The Xjo has made a sell signal with a break below last week's low of 4617 with the caveat that it is still in a trading range with the next support level being 4559. So it looks like the broadening top was the correct thesis and further weakness should follow.
I haven't covered myself in glory with my trading lately despite being very wary of this kind of top. It's one of those situations which is quite tricky to trade but still, it's not impossible.
My big trading error of the last week or so was to think that gold could go into a real acceleration phase when it was just about to make a short term peak. The gold stocks are pretty weak again, despite the gold price being pretty much unchanged in AUD terms.
I've sold out of Sbm at 39.5 and I'm looking to get out of Pru but Avo has gapped through one support to be sitting just above the next so I'll look for a rally to get out or use the next level as my stop.
11.30 I imagine that this is pretty common to experienced traders, but I've been feeling uneasy about my positions and my trading for a week or two and sure enough, I woke up in the middle of the night and spent an uncomfortable half an hour confirming that the start of the day's trading wasn't going to be too pleasant. By contrast, when I'm comfortable with my positions I hardly think of them outside trading hours and certainly don't wake up with a sinking feeling.
However, having gone back to bed and still quite sleepless, it occurred to me that since late March, when I made changes to my trade entries, I've enjoyed the most consistent period of trading I've had for some time. I haven't had a great deal of exposure to the market but have made about 12% return per month on my capital employed. The last few weeks, costing me a percent or two, has coincided with increasing doubts about how I should be trading and I've been tinkering with what was working quite well.
Obviously what works for me isn't what works for other personality types or trading styles but I've done two key things to mess things up.
Firstly, I've started chasing trades. My improved results stem from increased discipline about trade entry. ie I get into the trade at my level; if it's already broken out then much of the low risk gain is gone for me. In that situation, I'll wait for a retracement which would give me a second chance to enter at a good level.
Secondly, I've been declining to take profits along the way. For many, it makes logical sense to run positions for as long as possible because the big wins that you have will more than compensate for the times when you hand back profit. Despite figures which confirm that this is usually the case, this is not a technique that works for me. I prefer to keep banking part profits and on those occasions when I then have to stop out, I find it much easier to sell the remaining balance for close to breakeven as I've still got something to show for the trade.
12.12 The upshot is that I've been looking at the explosive charts, situations where I'm less likely to be able to get set, and trying to tailor my trading around that model. For example, here's a daily chart of Intrepid.
In the last weeks, this has gone ballistic and I've focussed on the missed opportunities. But looking back over my trades, I traded this 8 times in September for three really good trades, two reasonable ones and three scratch trades. There's no point trying to change my style to buy and hold based on a couple of stocks despite the human tendency to think "why didn't I just stay long the 40,000 stock I bought at 80 in late August" because there's been no sell signal since then.
My time frame is ideally two to five days to pick up anywhere from 3 to 10% depending on the type of stock. The idea is to constantly rotate my trading capital, looking for those sort of opportunities which fit my method and which tend to present themselves day in and day out rather than the recent examples in Intrepid, Lynas etc which are much more cyclical. And I want the losses to be in the range from 1 to 3% when the trades go against me from the start. In most cases, the trade will spend some time in neutral to positive territory and that will give me the chance to get out for around square when they fail to go my way.
I still target those fast moving stocks and if I can't get the trade entry on a daily basis, I'm not averse to using the same sort of pattern on a 60 minute chart but what I need to keep in mind is that my holding period is going to shorten to something like a half day to one and a half days.
2.33 The market has had quite a good bounce from early lows to be down 41 points. The golds are having an oversold rally and I've cut a few of the Avo at 295 and Pru at 274. This is a fair bit better than the early lows and I still have around half on board as there looks to be further short term strength.
4.26 Interestingly, the index rallied through to the close for a loss of 31 points.
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