Trade Review: STMP, FSL, HSOL, ACHN, EPOC, CONN, FBN, MDVN

As the market went into a runaway move my trading became so intense that it became for me impossible to write trade reviews. With friday's short term climax top (supposedly) I sold most of my positions and now I'm only about 15% invested, waiting for a correction. In this post I'll discuss some of the most interesting trades of the past month, namely the ones that provide some sort of a lesson for me.

STMP

STMP is a stock I've been folloving from November 2011, waiting for an opportunity to enter on a pullback. I patiently waited for consolidation below MA50. As you can see stock even tried to break above MA50 once, but I did not buy because the volume was low and I correctly estimated that this was a fake breakout. The second breakout was on high volume. A scenario I was waiting for more than two months. But I did not buy, because I thought the market was topping. Back then I havenpt realized yet the we are in a new uptrend. It was painful to watch a 20% move, so I entered on a breakout above that minor flag right below the previous top. Which of course was a mistake. I really regret this trade because I was right about STMP all along. But I shouldn't have bought after 20% move right below the resistance.


FSL

FSL was a bit risky and unfortunate trade. I bought breakout above 16 and stock made an ugly intraday reversal. The next day it reversed again on a down day and then finally rallied. This stock likes to close off the highs, which makes it difficult to trade. I think I'll have to skip similar ones in the future.


What follows frome here are several stocks I sold too early.

HSOL

HSOL is a nice example of a launch pattern. I decide to review it due to two mistakes that I made. First, the pattern doesn't look very constructive. There are too many big volume down days in the flag. And second, once I got into the trade I sold it too early on an intraday pullback. In fact, stock has consolidated nicely and set for a breakout above 2, which is the opportunity I should've wait for all along.


ACHN

Another example of scared-out trade. I hate intraday reversals, so I sold a minor profit and then watch the stock rally 20%.


EPOC

Same story here. I caught pullback perfectly, but trailed to tight stop and got shaken out on a day of weakness.


CONN

This is just an example of a perfect pattern that failed anyway. CONN made an excellent cup with handle-with-handle, which should be very bullish. Volime on breakout was huge, so I obviously had high expectations with this one. Well, it failed the very next day. This is why you have to use stops all the time. Even perfect patterns fail!


But all wasn't bad. The following two trades were the most profitable ones in the past month.

FBN

I bought FBN on a breakout above 1.50 and sold a little above 1.80, which made me near 20% in a day. Stock then actually consolidated and rallied even more, but 20% one day gains on penny stocks have to be taken, because these highly volatile monsters can easily turn a perfect trade into a disaster.


MDVN

MDVN was a lucky 30% gainer. I bought the reversal at 50 and soon after stock made a 20% overnight gap up. I entered that day with a 4% trailing stop. Luckily I didn't get shaken out on morning selling. After the stock rallied into the 70's I set a 2% trailing stop which got me out a little below 70. A nice example of good usage of trailing stops.


Apart from these mistakes January 2012 was still one of the best months I've had in two years. Let's conlude with the lessons learned:

• STMP taught me how important is to stay objective on the market. If I hadn't been so sure about the market topping, I would've got this one (and probably many other). First follow stocks, then the market.
  
• Never follow public opinion! Through the whole uptrend most market analysts, even ones I have a high respect for, were dead bearish on the market and now behave like idiots, sitting on their miserable short positions and claiming that "market is irrational". Again, first follow stock, then the market! Don't follow the herd, which market gurus are a part of. Stocks are always right on time, general market is always late and public is always wrong, no matter what.
  
• Have initial stops in place all the time and never remove them, but don't sell stock on every minor weakness, especially if the market is strong. Start to trail only when stock reaches a percentage gain that you would not want to give away under any circumstance.
• Sell when you have a one day unexpexted profit. Most stocks reverse after strong up days and barely ever reach previous highs.
  

Trade Review: ALXN, CBLI, HGSI, VPHM, NSR

I made plenty of trades this week. Probably a bit too many. My losing streak made me to become even more careful with my trades. I decided I will start taking smaller positions, not risking more than $100 on any trade, preferrably even less. And second, I'll start monitoring markets even closer as there are obviously only brief moments of momentum when swing trading has risk reward ratio high enough. Consequently, I was loaded in five positions when I realized that markets may be ready for a correction. I got scared of further losses and sold them all on January 9. Markets eventually rallied, but most of my stocks basically went nowhere or fall after I sold them, so I was at least able to finish one week positive after several negative weeks.

I'm not going to spend any time on discussing every single trade this week as all charts are well annotated. Probably the lesson from the past several trades should be that I should strictly focus on the best longer term patterns as these seem to have the highest breakout probability in this market. Also, simply taking profits in 5 to 10% range may not be a bad idea as most breakouts simply fail soon after they make some initial progress.

ALXN: +7%/+$250



CBLI: +7.1%/+$96


HGSI: +5.8%/+$68


VPHM: -1.7%/-$24


NSR: -1%/-$28

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.

