Friday, April 10, 2015

This has got to stop

Now that is a lie. I make the same mistake much more than that. And still I manage to be profitable. So what is the mistake that has got to stop? Being too early and not following my rules of trading which are to only enter a stock for one of three reasons: 

1, The chart is in a blow off top.

2. The chart is in a test of resistance

3. Strong fundamentals

Since I am 95% about technical trading I rarely use #3 but I keep the option open.

So lets look at some recent examples. The following is a little toppy chart of YINN but for sure not a blow off top but the trigger for these mistakes are 1. Being highly liquid and wanting to find trades and 2. Lack of patience.

So three days later it evolves to a pretty good top pattern but now I entered too early and my average is somewhere in the large gap up when it could have been close to the top, if this turns out to be the top. This was an extra bad decision since shorting Bull ETFs requires extra cation. 

My shorting of XIV was even worse. Again the trigger is high liquidity and impatience. I'm not sure what I see here except for wishful thinking. There's no point of resistance being reached here and there's no top, only a decent advance since the last low but that should certainly not be enough for an entry.

A few days later it starts to look ok for a small entry.

The only thing I did right was that I kept the initial position size small. If I had shown more patience I would have gotten a better trade on both of these charts. It only took about three days to have better setups materialize. It would have been well worth the wait.