Thursday, March 18, 2010

Trial and error. Thu Mar 18

The morning trading in the Spi and a few of the larger cap stocks is continuing for me. So far, it's working, sometimes I want to keep going and maybe I should consider it occasionally but generally, stopping the intense 5 minute trading by lunchtime is a good move.
I'll highlight my Spi trading this morning. I thought it could be a tricky market because the March contract expired just at the open today but in fact it turned out to be a standard sort of morning. These trades and this chart are for the June contract.
There was some early chop and then a small buy signal formed so I went long one contract at 4893. It went my way for a few minutes but petered out, I stopped out fairly quickly at 4889.
I've noticed that pre-emptive trades work better than standard signals early on in the day so I could have cut and reversed at 4891 but didn't. Instead, I'd got a bit fixated on the long side and tried to pre-empt another leg up on the possibility of a higher low having been formed at 4883 at around 10.45am. So I went long one again at the break of the high of these pivot bars at a price of 4888. Once again there was no follow through and this time my cut cost me 5 points.
I almost repeated the mistake when 4882 held again just after 11am but I managed to restrain myself, step back and see what was in front of me. When this rally stalled at 4887, it was clear to me that a break of 4882 would be a genuinely strong selling opportunity. I duly got short two contracts at 4881, buying back one contract at 4875 on a first, conservative exit and then waiting for a 5th wave low to play out and buying back the second contract at 4869. This picked up 18 points all up.
The result was a gain of 9 points or $225 less $12 costs.
I'm trading a minimal size because I won't scale up until I convince myself that I'm consistently profitable in this time scale.
Click to enlarge
I'm cutting out the silly mistakes I was making but today there were a couple. I already mentioned that I'm not too confident about traditional signals early on. The exception would be if the stock is going clearly in one direction but in this case the little buy signal was well within the range formed by the first 4 bars and therefore less significant.
The second trade was maybe not an error but certainly marginal. Because there was room to the top of the range, a modest leg up might have gained me a few points. The problem, with the benefit of hindsight, was that any momentum that there was, was strictly negative, ie the early rejection of the highs and then the failure of the first rally which I bought.
In the end though, I traded the clear break quite well and that covered the mistakes.
I toyed with the idea of buying the simple reversal at 4872. It seemed to me that there had been a clear 5 waves down in the leg which started at about 11.05 am from a high of 4890, so a standard sort of retracement might have been worth 8 or 10 points. I was conservative and left the trade alone because it was already 12.15pm but it obviously would have paid off.

I have been trading the Spi slightly better than this most days recently. However, the errors are generally quite educational - as long as I focus on them and see where I can improve.
Interestingly, the pattern lately is of an early peak followed by a minor trend down and then consolidation, sometimes with a late rally. I suppose it's characteristic of a grinding uptrend but it's amazing how many days follow a similar template when you look closely.
I'm concerned that I might build a pattern of trading that suits this market but is not appropriate in other circumstances. Thankfully, I'm also day trading (or morning trading) in Bhp, Cba, Mqg, Ncm and Wpl so although they often just mimic the Spi, there is more variability and they will just do their own thing at other times.

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