Rolling over. Tue Oct 27

The new pattern of choppy volatility in a tight range continued overnight with the Dow reversing an early gain of 1% to fall around 1%. The Australian market has surprised by holding to a 0.9% fall at 11.15 am after looking pretty gloomy early on. Metals, oil and the AUD all fell as the USD rallied.

I stopped out of Boart Longyear this morning at 31 and 30.5 (v 32.5). Looking back at the chart, I'd been having second thoughts about the strength of the signal. The previous run up was in the context of some snappy volatility. It probably would have been better to wait for a secondary signal this time around.

The other cut was in Western Areas at 500 (v 519). Again, I'd been wondering why I went long this and decided I'd been pushing the trade. Although it made a new high on Friday nosing above a little trading range, the general pattern of trading was very muted compared to the rises and falls from July through to late September. Warning lights should have been flashing that this was probably a corrective rally, ie reactive rather than impulsive.

Of my other positions, two are breakout trades and two are reversals. Fgl broke above a recent range yesterday after making a series of higher lows and although it failed to hold those levels on the close and is down a few cents this morning, it still looks like a reasonable long. It's not a stock that I like to trade in much because it does tend to chop around and then gap into another trading range. The second of these is Resmed and that's one of the best performers today, up 10 at 551. It looks ready to run now for a few days.

I've been looking at charts for years and you might think that it would be futile to imagine that you would notice anything new that's potentially useful. I think that's mostly true and that it's quite easy to be constantly tinkering with your approach when the solution is probably more to do with mental attitude and with how well you follow your own rules. That said, I've been looking at reversal trades which I tended to leave alone before because they're high risk/reward propositions.

I've done two of them. The first was in Lynas and so far has been a flop. I've been looking at these trades in general and I can see an obvious error in Lyc.

You can see, in Lyc, where reversal trades, signalling trend resumption, were excellent in September. It would have been almost impossible to get on these trades any other systematic way. Joe Ross has a technique of buying the break of the high of the pullback bar in a trending stock but limits it to three bars. I bought three days back on a break above previous highs but the stock has drifted to new lows. The difference this time is that there had been no preceding surge and I was not buying off a potential higher low. I'm still in this, by the way, because the next major low is at 49.5 and there's failing momentum so there's a reasonable probability of some sort of bounce.

With those provisos in place, Ewc has been better.

Although the stock hadn't been in an uptrend, there had been a nice surge which had made a new high so that any reasonable up day would result in a potential higher low. I'm not sure what the best way to trade this from here would be. I'm targetting the recent high of 60 but I'll probably use a trailing stop as well because it's in a trading range - if it was in an uptrend then I could be confident of a new high.

This morning I noticed a similar set up to this in Karoon. I bought at 771 although I sold almost half out at 792. It's at 781 now.

12.54 I've put on a couple of short positions this morning in One Steel and Qantas and they fall into the two categories, a reversal and a breakout. They're pretty similar really, it's just that you don't always get a nice little 1-2-3 breakout at a turning point.

To be honest, I'm not sure why this stood out to me. I can see that after making an exhausted new high in September and selling off to make a double bottom in early October at 298, it has then had a reactive sort of rally which seems to have fallen short at 338. But it bounced back from a sell off last Thursday so what would make it dump now? All I can say is that it looks really tired and I'm willing to trust my intuition here and see what happens. Short at 329.

Qan is a much more straightforward sell signal, admittedly with the stock in a strong uptrend. It's extended enough though that a reasonable correction could happen. Short at 286.
3.20 Telstra has made a nice buy signal, confirming recent strength and unsurprising in the context of a toppy market where there might be a flight to safety. Long at 324.
4.12 It's a pretty heavy sell off day with the market down 1.6% which is more than the fall in the US. I've held on to my positions, with Ewc and Kar the interesting ones because they're reversal trades but have stalled. Do I just dump them on loss of momentum or use a trailing stop? I'm using a trailing stop but if they'd stalled on a strong up day in the market I might have just got out.