Bitten By My Own Rules

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

I’m Back

So after last week’s debacles in FMT and PALM, I decided not to trade for the rest of that week. I couldn’t keep trading with an underfunded Zecco account, and after the comments on my PALM trade, I didn’t feel ready to put my TD Ameritrade account on the line yet. So I transferred enough to put my Zecco account above the $2k minimum, and I’m back trading with them. This was a reasonable compromise in my mind.

Swing System Development

Anyway, I’ve been thinking about several different swing systems, and I took a trade based on one this morning. The system idea is to buy a breakout of an NR7 on a regularly fast-moving daily chart. I want to capture the dummy concept on a daily timeframe. I use Stockfetcher to do a screen, and here’s my code so far:

Show stocks where close is above 1.00
and average volume(30) is above 100000
and day range is less than day range 1 days ago
and day range is less than day range 2 days ago
and day range is less than day range 3 days ago
and day range is less than day range 4 days ago
and day range is less than day range 5 days ago
and day range is less than day range 6 days ago
and average day range(20) is greater than 10%

The average day range is a moving average of the range of each day. I chose 20 so that it would have a high level of movement over the last 4 weeks. The choice of 10% day range causes the results to be mostly microcaps and OTC:BB stocks…

This morning, I had the following candidates, sorted by yesterday’s volume:

ZROS, IMH, INSM, NWACQ, ANO, WITM, OPBL, RPTN, UPBS, SOEN, DKAM, QSC, FMDA, UTVG, KRXR

I watched them all for movement, and bought Solar Enertech Corp. (SOEN.OB) as it moved higher. I’m in that one at $1.53, and I’ll post more about it when I close the trade. Even though it is currently below my buy point, I don’t consider it to be a Rule #1 violation yet. I’m planning on giving this system at least a day to play out the direction it will move, unless it hits my hard stop the first day.

Trade: ABT

I took another trade in Abbott Laboratories (NYSE: ABT), a Trader-X OR breakout. Here’s the chart:

You can see some white boxes on my chart. The first is just a visual reference, the second defines my trade space. The box top is the target, the bottom is the hard stop, the left wall is the entry time, and the right wall is the time-based stop. I decided to give the trade as much time to work out as it has taken to create the setup. For example, if a stock gaps and consolidates in 3 bars giving the entry signal, I’ll give it 3 bars after the entry to get moving or I’ll consider it stalled and get out. The first rectangle on my chart measures the distance from the open to the entry, and I copied this box and placed it from my entry out to the right. Basically, when it hit the top, bottom or right side the trade would be over.

I bought as the 9th bar was making a strong showing. I felt confident given the consolidation and the 5-ema support. The trade moved up to the 119% extension and stalled. As it gave way, I sold just above my breakeven point to preserve some profit. It then closed below the 5-ema, a clear exit signal. It turns out that it later went on to hit the target (though with much gut-wrenching volatility!):

I’d rather trade according to my rules and miss a profit opportunity than break my rules and take a loss like last week, so today I consider myself to have traded successfully.

Trade Summary:

ABT Long 57 Shares
Entry: $56.27, Stop: $56.06, Target: $57.00
R: $11.97, Exit: $56.41
P/L: 0.67R, or $7.98

Trade Grade:

Stocks Mentioned In This Article
Stock	Links
ABT	| |

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