A Look at a Stock Trader's Day

[thalestrader 14]

Two trades today - both great trades, but both were losing efforts.

 

I am not one to post-mortem losing trades. I do flip through 600 charts each night (the 5 minute chart of each issue in the SP500 and the daily chart of each IBD 100 stock). I do review each day's trades. I print each chart, place it in a three ring binder, and flip through these charts from time to time. However, I feel that there is no need, in most cases, to autopsy my losing efforts.

 

This is because I trade the same way all the time: I'm either buying new highs or shorting new lows; or else I buy or sell the occassional pullback to the 20 ema on a 5 minute chart following a strong move (as I did today with my second losing effort, GILD). Very simple and straightforward, with the result that over time, most of my trades are either small wins or even smaller losses, with the occassional profitable runner thrown into the mix (as LM was yesterday).

 

Once I am out of trade, I am out, both financially as well as psychologically. It matters not whether I am stopped out with a loss and the stock immediatley reverses to move in what would have been my favor. I do not care that I am stopped out with a profit and then the stock resumes its favorable move without me. If I'm neither long nor short, I do not care what a stock is doing.

 

However, the COV trade today handed me what I believe to be my largest loss of 2009 - I lost 42 pennies/share on that trade. And for the first time in a long time I was not pleased with the manner in which I managed a trade. So, while I am not one for performing forensic dissections of my trades in general, I am going to do so for this one in particular.

 

I bought COV as it made a new high for the day. My buy stop was 37.30, and my fill was 37.33. The HOD today was 37.34. It happens, and there is nothing I can do about it, and it doesn't bother me in the least. I often find I shorted the low tick or bought the high tick for the day. It is something that will happen from time to time if you trade in the manner that I do.

 

However, typically, when I have bought the high tick, or close to it, my loss is, also typically, quite small.

 

How small?

 

Usually less than 20 pennies/share, often between 10 pennies and breakeven. This is because when a stock (or any instrument, for that matter) makes a new high that it can't hold for even one 5 minute bar, then that breakout to a new high is usually a false breakout. I know this, and I typically take myself out at the market. As I said before, once I'm out, I'm out. I move on. This time, in spite of the quick retreat from new high ground, I stayed with COV.

 

It immediately started a decline and pulled back to 36.92, and then it rallied back to 37.20, where it stalled. And that was the best it could do over the next 12 bars. And here is where I really misbehaved. When price stalls at a level after repeated attempts to push through that level, then odds favor that what you are looking at is not a continuation pattern, but a reversal.

 

I could have cut the loss at 13-14 cents, but I didn't, and I had nearly an hour to do so. Instead, I stuck it out, only to watch the slow death roll of a failed rally take me out at my revised stop of $36.91.

 

I've said in other posts that for me, every trade begins as a scalp, and if price action doesn't confirm me to be right immediately, I take a small profit or small loss. Today, COV should have been such a trade.

 

I've attached a chart of the COV trade, as well as the GILD trade. GILD was a simple retracement to the 20 ema, it didn't work, and I was stopped out for with a dime loss. The COV was a failed breakout to a new high of the day that I should have cut off immediately but I didn't.

 

The longer a consolidation takes, the more likely it is a reversal in the making, and not a continuation, especially if price stalls at a level below the high of the consolidation. I know this. Today, for a few hours, I forgot it (or chose to ignore it).

 

Lesson (re)learned.

 

Best Wishes,

 

Thales

Edited June 3, 2009 by thalestrader

[brownsfan019 17]

Great post Thales. There's a lot of little gems in there if you read it closely. I don't nominate posts that often, but I really like this one.

 

It's been great to have you on the forum. You've renewed my interest in stock trading or at least being aware of what some stocks are doing.

[thalestrader 14]

Buying new highs - Buy Stop on TEL @ 19.78

 

Filled 19.78

[thalestrader 14]

Buying new highs - Buy Stop on TEL @ 19.78

 

Filled 19.78

 

 

New highs beget new highs

[thalestrader 14]

New highs beget new highs

 

which beget higher highs

[thalestrader 14]

which beget higher highs

 

 

which do not always stick ...

 

took me out at the market +15 pennies/share

[MC 10]

Awesome thread. Thanks guys. I always was frustrated on how to look for active plays early on. This is just what I needed.

[MC 10]

thalestrader...

How do you look at "wicks" or tails on candles/bars in terms of breakouts? Do you require that market excess be cleared before declaring a breakout? Do you even factor the tails in or do you consider it just noise?

 

Thanks

MC

[brownsfan019 17]

:applaud:

 

 

Nice job Thales. Clean, easy chart and trade to understand.

