Glum Swing Trader - Was Doing Great Until a Couple Weeks Ago

[JLJ 10]

I was actually making money swing/momentum trading - tho admittedly the market was very good in Sept which helped a lot. I was gaining much more than I was losing. I buy smallish lots (200 shares sometimes 300) and hold for anywhere from a day or two to a week or so. I always have a stop loss in place. Always.

The past couple weeks, I've lost most of my gains of the past few months. My account is currently not much above where I started.

I know that the whole market has been down - the international backlash against QE2, China's inflation problems, and now Ireland - but I don't know what I should do differently. Problem is, my stops (I allow for pretty good wiggle room - I usually set the stop about 8% below the purchase price) have been repeatedly hit, generating losses. (Sadly, after my stop is hit the price usually goes right back up.)

Of course _when_ I buy is important - I look at stocastics to see when prices are likely at the peak or bottom so I can avoid buying just before the price starts to drop. That method used to work, maybe 70% of the time, but with everything down it's not working, except in hindsight. None of the stocks I've bought in the past week or so were much in the green ever, because everything started dropping, so when my stop is hit I lose, and that's happened several times lately.

As soon as it became clear a couple days ago that we were heading for a 'correction,' I started selling what I had left and moving into cash so I'm less exposed.

I'm OK so long as I can identify my mistakes and not keep making the same ones, but I just don't know what I should do differently in the future. Short of buying a crystal ball.

Thanks for any input.

[jajuanm2 10]

One little dirty secret of trading is that almost everything works in the direction of the trend. So your challenge is the learn to identify the trend and trend change that matches the time frame you trade. For swing trades, find and objective way to spot trend changes on the weekly chart or daily chart. You can start by looking at the reversal bar on the weekly chart last week.

[SIUYA 11]

None of the stocks I've bought in the past week or so were much in the green ever,

 

Often this is an early warning sign to cut a position...... you dont need to wait until your stop is hit.

I have often waited around too long for something to happen when clearly the trade is not doing what I anticipated it to do......

[noego 10]

Hindsight and backtesting your "edge" are fine as the other posters above mentioned. The real issue is understanding overall market structure and changing with it. You are buying or selling based on lagging indicators which can stay overbought/oversold for longer than you can stay solvent. As one of the other posters mentioned you must be quicker to admit you are wrong. When a position your are in is not acting correctly based on the premise you used to enter the trade, a full stop out is not only not necessary but it is psychologically damaging to a trader. You don't have to be in the market all the time. Patience and discipline and better understanding of trend and change of trend will really help. Experienced traders were not trying to buy and hold long positions near the S & P 1220 level.

[RichyOne 10]

Try using mental stops

[miksnake 10]

I wouldn't use mental stops if I were you. You may use them in conjunction with hard stops, but keep your hard stops in place. You will get crushed and go broke if you get rid of your hard stops.

 

Also, if you've lost all of your gains from the past couple of months during this small downturn then you need to reevaluate your system and in particular your money management. You never mentioned what your profit targets are, just your stop loss at 8%. Are you losing far more on losers than you make on winners?

 

Do you short? You may want to have one of your positions be a short when the market starts looking toppy.

 

Just make sure you make up for your recent losses over the next several weeks when the S&P 500 goes back over 1225.

 

Good luck and keep learning. It's not easy.

[bobcollett 10]

Dear JLJ,

You are going to have to start all over again

And using stocastics without price action is a losing method.

The market will stay oversold / overbought longer than you will stay solvent.

Look on this site for threads on price action. There is some excellent info.

Be careful of Brooks. Thats scalping. And his book takes a while to grasp.

But dont dispair. It takes a while and a bit of cash.

And I think a 8% stoploss is too big -Look at the average move per time period over 20 time periods.

This will determine your stop, maximum 3%. If a share moves on average 8% a day (time period), dont trade it. Find something less volotile.

Do you understand how the market works?The Institutions drive the market .The analysis will determine the EXPECTED FUTURE EARNINGS of a share.An order will be placed for 1 million shares at lets say $50 with a maximum of $55. The market moves up . At $55 the big buyer steps back and waits for a pullback.At $50 he starts buying again unless he has filled his order. Thats why you wait for him and trade on his momentum.

Wait for a pullback.

You also need to know the consensus view of future earnings so you have a rough idea of where the share is heading. So you combine fundamental analysis with a chart.

And finally trading is a full time job.You need 10000 hours to become proficient. Thats 8 hours a day for 5years!!!

The biggest problem with this advise is its too brief, so go and read Soultrader where there is 1000 pages of info.

Been there, done that.

bobcollett

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[MadMarketScientist 11]

Some great advice here so I would say yes to all of the above. A few other thoughts came to my mind.

 

One, as mentioned before it sounds like this trader is all "directional" to the buy side. That's tough unless you are averse/against shorting -- if you are, you need something that tells you to stay on the sidelines during those downswing periods. There's going to be plenty of those and you sound like you're just forcing the action and the momentum simply isn't there.

 

Think of all the genius traders that were floating around in 1998 - 2000 - when the markets did nothing but go up and even if you had a down day the next day your stock would go up $30 further reinforcing trader genius disease that was going around. And then the crash hit and it never came back. We all know what happened next.

 

I think it's tough with a long only bias to succeed.

