Beginner Question about Swing Trading Exit

This is a discussion on Beginner Question about Swing Trading Exit within the Swing & Position Trading forums, part of the Methods category; All, Thanks for the replys. Glenn, all good points. >>Why buy a stock which has been falling for a year ...

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Old Nov 1, 2006, 7:46am   #9
Joined Oct 2006
tdrtw started this thread All, Thanks for the replys.

Glenn, all good points.

>>Why buy a stock which has been falling for a year in a rising market ?

As Damian mentioned - "bottom fishing" - yes this would be the term. Thinking about it, I was attracted to it due to it's low price and the irrational thinking "the only way is up". Though I did have a plan (albeit: a 'beginner plan'), attached was my analysis of the 3 month chart.

>>Why buy it below a previous support level (3) which is now likely to be resistance ?

Very good point that I should have seen and heeded. I was focussed on the 3 month chart. In the attachment, I've drawn in my support/resistance at the time I thought was logical - clearly I don't have a leg to stand on in the 5 year weekly chart, but was my line of thinking in the right direction if all I had was a 3 month chart?

>>Why buy penny shares for swing trading ? The spreads are likely to to be too large.

What would I consider the definition of a "penny share" for my purposes of the type of trading I wish to do? Most definitions I find define it as poor liquidy and a general price range of under a $1.

I shall look at study 'better' stocks. I had a 1.2% loss, 4.9% gain and now a 10% loss on this particular one.

>>Once you start changing your plan during a trade you have lost your discipline.

I guess the main question I could ask is, in terms of this type of trading are decisions based on closing prices as opposed to opening prices? As positions are held anywhere from a few days to a few weeks, would you not focus on intraday price swings as opposed to EOD pricing?

In the end, my basic thought was the price is below my limit so, do I sell immediately on the opening bell (only fools rush in?) as it has gone below my limit, OR as I am not day trading, I wait to focus on the end of the day price, if it is still below my limit, I would sell then.

Splitlink >>If you have no stop loss protection keep your trade size at a level where you can take a loss without undue pain

It was a 10% loss on this position, which translated to an overall captial loss that I am using of 3.2%. From an experienced trader, would this be considered a loss without undue pain?

Cheers,

tdrtw
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Old Nov 1, 2006, 8:48am   #10
Joined Nov 2001
Quote:
Originally Posted by tdrtw
All, Thanks for the replys.


Splitlink >>If you have no stop loss protection keep your trade size at a level where you can take a loss without undue pain

It was a 10% loss on this position, which translated to an overall captial loss that I am using of 3.2%. From an experienced trader, would this be considered a loss without undue pain?

Cheers,

tdrtw
I'd say that you have your risk well under control, wish I could say as much! A lot depends on your track record, too, with regard to profits made over a certain period. These opening falls are common, though. My share's fall was caused by an out of trading hours decision made by management of a big FT100 company and came out of the blue (for me, at least). I might as well have been bottom fishing, like you. At least you had a potential for a big rise, which mine, a highly capitalised company didn't have. As Slater said, "Elephants don't gallop"

Split
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Old Nov 1, 2006, 10:29am   #11
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Originally Posted by tdrtw
It was a 10% loss on this position, which translated to an overall captial loss that I am using of 3.2%. From an experienced trader, would this be considered a loss without undue pain?

Cheers,

tdrtw

Hi tdrtw,

If I've read that right, you've lost over 3% of your trading capital in one trade. This would officially be classed as a very aggressive position sizing approach, although it does depend on what your overall strike-rate is. If your win/lose ratio is 50/50, then you could easily have 10 losing trades in a row, which at 3% per trade would knock a third off your trading capital, which in turn would need a 50% increase in your capital to get level again.

If you can cope with swings like this, then carry on, but I'm just saying: be careful.

Also, I assume from your posts that you are measuring the rise or fall of a stock in percentage terms? eg - if you buy a $20 stock and it goes up by $2 then you've made 10% return. This is the way most stock traders measure things, but there are much better, more sophisticated, and I would say more essential-to-know ways of doing things. Email me for a chat if you'd like some details on this.


