. It’s just taking some time!

Trading Review: March 25-April 1

Time to take a look at all the bad decisions I made over the last week or so of stock marketry.

Here's a link to my last trade review. The main thing I learned that week was to bet with the overall trend. Looking back on the steps I formulated for better trading, I realize I basically outlined the Dow Theory without ever having read about it. It's pretty simple stuff, but that shows these trade reviews help me learn how to be smarter in investing. *I know it's the Dow Theory now because I started reading Technical Analysis of Stock Market Trends, which outlines Dow Theory in the first couple chapters.

So here we go. I'll look at both trades and market predictions. I'll decide whether, in hindsight, I should have bought earlier or later, sold earlier or later, and try to catch some things I missed. I'll review if my assumptions were reasonable and if I set prudent points to consider my trade a bad one.

3/25/09

• Market Prediction - I called this pretty well. The market bounced upon hitting the bottom of the upward channel. It topped within a few points of where I predicted. +1 point for channel bounce trading. Unfortunately I slept in the next morning instead of executing this idea. Need to work on: acting on my future predictions of this sort.



• Trade Plan - Neutral. This was probably not reasonably high enough above resistance. The stock needs to break resistance by a little more than 5 cents above in order to show break-out. Also, on breakouts like this, I shall also use volume as confirmation of a breakout before buying.



• SPY Buy - Success. This was a support/resistance trade, and it worked. I bought at 809.3, though the low of the day wasnearly 791. I can see the trend line I traded off of and in hind-sight it wasn't the real line of support. Had I created the correct trend line, It may not have seemed safe. If a stock breaks out of one "channel" you've drawn, try to see if you can find others that it's entering.

3/26/09

• Trade Plan - This was another "stop order on breakage through resistance". I was still looking at a short time-frame, instead of the big picture. Here was my pretty chart. I was drawing channels, but not using them yet:



• I did make some good assumptions, and "break through resistance" buys are OK as long as it's a confirmed breakout. I just need to confirm a breakout with decent rise above resistance, and good volume. I'll miss some of the first fruits, but it'll be a safer, surer trade. It might not hurt to mix some Dow Theory in there, and look for either the new support to be tested and stand, or to see a decline w/ a low above support to confirm even more. CONFIRM THE BREAKOUT beyond mere price action.



• SPY Buy - This was just before I learned to look at the bigger picture, and notice a larger, overall downtrend with the uptrend. I was all excited we'd make another bounce up, and this time through resistance. Little did I know that we were about to hit the ceiling of a several month long downward channel. I am, however, getting good at spotting support and resistance. And channel/trend action. Combine the two, and I'll be a much better trader. Check out this chart to see my resistance spotting skillz:



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3/27/09

• Game Plan - Interesting situation, with the upward funnel running into resistance:



• I decided to trade with the trend, once resistance was breached. Again, I was not looking at the overall, long-term trend. My reasoning was OK, but I need to adjust a few things. This has become trend in myself over the last few days: first, confirm breakouts with decent price breakout, and volume to confirm. Don't just buy once it enters a resistance/support zone. I was trading with the mindset that went like this: "We're still in this upward channel. Chances are, the trend will continue and this resistance will turn into springboard support." This would be a combined channel/price support buy. The perspective of a longer trend was the one caution I was missing.



• SSO Buy - This was not so bad from a short-term standpoint, but i needed the perspective of a longer term. There was price resistance as well as big channel resistance to stop the rally dead in it's tracks:



• this is when i finally learned my lesson.

3/30/09

• Game Plan - I had made some good observations, but still wasn't looking at the long-term trend. This changed later that weekend.



• ASIA check up - Success!I said I thought the chinese burritos would bounce down from the top of their current channel. Here's what I predicted:



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• And here's how things ended up:



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• Game Plan Second Look - This was where I started seeing things as I do now. Here's where I predictd we'd bounce down from a major, 6 month downward channel:



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• And the result from there? We're about even, though we've seen an end to that huge rally that lasted nearly all of march. Meeting of price resistance and channel resistance broke the trend, at least for the time being. Since we were still in a strong short-term uptrend, I changed my stance to neutral. Unfortunately, I was already long, and it as too late.
  



