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

ES OMNI Setup:

RACK:

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

Here are my reviews of trades I made way back on March 29th 2006. Compared to the set from the 28th, it seems like I really improved, overnight (but it’s actually just an indication of how inconsistent I was).

Trade 1, RHAT

This one is easily the worst of the batch. Here’s the chart with my original 2006 comments on it:

I think it’s hilarious that I said my exit looks ridiculous. I think my entry point looks pretty darn ridiculous. Well, I’ll at least give myself points for observing the natural round-number resistance at 28. But, look at the whitespace between the stock and the fast ema at the open. That sucker was pretty likely to keep running up. It seems like I was selectively oblivious to the price’s relation to its 8EMA, because the next two trades are based on this relationship.

I think I said it all back in 2006: “I have no idea … how much the stock will move, or in what direction.” Hmmm… then I wish my 2006 self would have gone on to remind me why I took the trade in the first place. Stupid trade.

Trade 2, ENER

I like this trade. There’ve been a couple others like it in this review series already. In fact, I don’t know why I’m not taking trades like this today. They make sense. As you’ll see, though, I seriously jumped the gun on my execution. Here’s the chart with my 2006 comments:

There was ample room for this stock to fall down and consolidate, which is good. 75 cents between my entry, and the 8EMA at the time of entry.

I guess I’ll give myself points for trying at a round number, and maybe in a sub-15 minute chart I’d see that it hesitated prior to my short. But, 30 minutes later than my actual trade would have been a much better entry. A weak 15-minute candle that didn’t make a higher high…

As with all these early trades, I don’t mention where my stop was, but I bet it was either $0.50 or $1.00. I was trading in the Millenium Traders chatroom back then, and they always used $1.00 stops, so I did that sometimes. I would have used $0.50 because that’s about a 1% stop loss in terms of the stock price.

So, good idea, good candidate, very bad execution.

Trade 3, RACK

This is the same theme as the ENER trade, only it’s the move after the retrace to the fast EMA. I like this play.

Once again, though, I completely jumped the gun on my entry. It would appear that I entered simply because the price touched the 8EMA. That’s silly. The following candle showed weakness and would have made a better place to enter.

Trade 4, AKAM

This last trade was definitely influenced by my time in the Millennium Traders chat room. We constantly bought dips in uptrending stocks. If you follow what I write here at the site, and elsewhere, you know I still like this idea… I just don’t know how to safely execute it. Trading breakouts is much more clear-cut.

I give myself credit for keeping the round number 32 in mind, and recognizing a double top as my cue to exit.

I said in my 2006 comments that the 1:00 pullback would have been a good entry. If I had taken that entry today, I’d have been stopped out at 1:30. I clearly used wider stops back then.

My one trade today was in Rackable Systems, Inc. (Nasdaq: RACK), for 0.72 R. I thought the setup was fantastic. I was watching for a break of 28.40, and the stock set up with a narrow-range candle just under 28.35. Great! It had been hovering in that area for 45 minutes. Even better!

But, as soon as I made this trade, I didn’t like it. Several red flags immediately went up:

• My market order took several seconds to start filling. Not that unusual on a break of resistance, but not what I like to see.
• My order filled in a trickle of 100 share increments, for an average basis of 28.46. An average basis a full 11 cents above my desired entry. The 100 share increments warn me that I might be in a crowd of tiny speculators, and no big money is participating.
• Because my basis was higher than I anticipated, in order to hold to my desired risk amount, my stop would have to be higher than I wanted. You can see on the chart, my stop is not quite below the previous candle. Had the stock not shot straight up, I would have eaten the commission and sold off enough shares to put my stop back where I wanted it.
• The stock shot up nearly 2% in a couple minutes. Too much, too fast, for my tastes.

So, when I hit 28.71, which was my 1 R profit point, in less than 2 minutes, I thought that was enough of a gift. I decided to get out. As I feared, my market order again executed in 100 share increments, across a nine cent range! My average exit price was 28.64, leaving me with less than 1 R profit. The chart (click to enlarge):

I was also a little concerned about what I hope were bad tick data, but which I’ve seen from multiple chart sources now. On my entry candle, you can see that shares traded around 28.06. If I had a stop in the market, that might have taken me out. A few bars later you can see the print up in the 29.90’s. After Ugly’s misfortune with crazy price action, I am a little nervous about these anomalies! Probably too nervous, but still, I am noticing them a lot more now.

More and more after this summer’s trading, I believe there’s a lot of merit in taking your money out of harm’s way as quickly as possible. In some respects, that’s what daytrading is all about, after all! Had I been a hold-til-the close guy on this one, for instance, I would have been stopped out for either a loss or break-even. At best, I would have made the same profit I did in two minutes, only it would have taken two hours. If the fills weren’t so sloppy, I would have had closer to 1.5 R on the trade, which is more than good enough to make a living, with my win rate.

I am a little disappointed with myself, though, for not shorting the stock during the market downturn in the afternoon. There was a decent setup for that under the 2:00 candle. It would have been another quick profit that I would have bailed on at 1 to 1.5 R. Most stocks I was watching discarded all their gains for the day in the early afternoon. If I had had the guts to short just about anything, I would have made a lot more money today.

Stocks Mentioned In This Article
Stock	Links
RACK	| |

[Edit: 5/30/2007: I've re-reviewed these trades here, now that I have another year of experience to bring to the table.]

My best day so far, though it’s hard to take too much credit because the markets were really moving today! In fact, I should be hard on myself for not taking more money out of it. I will be analyzing all my trades and scans this weekend to improve.

Here are the charts with commentary at the top. The second trade I got antsy and took a 1 cent loss rather than hold on for the profits that followed. It was my first and only losing trade this week, so far.

I’m so pleased that my first few days have been in line with my price targets. Who knows what it would have done to me, psychologically, to lose a lot of money my first week without a day job!