Thanks

Damian
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Old Nov 1, 2006, 12:05pm   #12
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Originally Posted by damianoakley
Hi tdrtw,

If I've read that right, you've lost over 3% of your trading capital in one trade. This would officially be classed as a very aggressive position sizing approach, although it does depend on what your overall strike-rate is. If your win/lose ratio is 50/50, then you could easily have 10 losing trades in a row, which at 3% per trade would knock a third off your trading capital, which in turn would need a 50% increase in your capital to get level again.

If you can cope with swings like this, then carry on, but I'm just saying: be careful.

Also, I assume from your posts that you are measuring the rise or fall of a stock in percentage terms? eg - if you buy a $20 stock and it goes up by $2 then you've made 10% return. This is the way most stock traders measure things, but there are much better, more sophisticated, and I would say more essential-to-know ways of doing things. Email me for a chat if you'd like some details on this.


Thanks

Damian
As you say, this depends on his track record. He hasn't told us what that is. However, bottom fishing does involve trading in very dangerous stocks- that's why they are on the bottom. Personally, I have one of those in my whole portfolio and I do not intend to add to it. That is all the high risk that I am prepared to take, but it must be admitted that the risk of over
night falls in trading is not confined to penny stocks.

Split
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Old Nov 1, 2006, 6:20pm   #13
Joined Oct 2006
tdrtw started this thread >>As you say, this depends on his track record. He hasn't told us what that is

I've traded in the past - albeit in a manner that was 'destructive'. No idea about support/resistance, stop losses, trading indicators or terminology. I used purely price alone on 2 US stocks, that had price swings I could follow visually. I was lucky to say the least - or maybe my plan was so simple I should have stuck with it.... Here is a list of wins/losses in percentage of the position in chronological order:

13.18, 4.90, 13.69, 3.62, -8.12, -6.26, 8.56, 12.91, 10.56, -13.52, 7.55, 3.65, 7.24, -9.98, 4.61, 3.87

I've read quite a few posts on here from people who did the same - jumped in with no real plan and lost a lot. I was probably lucky.

Now I want to devise a plan that is simple, easy going, remove/control the emotion of it all, a reflection of myself and attitude. thus the reason I am here. To learn from the wealth of experience I've been reading about over the last month or so.

After reading the boards, and using support/resistance and price swings on trades, also having a clear entry/exit and religiously selling on my exit (I've done the, 'it will bounce back' in the past when a stock started falling that I bought and had to wait 9 months for it come back, tying up captial). Here is how it goes so far:

Losses: 1.56%, 1.61%, 2.22%, 9.84%
Gains: 12.71%, 18.79%, 4.88%

The 9.84% was anticiapted to be a 3% loss is what I would take, but the stock gapped down. Just something I need to factor into the plan. Its a learning process, and hopefully one I plan to stick with.

Right now I have no positions, I want to gather more information before I make another move.

Cheers,

tdrtw
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Old Nov 1, 2006, 6:30pm   #14
Joined Oct 2006
tdrtw started this thread >>If I've read that right, you've lost over 3% of your trading capital in one trade.

Yes, that is correct damian.



>>If you can cope with swings like this, then carry on, but I'm just saying: be careful.

I do not want to make it a habit :-) I factored a 3% loss in on that position which translated to a 1% captial loss. It gapped down to my detriment.


>>Also, I assume from your posts that you are measuring the rise or fall of a stock in percentage terms? eg - if you buy a $20 stock and it goes up by $2 then you've made 10% return.

I also factor in the trading costs as well ($9.95 times 2), as that takes away from any gains or adds to losses.

>>more sophisticated, and I would say more essential-to-know ways of doing things

Do you have any links to furhter reading on other ways of measuring this? That would be much appreciated!

BTW, each % in the post above is for a single position. At the moment, I divide my capital into 3, and trade a position based on 1/3 of the capital.
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Old Nov 1, 2006, 7:38pm   #15
 
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Quote:
Originally Posted by tdrtw
All, Thanks for the replys.

