Prospectus Trades: 1/11/07

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Thursday I took two daytrades and opened a third swing position that I am still holding. Like Richard has said, it’s harder to blog about your losers, but it’s important to analyze all your trades. Sorry in advance for the craptacular charts, but here goes:

Trade 1 was FEI Company (NASDAQ: FEIC), one of Richard’s new scan candidates. I saw it break out of consolidation just under the target, and jumped in long. My R was $16.00. It shot up to the “New High” target of $27.37, and then stalled. Rule 1 was satisfied: The trade was proven correct! This gave me permission to wait to see what would happen, as long as I moved my stop to breakeven, which I did. The stock fell back, and I was stopped out. Zecco did me right again, filling my stop at a higher price than I had entered, so I made 0.1 R, or $1.60. Richard pointed out to me that the volume was not above average on that day for FEIC, and that should have clued me in to the possible failure. At least I managed the trade correctly and broke even.

Trade 2 was Hittite Microwave Corporation (NASDAQ: HITT), a Trader-X gap play. I took it because it was such a tight stop vs. Fib extension possibility, like around 10 Risk/Reward. Since much of my capital was tied up in FEIC, I only had enough buying power to risk $5.50 for my R value. It didn’t move, and slowly ground down, stopping me out at -1R, or $5.50 Loss. In retrospect, it was far from the 5-ema, and the 2-3 candles looked weak. Less like a pause in a buying surge and more like the end of it.

So toward the close, I was watching another 1.5ATR scan stock, Omniture, Inc. (NASDAQ: OMTR), which was near the target New High. Like an addict, I bought at the close. Luckily, It popped on Friday, so now I’m swing trading it, and I’m still net positive on the trade. We’ll see what happens on Tuesday…

This all raised a few things for me:

1. R values and PnL are distorted if your dollar-denominated R value is not consistent. If I entered one trade risking $100 and made 1R, that’s $100. If I entered another trade risking $500, and lost 0.5R, that’s -$250. So I’m up 0.5R, but down $150! Of course in expectancy this gets factored in, as you look at average amount won/lost vs % of wins/losses, but it can make for some funny distortions over a few trades.

2. I have to ration my daytrades to keep from violating the pattern daytrader rules as I have less than 25k in my account. This is leading me to a similar “desperation to win” that I had when commissions were a factor in my trades, though in a different way. Before, I needed to win to make up my monetary losses–I literally couldn’t afford to lose. That kept me in a lot of losing trades longer than I should have, hoping for a reversal. Now I find myself really getting bummed if I have a trade go against me, not because I’m losing more than I can handle for my account size, but because a trading opportunity is “wasted”, and I have to wait 5 business days to get it back. That’s why I jumped in to OMTR, at the close–I was already “down” in two trades, and it was an overnighter and therefore not a daytrade. I admit–I say I like the daytrade time frame because it avoids the overnight risk, where anything can happen, but I really enjoy the variety and novelty of trading every day. I need to fight this to keep from overtrading.

So I either need more trading capital, or I need to change from a daytrading style to something lasting over a few days. Or I need to make peace with my limited number of available trades! Seems like when you remove one roadblock, there’s another behind it…

Stocks Mentioned In This Article
Stock	Links
FEIC	| |
HITT	| |
OMTR	| |

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com