Trade Journal: FAZ

I don't have the time to do a comprehensive trade review at one time, so I am going to do a trade review everyday, starting with my first trade of the year on January 2. As I go, I'll compile the stats. I am only including trades I posted on the blog or the Trade Report.

FAZ Trade:

Entry: 200 shares at $35.09, additional 100 shares at $33.75. Average entry for 300 shares $34.64.

Exit: 150 shares at $38.10. 150 shares at $40.80. Average exit $39.45

Profit: $1443 (+13.9%).

Original Entry Reasoning and Chart:

While not at extreme levels, the market is starting to get a little overbought. The T2108 reading is above 70 and many individual stocks are posting stochastic readings near 70-80.

While not making any big bets yet, I took a small probing position in FAZ (entry at $35.09), which gives you 3X leverage short financials. Price is near support and stochastics are starting to get oversold. My stop is in place under the price support level.



Trade Analysis:

My reason for entry was solid. However, I am disappointed in my exit. My plan for almost every trade is to set an initial target at resistance, take partial profits once that level is hit (usually half the position), then move my stop up to entry level. This locks in a decent profit, and still keeps me in the trade if there is a big move.

I took the initial profit as I should, but for some unexplainable reason I took full profits a few points later for no good reason, completely ignoring the stop I placed. If I had traded my usual style, I would currently be sitting on a 100 percent gain. This is a good trade that should have been a great trade.

Note that this is not hindsight or back seat trading due to missing out on a big gain. I did not exit according to plan.

I get an A for the entry, C- for the exit. Overall Grade B-.

Today's Trade: PCLN

I bought 50 shares of PCLN at $121.30. I like the chart, but it was tough finding a good entry. We've got support at old resistance, which is $120. However, many strong breakouts pullback to the bottom of the breakout candle. If that were to happen, the stock could pullback to $110 and still be technically sound as a breakout-pullback.

I decided to take a small position size here, place my stop just under $110.



Side note:
I would love to get in on some more commodity related plays, but the sectors are so overbought it's tough to find an entry. I'm trying to be patient, but it's frustrating watching these stocks blow up without me. This is my first big miss of 2008. I'll have to revisit and see where I went wrong.

Catching a Breakout Early: CF Trade

On Tuesday I bought 300 shares of CF at $92.05. Today the stock broke out over resistance at around $100 and closed at $107.76. I sold half my position near the close at $107.34 for a $2293 gain (+16.6%). I am holding 150 shares and will buy more on a pullback to $100, if it's orderly and on weak volume. I've moved my stop on the remaining shares to $97.

As expected, I received a number of emails today. Arthur's is representative of the bunch:

Can you tell me why you entered this trade. I have looked at all of your recent trades and I am having trouble figuring out your entry points. It amazes me that you continually pick big winners just before they break out. You are either a great trader or you are very lucky.

I am hesitant to call myself a great trader, and I certainly do not believe in luck. I firmly believe that those who are lucky put themselves in the position to receive what seems to be luck. I'm not talking "The Secret" self help bullshit here. What I mean by putting yourself in position with regards to trading is undergoing the hard work of understanding markets, your system/setup/edge and risk/reward.

Let me get specific about the CF trade. First, let's look at the overall market. Early this week, I was looking to increase my long exposure, while still maintaining a healthy dose of shorts. While I do think the market is headed down, I also thought we would get a bounce going into the holiday since the market was so oversold and we had a historical trend on our side (Christmas/end of year).

I do not like to play bounces in broken stocks, so I was looking for strong momo stocks to play. One sector full of momentum plays is Ag. I've been looking to get long and ag related for a while now. CF, MON, MOS and AGU all looked attractive, but I went with CF because I liked the volume pattern and a cup and handle seemed to be forming. My target was $90-92, which was at the bottom of the basing pattern and would give me a good risk reward (stop would be placed under the 50 day at $87).

I am not precise with entries. I don't have to have that perfect entry at $90. Early in my trading career, I missed a lot of big gains trying to be perfect. Now, as long as the reward to risk ratio is acceptable, I'll enter early on a setup that offers an edge.

Unlike many traders, gurus and technicians, I can't give you a precise stochastic reading, fib retracement or precise reason for entry. While I do rely heavily on accumulation/distribution indicators, much of it is just having an intuitive feel for the trade based on experience. For me, it boiled down to the following:

statistical edge that overall market would bounce
strong sector
strong stock within sector
nice chart, price and volume pattern
acceptable reward to risk

That's it. I placed my trade, set my target and stop, waited and "got lucky".

Note: AAPL is up 8 points from my Tuesday entry and RIG is up 4. I took partial profits in both, along with in the DRYS and EXM and housing shorts.

Under Armour Entry

Here is the reasoning behind the UA trade trade I made today:



It is startling just how well UA has performed in the midst of the current market conditions. What if UA had reported earnings in a good market environment? This explosive move leads me to believe the stock will fly if and when the market moves higher, so I entered on the pullback off highs early in the day. As I've explained many times before, I am not a stickler for entry points. If I were more patient, I could wait for a pullback to the breakout point, around $61-62. However, I don't want to miss the next leg up, so I'm in at $63.65, which is still a good 3-4 points below the recent high.

