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