Trade review: GTIV, MNI

I think I'm getting a little bit mentally screwed up after the series of losing trades in past two weeks. This week I made two trades and made the same mistake on both, raising my stops too early. I really don't want to see any additional loosers, so I tend to raise my stops way before there is even time to do so, which of course is a sign of bad mental state.

The first stock that I closed this week was GTIV. I bought it from absolutely perfect Squat pattern. For a description of all patterns please see Terminology page. Buy point was 6.35, but I got in a little bit late at 6.64, which was the first big mistake. The second was setting initial stop below buy point, but not below of the day of the breakout. The stock then rallied on low volume and I did not take advantage of that breakout above 7, where I should've take some profits, locking in my stop loss risk. Stock then reversed, fell below 7 and I got scared it could go into negative during this low volume pre holiday trading. So I raised my stop and got stopped out on two occasions with just a minor profit.


Looking at a stock at this time it is still acting very well. It is testing its buy point, which is a normal behavior and it is still poised to go up to 8, where I would look to sell. So the biggest mistake behing the GTIV trade was late entry, consequentially illogical stop and a poor position after the pullback, which, taking my bad series in account, made me to raise stops without any need to do so. I also should've locked in some above 7, taking in at least my stop loss risk out, which would allow me to leave my initial stop where it is without any fear of loosing.

Next is MNI with a Launch pattern. The main problem with all these Launches is that they are very hard to buy at exactly the right time. Buy point usually is not clear, because consolidation often happens way below recent high. So I bought it on a breakout above 2.25, a little late entry again at 2.31, but not that late. It was still a good buy and stokc rallied almost immediately. And then again, the exactly same mistake as with GTIV. Stock rallied a little bit and I started to raise my stop in fear of price turning around into a loosing trade. So I naturally got shaken out on first decent pullback, while the stock is still looking just fine and poised to somewhere between 2.75 and 3, where I would look to take profits.

While making just a couple of these trade reviews my bad habits soon started to strike into my eyes. I always seem to be making the same mistakes, which is buying late as I wait for price and volume confirmation of a breakout, consequentally setting illogical stop and then raising stop without any particular reason to do so as price pulls back. I'll make a short review of all these lessons in a separate post as I think they're worthy of taking a closer look.

Trade Review: DXD, FSLR, DEXO

A bad week for me. I closed three trades, all of them negative.

The first trade was DXD long, which is a double inverse DJIA ETF. After market broke down from bearish flag I anticipated SPX would come down to at least 1175, where I would look to cover. But market reversed the next day, so I had to take a loss on this one. Meanwhile I opened some long trades and I expected shorting a market would be a good hedge if indices go down.


Here is how the actual trade took place:


My next trade was FSLR. This stock made a pattern that I call a "Bounce". A Bounce is basically short term bottoming pattern. After some sort of a shakeout stock bounces off lows, creates a very brief consolidation area and then breaks out, rallying for 1 to 3 days on a short squeeze.
I bought abreakout above 33.30 resistance area and thought FSLR will easily reach previus gap down resistance at 37.


And stock is actually still poised to go there. But as seen from the intraday chart below (for intraday charts I have to use my trading platform) I got shaken out on a wild swing down as I raised my stop. Now, there's not really that much more I could say about this trade as a bad luck. My entry was a little bit late and my stop was probably too tight but the stock simply collapsed after it touched 36 mark. I definitely should've bought earlier, but I would still get shaken out on that ugly drop. So the lessons from this one are don't chase breakouts and have a buffer for stop loss. Which I did have, but not enough.


The last trade is DEXO, which is an intraday copy of FSLR. But DEXO was a really bad trade. I'll explain why.

I have a pattern which I call a "Launch". Every once in a while I find a stock in a solid downtrend, suddenly shooting up from the ground, like a rocket ship from the launch pad. Often Launch pattern develops in several stages. As seen from the daily chart below, DEXO was in its fourth consolidation phase from its absolute low in October and stock was alreaady up 500% since then. I've been watchnig this stock during this last consolidation and firmly believed it can make another move up. But this was flawed thinking. Fourth stage bases are way too obvious to everyone. Also, DEXO experienced a significant climax top on November 29, when price gapped up and was falling all day long on huge volume. The third problem is that this is clearly a pumped up stock. There are many traders shorting it on every rally. So, all in all, I made plenty of mistakes with this one.


An intraday chart revealy pretty much the same picture as FSLR. I bought the breakout above intraday resistance and immediately price crashed, hitting my stop.



And finally, the biggest mistake I made the last week was trading momentum stocks into the holidays. Experience tells that days before holidays tend to be dull low volume days. Of course, market may day drift higher all the way to the year end, but we cannot expect any serious momentum develop. If I find any good setups to trade I'll probably have to use wider stops than I used to.

Trade Review: NTSP, UUP

I decided I'll start making weekly reviews of my trades. Analyzing market indices is whole lot of fun, but the real-life action is going on in stocks, so I guess these reviews will be a much more interesting read. Also, I believe making detailed reviews of all my trades, winning and losing will help me observe and overcome my weaknesses and become a better trader. So, I'll make an effort to be as critical to my trades possible, even on the risk of making a complete idiot out of myself.