[thalestrader 14]

thalestrader...

How do you look at "wicks" or tails on candles/bars in terms of breakouts? Do you require that market excess be cleared before declaring a breakout? Do you even factor the tails in or do you consider it just noise?

 

Thanks

MC

 

Hi there,

 

I think that I could answer your question better if you were to post a chart. I confess that I am not familiar with the term "market excess" and thus I do not know what it would mean for it to "clear".

 

If it is at all helpful, I really do not make it any more complicated than this: I buy new highs for longs and I sell new lows for shorts. I occassionally buy or short a pullback to the 20 ema on a 5 minute chart after a strong move.

 

As far as "wicks" or "tails", this is a function of where a price bar opened and closed in relation to that bar's high/low. My view is that any chart that breaks price action into discreet bits of time, or volume, or ticks, or range, or any other way you can cut price action up is, in the end, arbitrary. So I pay little if any attention to where a bar opened and closed.

 

In fact, if you look at the few charts I've posted of the ES, where I use Ninjatrader charts, I use high-low bars, which are not available on freestockcharts.com.

 

Best Wishes,

 

Thales

Edited June 5, 2009 by thalestrader

[MC 10]

Hi there,

 

I think that I could answer your question better if you were to post a chart. I confess that I am not familiar with the term "market excess" and thus I do not know what it would mean for it to "clear".

 

If it is at all helpful, I really do not make it any more complicated than this: I buy new highs for longs and I sell new lows for shorts. I occassionally buy or short a pullback to the 20 ema on a 5 minute chart after a strong move.

 

As far as "wicks" or "tails", this is a function of where a price bar opened and closed in relation to that bar's high/low. My view is that any chart that breaks price action into discreet bits of time, or volume, or ticks, or range, or any other way you can cut price action up is, in the end, arbitrary. So I pay little if any attention to where a bar opened and closed.

 

In fact, if you look at the few charts I've posted of the ES, where I use Ninjatrader charts, I use high-low bars, which are not available on freestockcharts.com.

 

Best Wishes,

 

Thales

 

The bold answers my question. Thanks for elaborating on your style.

 

My use of the term "market excess" refers to a period where say the weekly chart has a long wick at an important level created with big volume, showing hidden buying/selling pressure. Dialing in to daily or 60 minute you would likely see a double top and/or a failed (lower volume) test. Excess meaning there was volume expended with limited or no price action advance. That wick price segment would in theory then become a supply zone/resistance (or demand zone/support) because there are trapped holders. I think this term is more fitting to longer timeframes though. Daytrading really is more about momentum, not hidden selling etc... Perhaps that's my biggest issue is using a TA style that's not well suited to daytrading. HRMMM

 

Your use of price action alone is something I want to try. I tend to use volume looking for "excess" and it has admittedly clouded my reads at times. Price action pays not volume or indicators. Again, thanks for the generous info you've shared on TL.

[brownsfan019 17]

I buy new highs for longs and I sell new lows for shorts.

 

Keeping with our discussion of comparing stocks to futures - I don't think this strategy would work that well in futures, esp the indexes and bonds. Again, another reason why trading stocks is advantageous.

 

You already know Thales that what you are buying or selling has some serious momentum w/ it. In a broad based stock index or bond market, just buying new highs or shorting new lows could be treacherous since there's so much influencing it.

 

It's very common to see the ES or NQ peak it's head through for a new high or low, quickly retrace and then try again. Could take 3 or 4 times before it works. IMO many are fading the new highs or lows in futures that can send it back down/up, even if just momentarily (usually enough to grab a few stops of the breakout guys).

[thalestrader 14]

It's very common to see the ES or NQ peak it's head through for a new high or low, quickly retrace and then try again. Could take 3 or 4 times before it works. IMO many are fading the new highs or lows in futures that can send it back down/up, even if just momentarily (usually enough to grab a few stops of the breakout guys).

 

 

I agree. When I traded the e-mini's regularly I would often wait for the pullback to the breakout level before taking a break out trade, and if the breakout failed, I go the other way (a Trader Vic 2B trade).

Edited June 5, 2009 by thalestrader

[thalestrader 14]

do you ever use options on your plays? Just curious what your thoughts are in regards to using options to daytrade.

 

I do trade options, but not for daytrading. I trade IBD 100 stocks, and will use options to take positions if a particular stock is optionable.

 

Here's a possible opportunity for me to take a long position using calls. If TLM trades above today's high I will buy the July 15 Calls. I would have preferred an August expiry but the next month available after July is October.

