I wanted to take it easy today, as:
- I was sleepy! I don’t naturally wake up in time for the market open, when I’m not trading.
- I wanted to spend some time watching stocks, and getting back in synch with them, after a few weeks off.
Trade 1 Principle: Don’t Chase Stocks
So, I took 2 trades. First we have PW Eagle (Nasdaq: PWEI). I added this to my watchlist based on my trial highchartpatterns.com subscription. Their analysis said to buy it if it crossed 30. That made for an interesting situation when the darn thing gapped up to 30 at the open (on news of a stock buyback).
So, what to do? If it had hung around 30, I wouldn’t buy it, at least until a good 15 to 30 minutes had passed and I could see what the overall markets were going to do. However, there wasn’t much time to consider that scenario, as the morning glut of market orders pushed the stock up by an additional dollar within seconds. A one dollar move in a 30 dollar stock, in just a few seconds is usually not sustainable. I feel sorry for all the people buying stocks with market orders, especially on Mondays when they’ve built up over the weekend. And yet, they keep doing it, morning after morning. If I were just a little bit braver, I’d be shorting these openings.
Anyway, as I’ve come to expect, within a couple minutes, we were all the way back down at 30. It’s not evident on the 15 minute chart below, but by then the stock was acting a lot more orderly, and seemed to find support at 30 (only dipped to 29.98 for a few seconds). So, I bought it and held it for about 50 cents of profit. Further commentary on the image below:
If it had kept going up, and I missed out on lots of profit, would I wish I had chased the opening run? NO WAY! I’d be too busy looking at the other promising stocks on my watch list. I’ll never forget the times I was burned chasing stocks at the open. It’s not worth it, and the times it does work will just reinforce a reckless habit. Even in liquid stocks, the openings can be so volatile that you can’t get out when the price moves against you. Your risk is not contained. Don’t do it.
Incidently, that was my first day watching the highchartpatterns.com stock picks, which you can read about in my earlier post. It was a weird day, as most of their picks popped past the targets for entry in those opening minutes. So, the game got a lot more subtle at that point. Their newsletter for tomorrow had good commentary again. So far, so good! If you’d like to do the trial with me, just go to their page and send them email to sign up (let ‘em know you heard about it here, if you don’t mind).
Trade 2 Principle: Abort Trades Early and Often
I tried a short play on Cisco Systems (Nasdaq: CSCO). The chart below is annotated with the pattern I saw developing. CSCO was descending in a pretty orderly fashion, and the markets were in very negative territory by then. I felt the only reason CSCO was as high as 20 in the first place was a sucker’s rally leading up to options expiration (which I wrote about here). So, I confidently went short. But, as will happen, the breakout reversed on me, and invalidated the pattern. I got out for a tiny 5 cent loss. Further commentary on the image below:
This “abort-ASAP” methodology is a hard lesson to learn, but very important to me. In fact, I think it’s one of only a few reasons I still have money in my account! Think about it… if the price action reversed again, I could decide that the up move was just Market Makers shaking me out of the trade. In that case, for a $7 commission I could get right back in. But lots of times are like this CSCO case, where the stock never went lower, and even went 20 cents higher before the close. But it’s not just the larger loss that hurts so badly… if I had stayed in, what would I have been doing? Would I be getting in other trades? Would I be using that capital to make money elsewhere? Nope. I’d be staring at CSCO for an hour and a half, in a bad mood. Get out and keep your head clear!
See you tomorrow!
| Stocks Mentioned In This Article | |
|---|---|
| Stock | Links |
| PWEI |  |  |  |
| CSCO | | | |
