Trade Review: SCSS, AMRS

Another disappointing week. I closed two trades and both of them negative. The first one is SCSS, which broke out from a nine week basing Breakthru pattern. There's not much I could say about this trade as the picture says it all. I bought a breakout above clearly defined buy point. Price made an intraday reversal, shook me out the next day and then rallied. A very painfull experience. One thing I learned from this one is that I really, really, REALLY have to set my stops a little wider. I did put it below the day of the breakout as I simply couldn't believe that such a strong breakout could reverse. But it did. A stop should've been set at least below the previous day low.

The next trade is even more confusing. AMRS made something that I call a Bottom pattern. As seen from the chart, the neckline (buy point) was clear, stock was obviously under accumulation and so I had to buy that breakout. It closed well for the first day and I expected at least some follow through up to 13 level. But the stock then simply collapsed. There is virtually nothing I could reproach to myself with this one. Except for one thing, which I'll explain in a minute.

These two losing trades from seemingly well defined patterns and well executed buys forced me to rethink my strategy a little bit. I mean, if good patterns with good buy points and well set stops don't work, what will work then?? I found my answer in the current market environment. Please see the chart below. I've plotted Nasdaq chart with a Dow Jones index line in the background. It is clear that market is obviously being dragged up by only a handful of large cap stocks included in Dow Jones. When Dow leads this is not a time for momentum trades. I mainly trade small cap stocks that experience some momentum, but there is just not any momentum in this market.

And the second mistake is something I've already made in the past. I tried to buy breakouts on a big gap up day on indexes. My experience tells me that gap ups in a short term uptrend usually mean a short term top as many traders sell into these gaps. But still, I was ready to forget this experience and buy. It cost me, but the lesson was here.

I've also come to a conclusion that something is missing in my market direction/timing system. It is the obvious fact that market moves in cycles. I constantly look for confirmations of trend reversals before buying and this strategy constantly forces me to chase the market. The first task for the new year is so to determine some sort of cyclical timing tool both for stocks and gold. If I have time later in the day I'll try to explain why I think everything is now set for the decline in the stock market. Which makes me a little bit nervous as I still hold a handful of positions. Any strength on Monday will be sold.