Glenn, all good points.

>>Why buy a stock which has been falling for a year in a rising market ?

As Damian mentioned - "bottom fishing" - yes this would be the term. Thinking about it, I was attracted to it due to it's low price and the irrational thinking "the only way is up". Though I did have a plan (albeit: a 'beginner plan'), attached was my analysis of the 3 month chart.

>>Why buy it below a previous support level (3) which is now likely to be resistance ?

Very good point that I should have seen and heeded. I was focussed on the 3 month chart. In the attachment, I've drawn in my support/resistance at the time I thought was logical - clearly I don't have a leg to stand on in the 5 year weekly chart, but was my line of thinking in the right direction if all I had was a 3 month chart?

>>Why buy penny shares for swing trading ? The spreads are likely to to be too large.

What would I consider the definition of a "penny share" for my purposes of the type of trading I wish to do? Most definitions I find define it as poor liquidy and a general price range of under a $1.

I shall look at study 'better' stocks. I had a 1.2% loss, 4.9% gain and now a 10% loss on this particular one.

>>Once you start changing your plan during a trade you have lost your discipline.

I guess the main question I could ask is, in terms of this type of trading are decisions based on closing prices as opposed to opening prices? As positions are held anywhere from a few days to a few weeks, would you not focus on intraday price swings as opposed to EOD pricing?

In the end, my basic thought was the price is below my limit so, do I sell immediately on the opening bell (only fools rush in?) as it has gone below my limit, OR as I am not day trading, I wait to focus on the end of the day price, if it is still below my limit, I would sell then.

Splitlink >>If you have no stop loss protection keep your trade size at a level where you can take a loss without undue pain

It was a 10% loss on this position, which translated to an overall captial loss that I am using of 3.2%. From an experienced trader, would this be considered a loss without undue pain?

Cheers,

tdrtw
""bottom fishing" - yes this would be the term."
How may bottoms have there been in this stock already in the past year ?
Sure you can trade short term reversals if you have the tools, but imho if you caught the absolute bottom then it would be pure chance, and the continuing decline puts the odds against you. The idea is to get the odds in your favour and trading with the trend has better odds than trading against it.

"definition of a "penny share"
Don't forget to check the spread in addition to your other criteria. GSX seems ok.
Spreads can be ridiculously large - 30% or more of the price sometimes. You have to recoup the spread and buy/sell commission before you start to make any profit.

"....in terms of this type of trading are decisions based on closing prices as opposed to opening prices?"
The problem with both closing and opening prices is that the market makers often widen the spread in order to make life easy for themselves because they don't know what will happen overnight. So trading at these times can be disadvantageous - your stop could be hit simply because of a wide spread even though the mid-price hasn't moved.
So at the open and close watch the mid-price less half the normal spread when comparing against your stop-loss price.
Of course if you leave a stop with your broker then it may get hit automatically by the wider spread.
Surely the idea is to enter and exit at the most favourable price and the Open and Close have nothing to do with that.

"overall captial loss that I am using of 3.2%. From an experienced trader, would this be considered a loss without undue pain? "

1% is more appropriate imo, and because you describe yourself as a beginner, even more important because you are more likely to lose than someone with a lot of experience.

Glenn
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Old Nov 2, 2006, 6:24am   #16
Joined Oct 2006
tdrtw started this thread Glenn, thanks for the info.

I've posted 2 charts.

1) BMD - would this be considered bottom fishing or a potential change in trend?

In my virtually non existant experience, I would consider this a potential uptrend change looking at the 3 month daily chart. Though it appears to be at a current resistance (green line). If it pushed through the next day I would consider it good to go. Though I would be wary about where to put the stop, I am having difficulty in seeing a clear R/R on this one.

But looking at the 2 year weekly, would you consider it bottom fishing?

2) MSFT - on the 3 month daily, it appears to be on a clear uptrend (is there a thing called 'top fishing'???), but when viewed on the 5 year weekly, its pretty much hitting resistance.

I sit on the fence on both of these.
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