First of all a little introductory word about my trading strategy. I'm basically a momentum-swing trader, meaning that I trade stocks which I expect to move quickly, in a matter of no more than five days, into a wanted direction. Some of my trades are day trades and some last for several weeks, but most of trades will be closed in less then a week. I mostly trade on the long side, but will do occasional shorts if conditions tend to be favourable to bears (as they are now). Stocks are my number one trading instruments, but will do occasional trades in commodities, especially gold and silver, and currencies, such as US dollar.

In general I trade six bullish patterns which I've analyzed and found them to be the most consistent ones for quick swing trades. They are not chart patterns in a sense that most traders understand patterns (i.e. cup with handle, triangle, double bottom, channel, etc.), but are more like contextual patterns. This means that they describe a context, or a cycle/stage/phase, the stock is currently in. A stock can be in solid uptrend, basing, bottoming, etc. I've even made up some stupid names for them. I call basic batterns Bounce, Squat, Resurrection, Launch, Breakthru and Runaway. Some of these patterns can also have continuation patterns, a second stage buy points, which have been named also. I won't bother explaining the mechanics of each pattern in this post, but will rather explain every pattern in a real-life example of a trade, when it occurs. OK, enough talking, let's do some trading!

The first trade I closed this week was NTSP. This was actually a pretty unfortunate one as I got stopped out with a loss, only to see the stock rally from that point on. But, frankly, I made several mistakes in this trade. NTSP was a Resurrection pattern in its basic form. A Resurrection is a bottoming pattern. As the name implies, the stock is somehow being resurrected after being beaten down. After a several mont long downtrend, stock starts to make a bottoming base. When these patterns break out, they can produce some very nice gains in a very short amount of time.

So, after being pushed down for several months, NTSP started to bottom in August 2011 and built a nice ascending triangle in the next four months, with a very, very clear buy point at $6.50. This is a picture perfect resurrection pattern. The basic definition is that stock must consolidate for at least two months, provide a clear buy point, should not rally too much from the lows and, ideally, shouldn't have any upside resistance anywhere near. Everything lined up for NTSP to go up to 8 and probably even higher.

Now, the main problem is that I found stock on December 1, only after it has already broken out od the pattern. It was too extended to buy back then. I also didn't buy pullback to the buy point the next day, since I don't trust stocks that pullback immediatelly after the break out. Stock than built a very tight flag pattern with a clear buy point at 7. It even produced a little shakout right before it broke out. I bought this breakout and got shaken out the very next day as stock gapped down a little bit and fell below muy stop loss at 6.97. What happens next is seen from the chart.


So, what were mistakes I made in trading NTSP. There were many. First of all, buy point from Resurrection pattern was 6.5 dollars. Period. I should've located the stock earlier and buy that breakout. Secondly, my stop was flawed. A safe stop should've been put below the day of the breakout at around 6.75. I bought too late at 7.20 and was forced to put a stop right beneath 7. Which is not bad for a breakout from Resurrection pattern. But what I bought was not this pattern. It was a second stage short term base and these tend to produce a little bit more wiggling as the breakout point is not that well determined. Third, in a hurry to buy I actually miscalculated my position size. According to my money management rules I shouldn't have bought no more than 500 shares, but it looks like I mistyped some number in my money management calculator and got 700 shares. And the fourth mistake. Market was pretty shaky lately. My position in NTSP was way too big for these kind of market environment when indices threatened to produce a sell signal. I don't regret buying the stock at all. I would make the same if I had the same opportunity. But simply, I should've bought less shares earlier with a less stringent stop. That's it. Learn from mistakes.

The second trade was UUP, which is a US dollar ETF. Now I don't generally trade currencies, but this time I decided to make an exception. I'll explain why. US dollar bottomed in May 2011 and started a real rally in September. Such long term bottoms don't top just like that. Dollar is still in a long term downtrend, but the action seen in past few months suggests some sort of relief rally is under way. The first rally produced a very deep pullback, scaring most weak holders to sell I guess, and then made an extremely right translated cycle. Right translated simply means the time between the start of the rally is much longer than the time from top to the next bottom. The ratio in this case is 20 to 4. Right translated cycles make higher highs in most cases, so I bought a confirmed swing low.

Dollar is a very slow mover, so my position was almost 3 times my normal position. I sold everything five days later on a gap into new highs. Why? Just because dollar is in a long term downtrend, because gaps to new highs are often signals of double tops, which is still a probability, and because I had a pretty nice profit with a strong three day rally, which I did not want to waste. So, this was a very well timed trade from buying and selling standpoint in my opinion. The only mistake I made is that I traded a currency, which is not my specialty. But, as I said, stock market was getting weak and I wanted to have some sort of a hedge in case I screw up long stock trades. Which paid off perfectly this time as I was still able to close the week positive in spite of a loss on NTSP.


So, that's it for this week. I hope I'll have more trades to report next week, hopefully all of them with a profit:)