Sunday, February 22, 2009

Hold on

I'm trying to reflect on my progress so far and the temptation is to fiddle with things. For example, wow is in a tight range while industrials like wes or bxb have been trending nicely. Equally, in my normal approach of trading on a longer time frame there seem to have been plenty of opportunities in the last couple of weeks.
But this process isn't really about maximising opportunities right now but about relearning good habits, changing bad ones and most important of all, detaching myself from the outcome of a trade by learning to cut well and to trust my signals. There's a new openness developing in me because on any given day the movement of a stock can have very little to do with the overall trend, the broad market or the news. In fact, some of the best moves are reversals of the opening direction.
My most profitable trading years were as a market maker where I focussed on a limited number of stocks and responded to their moves without too many preconceptions. I expect a lot of the income came from the market making side but there was an element of fluidity that I want to regain where, for example, I might be short a stock all morning and long it most of the afternoon in response to obvious momentum.
A few months back I did a bit of work on intraday trading using 30 minute charts and comparing results between closing out at the end of each day and holding positions overnight. Holding positions overnight won hands down. Nevertheless, I want to persist with closing out each day because I believe that it is possible to make good money with this approach and as soon as I start holding positions overnight I run the risk of trading yesterday's market rather than today's. Until I feel like I've inculcated good habits I want to avoid this. I also want to continue to start later so that I approach the day in a more composed manner and have more chance of being open minded about the day's action.

I've been scanning through the trades trying to work out obvious errors.
It can be a bit too easy to backfit rules, or rules of thumb based on a few recent trades but one thing worth considering is to be very choosy when the bar size has shrunk and the stock has gone into a range with a lot of doji type bars. I've tried for reversal trades a few times when inappropriate.

Here's a chart of ncm covering the last 6 days trading. On a few of the days there are some nice tradeable reversals. The good ones have some decent momentum leading in to them and a clear pattern at the turning point.
There are dud ones on the first and fourth days. On the first day there's no momentum at all and probably little point trading. (Perhaps an attempt to buy on the 4th bar).
On the 18th of Feb there's better momentum leading into the potential turning point but no energy at the reversal.
I don't want to bank on this completely but it's worth examining further when I've got more time. Got to go, seeing Gran Torino.


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