• Tech Analysis of YGE - I noted that YGE has an ascending wedge. I said it was a buy, if the S&P broke out on Monday 3/31, but to ignore it otherwise:



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• Here's how it ended up:



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• Trade Prediction: RNT - Didn't lose money, at least. This stock broke out regardless of S&P action:



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• S&P outlook - Getting rid of this asap was a prudent move. It moved out of the channel, and into the lower one. I didn't have any idea there was another channel support below. I should have gotten out in after hours on friday, though.

3/30/2009

• SH Buy - This is a long term (3 weeks) buy based on a 6 month channel movement. I'm trying not to worry about price fluctuation in the mean time.



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• VFH Prediction - Said to get short when VFH was at 20. Now it's at around 19.14:



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That's about it for now. I'm still short SH, due to convictions discussed in this post.

I'm definitely learning a lot. Here's a summary of the lessons learned over the last two weeks (at a decent price, too):

• Trade with the trend.



• Gain perspective of trends to trade in, in different perspectives of time. Trade in the short term only while knowing what the long term is also doing.

Trading Review: March 16-24

Trading Review: March 16-24

 

Where I was coming from:

            Starting on Monday, I was heavily short the market. This was after a huge run-up already. I had been following the teachings of Danny and iBankCoin.com. He continued to present levels of resistance and statistics pointing to the market going down. I continued to see the reasoning and logic behind his presentation, and continued to double and triple down on the market. I ended up gaining a very large position in inverse leveraged ETFs, with about $6000 in SDS and $2500 FAZ.

 

            The idea behind the shorting was:

1.     The market was in a serious downtrend.

2.     No fundamental issues had changed.

3.     We were just “bouncing” from 666 as we had previously.

 

Here’s a picture of the market over the last month, including Monday the 16^th:

 

In hindsight, I can see very clearly what I should have done. 

1. Expect the trend to continue until it doesn't. This would have meant shorting at the top of the S&P channel on March 10th. 


2. Sell once your assumptions are shown to be wrong. Shorting at the top of the trend would have been under an assumption that resistance would be in play as it had in the past, and the market would bounce down. This is expecting the trend and betting with it. After the market busted through resistance at about 696, I was shown that my assumptions were false. 


3. Wait for a new trend to confirm itself. This means that, although it broke through some resistance, it doesn't mean we're in a rally and I ought to start betting with the longs. I should see the market follow-through, to show it's serious. This could be an IBD follow through, or breaking through another level of resistance. 


4. Go to step #1. This system might turn into the framework for a new trading system for me. 

The next level of resistance was about 721, the previous high within the bear channel. Following the system above, I would have gotten my follow-through above 721, and then started getting long. A new trend, a confirmed rally, was established. Instead, I got short again at 721. Once it crashed up through there like a submarine in the Arctic ocean, I started eye-balling the next resistance level. My thinking was locked in bear-mode, and I vent frustration in this post.

As Gio said, a wise bear respects a bear market rally. I did not. Instead, I spit in it's face and bought FAZ in the high 30s. Here is an image from a previous post regarding my thoughts on FAZ, given to me by Upsidetrader. It seemed to make sense. I set my stop position a little bit below the previous support levels and luckily got out of FAZ around 34. 

Another over-all lesson learned?

If you're going to bed against the trend, have a very solid reason why, and keep your position/exposure small. Keep a very close eye on the price. Put your stop to a price that shows you're wrong. 

I can see my errors clearly now. I see it in this post, too. And here, even after I had started to see the error of my ways. 

Though I am encouraged I started to get long and change my perspective. There's nothing able to change my mind bear to bull as buying a stock & getting long. 

It was also encouraging to see me start stating reasons, expectations, and contingency plans for trading in my "trading journal", like for HES here. 

Another indicator that the trend has changed: You're betting one consistent way, and you're losing money. My Shorts kept getting killed, and any longs I had were easy money. Locked in a bear mindset, I was blind to the coin being gained by my longs. 

My HES trade here was well-executed. It was planned, small, and conservative. I used charts in my blog to support my reasoning. The result? It made some money, and got out before a possible break down. Instead of betting against the trend, I just stopped betting for it when it broke a trendline.