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

I was down big in a hurry this morning as I tried to scalp a top in NVDA 4 times. That was incredibly dumb. Two times should be enough to teach me a lesson, but four? I also had some bad luck with dummy longs in NVDA and EXM that gave me more losses. So I was down -4.5% going into the afternoon. I pulled out of a long trade in RIMM at my entry point, that reversed to the tick and went profitably on without me.

I finally got my act together and traded well in the afternoon. Here’s two good trades, one a win in YHOO that Zoomie traded along with me (though his entry may have been different):

I saw the base just under $24, and bought at $24.01 with a tight stop. YHOO stalled a bit and retraced to my entry, so I took off half the position there. That was the right thing for me to do, but not the most profitable it turns out. We had another scary moment in the afternoon, but we went on to almost hit 24.50, and I got out at 24.45 for a 2% gain. This put me back to -2.5% on the day, which helped my psyche very much. :)

I also tried a parabolic short scalp in ICON. Look at the 5 min chart:

Now THAT’s parabolic!! The only trouble is that there wasn’t much potential due to the steadiness of the rise. If it were a sharper break to the upside it would have offered more, but the target was only about $0.30 or so. I tried it anyway, and I played it well, even though I got out at a small loss. I’m happy with how I scaled in, and there just weren’t any sellers at $22.02 when it was ready to break, so it didn’t. I thought about trying to smash the bid by sending a few hundred shares short at market, but I’m not Livermore and they probably would have absorbed my shares and turned it right around as it did anyway. I still wonder what might have happened, though, as the liquidity totally dried up…

Here’s my trade:

So another down day, and I’m within about $65 of my initial funding level, having been up 30% back on that fateful day. I hope to do better tomorrow. :(

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

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

I was only able to trade this afternoon from about 2-4 ET. I tried my hand at some more StreetSmack short scalps. I was unprepared for the position sizing and it caused me a lot of problems! You have to scale in small, with the possibility of a lot of

slippage should the upward momentum resume and you have to get out. You also have to know when to pile on more size when the stock rolls over without getting whipsawed. Exits are the easy part, as you take partials as you bounce on the way down.

I traded the action well enough, but my position sizes were all wrong. In the heat of the moment, I thought that my positions were larger $-risk-wise than they were–I bailed out of a stalled scalp in ICON that would have yielded almost a point, all to save a loss way smaller than 0.3% of my equity. When the dust settled, I was up 0.4% on my portfolio after 5 positions. The dumb thing is, I lightened up on my last one in DBD (due to my perceived losses) that turned out to be my big winner. Still, I’m glad I at least didn’t lose money today. All of the trades I took would have been profitable if I hadn’t been shaken out of a few of the positions.

Here’s the charts:

STC:

ICON:

DBD:

I’ve been able to think it all over and I’ve come to a few conclusions. The “Dummy” trading way of managing risk doesn’t work for this type of play. There’s no defined “narrow range candle” to play against and precisely size your position. If you try, you’ll get whipsawed out. The “win rate” of these setups approaches 100%, if by “win” you mean that it eventually drops off in your desired direction–they almost always do–eventually. The biggest pitfall seems to be making sure that the upward momentum has finally died out so that you don’t get suckered in before the pop is over and face a big adverse movement and the possibility that this is the one that never comes back down–nuclear black swan, game over. Since the “win rate” is fairly high, a 1% of equity risk doesn’t make sense to me to use, and there is no set stop level as it were. StreetSmack told us today to concentrate on identifying a top–this is the critical thing, not to short the first breakdown. They collapse fast, but not that fast! Some might do just that, but those will get away. There’s plenty of others!

After all these thoughts, for tomorrow, I intend to follow these rules:

ENTRY
Do not enter until a Momentum Oscillator has changed from green to red (tends to happen first)
AND my HMA/EMA trend indicator is indicating a downtrend (tends to happen second)
THEN start to scale in larger size near the downsloping 5-ema to get better prices (a conservative entry for now)
ADD more if price again retraces to the downsloping 5-ema underneath your last entry point

POSITION SIZING
Maximum position size based on spread between entry to high of move will be NO MORE THAN 5% of my equity (I’ll start in the 2% area and work my way upwards If I’m doing well)

RISK CONTROL EXIT
Exit full position if price goes up to make a new high and watch for the setup to appear again–I was wrong about the timing.

PROFIT EXIT
Scale out as downward move shows support near fib levels or pivot points. Be less aggressive taking profits on second half, allowing trade to run further if possible.

The natural bear in me is excited about this method, and I see a ton of potential here. We’ll see how I do tomorrow!

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