Beginner Question about Swing Trading Exit

[tdrtw]

All,

I've been reading many many posts on here and have gained a wealth of information to absorb and digest. This is definetly an excellent board.

As a first post, I'll jump right in. I believe swing trading is term to the method I have been using on US Stocks (practising is more like it..) over the last few months. Looking for short gains on stock prices that fluctuate. I don't use any indicators, just purely price action. So far it has worked quite well, I set a mental stop loss, and have religiously sold on that if prices move in the wrong direction. Of 6 trades made on 3 different stocks I've been watching, 3 were small losses, and 3 were good winners. Overall putting my cash pool up 10%.

Of course today, I was thrown a curve ball. On the image attached, I bough it at point 1 in red, with a Mental Stop Loss set to 2.70, and a potential gain of 3.25 giving me a R/R of about 2.8/1 (..was this wishful thinking on my part?)

Today the price opened at 2.60 (point 2 in green). Now 2 thoughts were running through my mind:
1) It dipped below 2.70, I should sell, as this was my original plan.
2) I should wait until the EOD, as this is the opening bell, and I'm not 'day trading'.

I decided to sell on 1), immediately, due to the belief that the price will head further down as people cut their positions. Of course I was wrong. But was I correct in basing my decision on the openeing price and sticking to my plan? Do others out there trade in this manner and if so, what opinions do have? (even if the opinion is - what the hell were you doing in that trade in the first place

BTW - No 'bad news' was put out that stock, I think it was some mysterious action going on that I wasn't a part of. Maybe there is not enough trading volume in this stock, so its easy to move prices as just happened?

Cheers,

tdrtw

 

[Splitlink]

Mental stop losses can be a pain, although I use them, too, quite a lot. I had a swing trade in DMGT,a London Stock, earlier in the year and lost 80p overnight because the management decided not to sell a part of their business. These are things that "happen". I think your system is much the same as mine, except that I have heard that overnight trading is more dangerous in US stocks than the UK because of volatility.

Nothing is perfect. If you are making money, then keep trying and don't change on one bad trade. If you have no stop loss protection keep your trade size at a level where you can take a loss without undue pain.

Best of Luck

Split

 

[Glenn]

All,

I've been reading many many posts on here and have gained a wealth of information to absorb and digest. This is definetly an excellent board.

As a first post, I'll jump right in. I believe swing trading is term to the method I have been using on US Stocks (practising is more like it..) over the last few months. Looking for short gains on stock prices that fluctuate. I don't use any indicators, just purely price action. So far it has worked quite well, I set a mental stop loss, and have religiously sold on that if prices move in the wrong direction. Of 6 trades made on 3 different stocks I've been watching, 3 were small losses, and 3 were good winners. Overall putting my cash pool up 10%.

Of course today, I was thrown a curve ball. On the image attached, I bough it at point 1 in red, with a Mental Stop Loss set to 2.70, and a potential gain of 3.25 giving me a R/R of about 2.8/1 (..was this wishful thinking on my part?)

Today the price opened at 2.60 (point 2 in green). Now 2 thoughts were running through my mind:
1) It dipped below 2.70, I should sell, as this was my original plan.
2) I should wait until the EOD, as this is the opening bell, and I'm not 'day trading'.

I decided to sell on 1), immediately, due to the belief that the price will head further down as people cut their positions. Of course I was wrong. But was I correct in basing my decision on the openeing price and sticking to my plan? Do others out there trade in this manner and if so, what opinions do have? (even if the opinion is - what the hell were you doing in that trade in the first place

BTW - No 'bad news' was put out that stock, I think it was some mysterious action going on that I wasn't a part of. Maybe there is not enough trading volume in this stock, so its easy to move prices as just happened?

Cheers,

tdrtw

Why buy a stock which has been falling for a year in a rising market ?
Why buy it below a previous support level (3) which is now likely to be resistance ?
Why buy penny shares for swing trading ? The spreads are likely to to be too large.

"potential gain of 3.25 giving me a R/R of about 2.8/1 (..was this wishful thinking on my part?)"
You don't say where you got your target 3.25 from. If you just invented it without justification, then yes it's wishful thinking.