On a personal level, it's always fun trading stocks I support. Not only do I wear Under Armour gear when I lift weights, Vernon Davis is featured in their commercials. He's the tight end of my lifelong team, the 49ers. Those of you who play fantasy football, I advise you to draft him as your tight end. I guarantee better success than my MT trade ;)

Analyzing FTO trade

A reader wanted a more in depth analysis of the FTO trade. The basic principle is as I stated when I made the trade: a pullback to support with a strong confirmation move. Let's take a look at the chart:


The first thing that jumps out at me is the pullback to the 20 day moving average (mid-Bollinger Band), followed by a high volume postive day where the bar prints a long tail and closes at the day's high. This is a very good sign.

Next we move to stochastics. As the stock pulled back, we reached oversold levels (20), followed by a bounce and stochastic crossover. Another good sign.

Finally, OBV (on balance volume), confirms what we see by looking at the volume bars. Volume has been better on up days and there looks to be positive accumulation.

Finally, we have to decide our reward to risk parameters. The most logical area for a stop is just under the tail, around $44. A good target is at the recent highs, around $49. This is a good place to take partial profits, with hopes that the remaining shares will participate in a breakout to new highs.

I will hold this stock until I get stopped out or my target is hit.

Today's Trades: TZOO, GROW, MVIS, FUL, VLO

I sold 500 shares of TZOO at $39.85 (entry at 37.72) for a $1065 gain (+5.6%). This stock was a textbook breakout-pullback play. I bought on a pullback to support after the mid-March breakout, and sold on the new breakout. In the meantime, I was also able to make a few trades within the range that formed post breakout (while always making sure to have a core position while waiting for another leg up).

The stock is again setup as a breakout-pullback, and I may buy on a pullback to $38-39.


I sold 300 shares of GROW at $32.55 (entry at $29.96) for a $777 gain (+8.6%). Here, I traded the post double bottom breakout range, which is approximately $28-33. I might be willing to buy another pullback. GROW is a volatile, and fun, stock to trade.


I sold 1000 shares of MVIS at an average price of $4.60 (entry at $4.04) for a $560 (13.9%) gain. Here is another breakout-pullback play. I bought on a pullback to the breakout at $4.00, and sold the following breakout. Note that I did not sell on the day of the next breakout because the stock was not yet extremely oversold. It hit that level today.



I bought 500 shares of FUL at $27.22. This is a breakout-pullback entry. The stock seems to be holding nicely at the breakout-support level. My initial target is $29.


I bought 300 shares of VLO at $66.48. This is a bit of a risky play, thus the smaller than normal position size. The stock has made a parabolic run and now has pulled back to a short term support level. However, the size of the run makes me think there might be a deeper pullback. My stop will be placed at $63, which is just under the late May consolidation range.


A lot of stocks on my watchlist have been acting as I had hoped they would, but I've been slow to pull the trigger on a few (DGIT, BWLD, SON, JSDA, EWZ, CCOI). I'm going to have to figure out why I held back and pick up my game.

Trade Review: HOC

Before posting my review of the HOC trade, I'd like to answer a question posed to me after the latest "today's trades" post. The question:

You seem to hold on to positions for only a few days even though it may seem as though the position could move higher. why is that?

The person who asked this question is quite perceptive. While I've been on a tear of late, in terms of win rate and profits, I am still frustrated because I know I should be making more money. I have been exiting trades way too early, bagging profits when I probably should stay in a little longer.

The HOC trade is a good example. When I entered the trade, at $57.94, I posted a target of $62. While I didn't say it, that target was only for partial profits. My strategy was to then move my stop up and see if the stock could breakout over new highs, which I think is likely. Using this strategy, if it breaks out, I continue to make money. If it doesn't, that's fine. I break even on the remaining shares and still have my initial profit.

Instead, I was short sighted, looked at the nice looking profit that I would gain on all of the shares, and let greed and fear based emotions get the best of me. Looking at the chart below, you will see that the stochastic level has not given a sell signal. At the least I should have stayed in the trade with half the original position.

Note that I believe I made a mistake, even if the stock tanks tomorrow. It's about doing the right thing, not stroking the ego from one trade. If I trade properly, over time what should happen will happen more frequently than not.

Setup:
Low volume pullback to support of a trending stock in a hot sector. Early entry. The safe play would have been to enter on a confirmation move a day later. However, the stock was acting perfectly and a low risk stop was in place, making for a nice reward to risk ratio.

Results:
Entered at $57.94
Exit at $60.76
$1410 gain (+4.9%)
Hold time 2 days

Final Analysis:
Great entry off of a great setup. However, I should have stuck to the plan and taken partial, rather than full, profits. This would have given me the chance to catch a big move. The fact that volume was acting nicely and stochastics are not oversold make the timing of the exit awful. I should have held on longer.

What to Work On:
A. Sticking with the plan at entry
B. Psychological aspects of profit taking.
C. Exits: partial vs full profits.
D. Exits: pay attention to stochastic indicator

What to Continue:
A. The "low volume pullback to support of momentum stocks" setup
B. Early entries on good setups with good reward to risk