 

Best Wishes,

 

Thales

[brownsfan019 17]

I agree. When I traded the e-mini's regularly I would often wait for the pullback to the breakout level before taking a break out trade, and if the breakout failed, I go the other way (a Trader Vic 2B trade).

 

Thales - when did you trade the mini's and why did you stop (if you did stop trading them)? Would love to hear the story there.

[MC 10]

Thales - when did you trade the mini's and why did you stop (if you did stop trading them)? Would love to hear the story there.

 

I was wondering the same thing. I know there was mention of the ability to manage position sizing much better with stocks. But fees and taxes would eat a big chunk of profit on stock trading. If one has the risk capital to trade futures it seems to be the best vehicle. No?

[diablo272 10]

One thing I've noticed is that many prop firms only trade equities for whatever reason, so if you wanted to trade with a firm, futures may not be available. On a side note, if anyone knows why so many prop firms don't trade futures, it would be great if you could share the reason(s).

[brownsfan019 17]

On a side note, if anyone knows why so many prop firms don't trade futures, it would be great if you could share the reason(s).

 

I think part is why do you need a prop to trade futures w/ the leverage already available? If you can open an account for $5000 and get $500 margins on the indexes, what use is the prop providing? I don't think you can get much lower than $500 per contract and keep your risk in check.

[thalestrader 14]

Thales - when did you trade the mini's and why did you stop (if you did stop trading them)? Would love to hear the story there.

 

I still do an es trade for my own account when I see something I like, but I am a more consistantly profitable day trader of stocks. So I focus where I succeed best.

 

I always have and still do trade anything that moves.

 

Best Wishes,

 

Thales

[thalestrader 14]

Here's a possible opportunity for me to take a long position using calls. If TLM trades above today's high I will buy the July 15 Calls. I would have preferred an August expiry but the next month available after July is October.

 

Best Wishes,

 

Thales

 

TLM gapped higher and traded marginally above the 6-4 high (by 9 cents). A higher high than that of the first 5 minute bar would have been the go ahead for me to go long the July 15 Calls.

 

As it were, that was the high of the day and TLM closed down 17 cents on the day.

 

This is still a potential opportunity for me, but the go ahead price point notches up to 15.97

 

Best Wishes,

 

Thales

[thalestrader 14]

Hi folks,

 

Here is a pattern that used to be quite common but has become rather rare of late.

 

THO gapped open higher, but never followed through. Instead, price fell back into yesterday's range by 10:15 AM, holding just above a broken resistance point from the prior day, and holding at and above the 21.41 low (which marked a pullback to the 5 minute ema yesterday) made after the stock started a rising trend during yesterday's session. This part just states what happened prior to the pattern, and is not part of nor required for the pattern.

 

Now, here is the pattern: Price then traded in a very tight range for nearly 4 hours before breaking down and continuing its drop. When I see a tight range like that, it is usually just a matter of time before a decent move is made. Sometimes it is a continuation, sometimes it is a reversal, but it is almost always a decent trade. In this case, 21.40 would have been the sell stop price, and price declined to 20.34 just before closing the session at 20.45 Any time you can grab a quick dollar/share profit, without ever having been in the red during the trade, that is a decnet trade!

 

Regretably, I did not trade this opportunity today. It was brought to my attention by a colleague after the break down.

 

But it was nice to see an old pattern repeating itself.

 

Best Wishes,

 

Thales

[thalestrader 14]

Looking for the ES to find signs of support with a gap open into the shaded support zones.

 

Good Luck Today,

 

Thales

[thalestrader 14]

Here is a chart with my two entries on CEPH. I was stopped out with a small profit on the first entry at 58.25, and now I'm long again at 58.86

 

Also, the ES has stalled at 933.50, and a little short there with a 933.75 stop is my sort of ES trade, looking for a retest of the low of the day.

 

Best Wishes,

 

Thales

[diablo272 10]

Also, the ES has stalled at 933.50, and a little short there with a 933.75 stop is my sort of ES trade, looking for a retest of the low of the day.

 

1 tick stop? And people call you crazy if you trade with a 1 POINT stop on the ES...

[thalestrader 14]

1 tick stop? And people call you crazy if you trade with a 1 POINT stop on the ES...

 

I'm not sure if you are being critical of my suggestion or not (and it is ok if you are).

 

My opinion is that an initial stop loss ought to be at a price point where the odds flip from favorable to unfavorable for continued price movement in the direction of your bet.

 

The size of the stop will be determined by the difference between my entry and that objective price point that would turn the odds from being in my favor to being against my position.

 

Right now, odds are favorable.

 

Best Wishes,

 

Thales