If you have a plan, stick to it. Once you start changing your plan during a trade you have lost your discipline.
Losing trades happen - accept them and move on.


Glenn

 

[damianoakley]

Hi tdrtw,

I trade exclusively in U.S. Stocks. The charts that you've attached aren't clear on my screen for some reason.

If you let me know the stock and it's symbol code I'll take a look at this for you and let you know my comments.


Thanks

Damian

 

[timsk]

If you let me know the stock and it's symbol code I'll take a look at this for you and let you know my comments.

Gasco Energy Inc.

tdrtw,
Welcome to T2W!
I agree with Glenn; your 5 year chart tells me all I'd want to know about this stock. On that basis, I'd question your entry as you appear to have bought just after it's hit clear resistance at $3.00,so getting out as you have looks wise to me.
Cheers,
Tim.

 

[Capital City]

Easy what are the pro's doin? what do the pro's want? you cant answer those questions yet ?

Then splitlink sums it up nicely

"Best Of Luck"

Although Damian Oakley should be able to provide Pro Analysis for us all here. If he knows what they are doin of course.

 

[damianoakley]

Although Damian Oakley should be able to provide Pro Analysis for us all here. If he knows what they are doin of course.

Is that sarcasm or are you being genuine? - I can't tell.


Thanks

Damian

 

[damianoakley]

Hi tdrtw,

After looking at this company and your trade, I would say that you are classically "bottom fishing" - this stock has been battered since the beginning of this year and now probably looks like a bargain to you at the current price. The stock seems to be generally under heavy distribution from funds and institutions.

I personally can't find anything that I would want to buy in this sector (ie - Oil & Gas Operations) at the moment - there are other stocks in other sectors that are performing much better.


Thanks

Damian

 

[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

 

[Splitlink]

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

 

[damianoakley]

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

 

[Splitlink]

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

 

[tdrtw]

>>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

 

[tdrtw]

>>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.

 

[Glenn]

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

 

[tdrtw]

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.

 

[Glenn]

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.

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

It doesn't matter, that's not important. You have to look at things in a different way. Try this: -

Imagine you are looking at BMD as a house to buy a share in. The housing market has been going up and BMD has halved in value. There is something wrong with this 'house', so would you buy a share in it ?
You must get the odds on your side.
There's an old saying "When the tide goes out in the harbour, the good ships go down along with the bad".
The tide has been coming in and stocks have risen, but not this one. It's got a leak. You can't fix the leak and you don't know if the owners will, so why speculate on that ?
Leave it to rot on the bottom and look elsewhere.

MSFT has been going sideways for 4 years while the whole the market has gone up 50%. Same story as above.

My message is that you can't just look at stock charts in isolation. You must look at the market and preferably the Sector the stock is in first . Start at the top and work down to the stock.
If the stock is not behaving as the rest of the market, steer clear.

Unfortunately "Brain Surgery in one easy lesson" is not possible, but if you don't accept these principles then I won't have helped you even a tiny bit (imho).

Glenn

 

[damianoakley]

Hi tdrtw,

BMD is hitting overhead resistance at $4.25, so be cautious if you're looking at buying.


Thanks

Damian

 

[tdrtw]

Glenn, great thoughts.

I posted a chart for Fedex. To get the odds on my side... I looked at the "Air Freight & Logistics Sub-Industry", the last 12 months is a 10.2% gain.

It appears to have hit resistance of around $117 a couple of days ago and appears to be on its way down. In a predictable world, I would expect it to drop to around the $100 mark, at which point it would produce a potential buy (I would watch the candelstick patterns and look for a reversal signal??).

Any thoughts anyone?

Damian - thanks for the info.

Cheers,

tdrtw

 

[damianoakley]

Fedex is a difficult one to call, because even though I agree it looks more likely to go down than up, it's got support levels at $110, $107 and $104 before it goes anywhere near $100.

If I was thinking about buying into the Transport industry, i'd be watching CAL (Continental Airlines).


Thanks

Damian