Look before you leap. Wed Mar 31

It's the end of the first quarter today and with very little in the way of direction from overnight trading, any market moves today are liable to be influenced by window dressing. It has been a meandering day which slipped from mildly positive to mildly negative after the release of building approvals and retail trade figures for February. Halfway through the trading day we're down 8 points.
I've put on a short trade in Alumina which is not a vintage trade but just about stacks up on a quiet day. The stock has had a lukewarm bounce over the last month and is just bouncing back from a minor sell off but remains short of recent highs. I've sold short at 173.5 because my stop is a cent or so above the recent 176.5 high and a modest pullback should take the stock down towards the low to mid 160s. Since, I think that there's conservatively a 50% chance of that happening but the risk reward equation is 2 to 1 in my favour then the trade passes muster.

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Linc. Tue Mar 30

Just a quick post today, I've been out for much of the afternoon.
On the theme of trying to get into moves as early as possible I've gone long some Linc Energy at 167. I've been on the bid all day at 162, which is my preferred entry, with no success so I've bought a third of my proposed position at a higher price. It's still at a level which is just a touch above a 50% retracement of the move which began in early March. I think 160 could hold a pullback and I expect a new high or else a test of the recent high so the risk reward is still ok.
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Fine Tuning. Mon Mar 29

It's often a trade off between certainty and profit potential. I've played around a lot with pre-empting signals and although it's given me a certain amount of grief, it has also been responsible for some great trades. I think, though, that I've often been too conservative with anticipating a trade and thus fallen between two stools. That is, I might have wanted to get long ahead of a breakout but I would still want to see good momentum before jumping on board. This has sometimes resulted in buying (or selling) only a few cents before confirmation which leaves me vulnerable to a failure.
So, I've been looking at my trade history with the idea of getting in either earlier - perhaps on a potential higher low with a tight stop - or later, after a move is confirmed but has retraced. It runs the risk of backfitting to get better results but it does look like a good approach to me and it has the advantage of taking uncertainty, and hence stress, out of trading. For example, if a potential trade has got away from me then using this approach I don't chase the entry. I either miss it or get in on a retracement.
I flicked through a few stocks and pretty much any of them could be used as an example, but I've plumped for Telstra.
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As an example, suppose I had been looking to short Telstra in mid December. I would have found it very hard to get on because it dropped rapidly over two days. However, it seems pretty common for these moves to retrace more than 61.8%, even to make double tops. My rule of thumb is to use two thirds of the first swing which in this case was 26 cents. That would have got me short at about 346 or 347 depending on rounding. In this case it didn't turn out to be an excellent trade but the good entry would have enabled some sort of profit.

The stop would be above the mid December high so the longer I can wait the better.

There's a much better example in early February where I might have got short at around 342 before a good swing down.

At the lows in early March, there wasn't really a 1-2-3 buy signal - there clearly would have been on 30 or 60 minute charts - but there were a few days where I might have anticipated a turning point and got in at 291 or 292 with a stop below the low of 288. It certainly looked like a turning point although these things can be dangerous. If I look back a few days earlier in late February there was another potential turning point which failed to hold.

The other pitfall with this approach is that you still need to pick the right direction. For example, that short position in early February could have been viewed as a potential long just a few days earlier when the January move seemed to have retraced. Having said that, my view at the time was bearish but I was waiting for confirmation and the day that occurred, February 11, was a fast moving gap day that I wasn't willing to chase.

Anticipation. Fri Mar 21

I've been weighing up the pros and cons of entering positions on a pullback at a preset level versus waiting for confirmation. It's as much to do with what I'm going to feel comfortable with as what is technically the best.
Anyway, this morning I decided that I would buy Lihir Gold if it traded around 300. The logic is that it is in an uptrend and the last leg ran from 288 to 323. Most pullbacks won't retrace much more than two thirds of the run up so that gave me a buy level of approximately 300. As it happened, I bought at 299 and luckily enough the stock has bounced straightaway and it now stands at 309.

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Obviously, if my assessment of the trend is wrong then I have to cut. My initial stop level was at 287.
The advantage is that if the uptrend continues then my entry level is generally going to be better than if I waited for confirmation.

A fine line. Thu Mar 25

Those of you who've seen the 80s mockumentary "This is Spinal Tap" will know that while it might be a close run thing between love and hate or pleasure and pain, it is definitely a fine line between clever and stupid.
In the course of writing this daily blog and also when I periodically go through my trades in detail, I've discovered that I quite regularly cross that line into stupid territory. In fact, I've sometimes crossed that line and set up home for weeks at a time.
For example, I've been working on my trading rules for some months now, trying to define what my set ups are, when I exit, how I execute my trades etc etc and I've realised that I'm quite haphazard. Given how long I've been trading, it's kind of scary although encouraging in some ways - there's plenty of room for improvement.
Part of the inspiration for going through my trades carefully has been the excellent blog electroniclocal which a friend put me onto. This is somebody who knows his method inside out and yet still feels he has an advantage as a discretionary rather than a mechanical trader. That last point is comforting for me, I don't want to lose the human, intuitive element from my trading.
I managed to drag myself away from the screen for half an hour or so and as I walked back through the city it occurred to me that my first 10 years or more of trading involved having to make very quick decisions and doing dozens, sometimes hundreds, of trades per day with negligible trading costs which meant that I could clean up messes fairly easily. Being a market maker, I was competing against other market makers whether on a trading floor or in a screen traded market, and since there is generally a spot of edge in the trades then speed becomes more accurate than fine tuning. By contrast, the type of trading I do nowadays often involves negative edge because I'll be paying across the price spread, as well as incurring higher costs.
I suspect this prior conditioning is a more generous explanation for why it has taken me so long to adjust my trading style but I'll certainly put my hand up to periodic bouts of silly trading.
I was going to admit to being lazy too but actually I've always worked hard at my trading, even if the work hasn't always been applied effectively. I feel like I'm on a very good track though as slowly but surely, I'm cutting out the errors from my trading and refining my approach.