 

In addition, what I've found in my system development which includes tens of thousands of trade observations is it's amazing how often a system/approach you've developed feels just so good and like the holy grail. Then all of a sudden something changes and it completely collapses. You can't even imagine how often I have thought I have developed a breakthrough for myself and it seems incredible for a sustained period then simply breaks down miserably and goes in the trash heap.

 

You really have to develop your strategy to take into account many different market conditions or it's doomed to fail in time.

 

MMS

[noego 10]

yes....what they said on the last two posts expounding on my comments. Excellent advice folks....10000 hours is absolutely correct. Learning to trade is a full time job.

[otjm 10]

Bobcollett talked about a 20 day average true range. Check out the work that Charles LeBeau has done on chandelier exits using an exponential ATR. That sets your stop loss based on the volatility of the stock you are purchasing.

 

In addition, you might want to watch different time frames to see what the overall movement is, and be watching some market averages to see when we are getting either a reversal, or into a trade range.

[JLJ 10]

Thanks everyone for the thoughtful replies. I do know about how institutional investors drive prices, the importance of expected earnings, etc. However I don't know what 'reversal bar' and 'price action' are. I need to find some really basic info on technical analysis - the info I've read assumes you're familiar with a lot of terms I don't understand, so it's above my head.

What I did was to buy based on fundamentals - using my primitive knowledge of stocastics to avoid buying when the price is peaking - then I'd ride it up for a while, then sell. It was working great until a few weeks ago when the market started going down.

I lost about two-thirds of my gains in the past few weeks. No, I didn't lose all my gains. I think I had good 'beginner's luck" - I benefited from a good market in September and October.

Interesting that I don't hear a lot of people here saying "you can't make money the way it's been the past 2 weeks" - does that mean you can, if know what you're doing? I'll admit that I don't

I don't have a problem with admitting I made a bad buy and should sell before the price drops further. In the beginning, if the price dropped much after I bought, I'd sell - and it cost me. I keep detailed records of all my trades and I spend a lot of time looking at what I did, when, and why, then I look at the charts and see what the price did _after_ I sold. What I saw was that almost every time I sold, the price would come up, often substantially, anywhere from minutes, to a day or two, after I'd sold. Once I realized I was selling too soon, I began to hang on and the price would go back up and I started to have good gains. ...Unfortunately, that also meant when the market started to fizzle a couple weeks ago, my stocks would go down - down - down then my stops were hit.

However, even then, most of the time when my stops were hit, the price only dipped a few cents, maybe 20 cents max, below my stop - then it came back up, often quite dramatically. (There was only one stock that continued to go down and stay down.) So if my stop had been 8.25% below what I'd paid (as opposed to 8% below) I would not have been stopped out and would have still been there when the price came back up. I think a closer stop would backfire. Obviously my position sizes should be smaller so I don't lose as much if the stop is hit. Or I could buy stocks that are less volatile, as one of you guys here suggested.

The thing is, I've often done well with volatile stocks because it would go up a couple bucks a share in one day, I'd sell, then when it would drop I'd buy it again. I've made great gains from buying and selling a small number of stocks, repeatedly. If they don't have pronounced price swings this isn't possible (in the short term, at least).

I'm willing to spend the time to learn. I appreciate folks here reminding me that it takes a long time to get good at this.

[JLJ 10]

Oh,one more thing... I don't short, don't even know how. But if I can't tell if the price is going up or down, I think I'd lose money shorting.

[ra189663 10]

I need to find some really basic info on technical analysis - the info I've read assumes you're familiar with a lot of terms I don't understand, so it's above my head.

What I did was to buy based on fundamentals - using my primitive knowledge of stocastics to avoid buying when the price is peaking - then I'd ride it up for a while, then sell. It was working great until a few weeks ago when the market started going down.

I lost about two-thirds of my gains in the past few weeks. No, I didn't lose all my gains. I think I had good 'beginner's luck" - I benefited from a good market in September and October.

.

As a suggestion: read Trading for a Living, and Come Into My Trading Room, both by Dr. Alexander Elder. I don't believe he focuses on stochastics, but he does focus on swing trading and I think both may be helpful.

 

Having a tighter stop will cause more losses, but smaller ones. Everything is a trade-off, but with good trades chosen, good position sizing, good stops, and knowing when to exit will hopefully prevent such a large loss of gains.

 

there is a lot to learn. Some of the best learning comes from making mistakes; but it also helps to know why the mistake was a mistake - or there is no learning at all. On the other hand, there is value in learning what has been a mistake for others; at least in can help prevent making unnecessary mistakes.

 

The market has had a number of hiccups since March, 2009, and doesn't seem to want to make a steady bull market out of the chaos. And scan of any number of stocks will show gains since then, but not without some dips here and there, for who knows what reason. Don't give up; I think if you read those two books (and you may want to read them numerous times, as they are loaded with information) and learn from this go-around, you will do well. Rome wasn't built & etc.

[Kiwi 16]

Elder's multitimeframe approach is valuable. High for trend; Mid for setup; and trigger on some price action (you only need two timeframes here not 3).

 

(Moderator: Removed 3rd part URL)

 

Focus mainly on pins, buobs, ibs etc. But remember that price action without context (the higher trends say and the pullback point) is just another way of losing money. You need both.