Almost every trader tries new strategies and variation in the hope to find the holy grail. But the only way to success with trading stocks is when you stick to the trading rules!
Here you can read how and why I have focused on this fact again …
The market check
Phew! Do you remember what I wrote last week about believing others, especially me? And that I always try not to predict in my weekly summary but to read the price action?
In my last article I was right. 😀 I expected the SPY creating one or two bullish candles before turning down. And after one green candle a bearish candle with a higher high was the start of a little pullback. But the bears couldn’t reach the breakout level or the monthly top trend line. Wednesday to Friday there were three red candles sitting on the $310 level with their lower shadows hanging below …
This shows me an unclear situation. The bears formed the red candles, the bulls bought enough not to break the $310.
But looking at the weekly chart you can see that last week was the first bearish one after 6 bullish weeks – each of them with a higher high. So, it is more likely we will get a bearish candle next week than a bullish one. Or at least there should be a sideways movement building a weekly doji like candle.
Why should I stick to the rules?
Have you ever heard that trading reveals your own weaknesses?
I learned a lot for my life on my journey of trading. But one part of my personality is a difficult one: It was always an advantage in my life that I am an expert in improvisation and optimism. However, for trading it’s a big disadvantage.
If you do not stick to your trading rules you will never achieve high profits.
And I had good profits and I never had long losing sequences. I’ve never even reached my starting capital or even less although I had huge losses. Therefore I wanted to find the reason for not achieving high profits. And I am quite sure it’s because I did not stick to the rules with discipline and consequence.
In the days I sent the weekly summary only to some friends on Telegram I added my statistics for the current and last month. I will also do that in these articles when I updated my statistics file. And then you can try to find the point of change for yourself!
Good entry and bad exits
On Wednesday JBLU was stopped out and on Thursday AXP. Both at -1R, so I recorded 2 losses.
And do you know what? For JBLU the loss was predictable. I have a column in my trading journal named “feeling/improvement” and I wrote: “looks good but some choppy candles above the breakout level; not very ‘clean’” after I entered.
And what happened? No clear breakout, down and it seems that the reversal upwards is almost at my stop loss level. Why did that happen? Random movement? Probability event? Yes, but it was predictable because the setup wasn’t the best setup. I know how a good breakout setup looks like and I acted mediocre:
That’s what I mean when I say “improvisation”. But now I stick to the rules using always the same approach and risk and you will see what will happen. Of course, there will be lots of losses. But there will be a change.
The next crazy stop reached was for AXP:
I just have to say: The target was at $122.56 and on the first day of the trade (the bigger candle built the last high above) the high was at $122.43 … just 0.11% more and … 🙁
And then it went down. Reaching the top of a channel and it seems that the reversal happens likewise after my stop loss was reached.
But in addition to those two unfortunate trades my portfolio is growing very good the last weeks. The slope will be bigger because I stick to the trading rules. And I am happy to share my progress with you!
One of the really good setups I entered on Wednesday:
I entered ITRI (Itron Inc.) above the high of the confirmation candle of the last low and it’s already up +3.4%.
Stochastic is in overbought area now and the big picture resistance is coming at $80.0 but if the trade will be a loss or a win I will be happy about it.
You will read about a special of this trade when it will reach stop or target but I can reassure you: I stick to the trading rules!
Thanks for reading and you should subscribe to the newsletter because there aren’t many subscribers now. So, you would make me very happy with your subscription and I would make you very happy by sending you little trading tools you can’t find on the website!
I will start when there are 20 subscribers. So, maybe you can share my website with your friends?
The following week will be relaxed: On Thursday the markets will be closed because of Thanksgiving and on Friday we will get some low prices for good stocks because of Black Friday. 😉
Enjoy your week, keep commenting (thanks to Alessandro for all his questions) and I wish you good profits!
8 Comments
Paul LaRocca
(24. November 2019 - 17:21)Hi buddy! I have many questions:
1) It is possible to add the price level to your charts? It looks like you add the red dotted line when you hit your stop loss, but is the entry also shown on the chart?
2) Are you still scaling out of your trades? For example, are you selling 1/2, 1/3 or 1/4 of the position at different price levels?
3) Have you considered scaling into trades as well? I have not tried it but I see that some people will buy a small starter position (mostly for reversal/counter-trend trades) and add more once there is confirmation that the price is moving in the direction they expected.
Alexander
(25. November 2019 - 11:08)Thank you for your questions!
I will try to answer them:
1)
a. You mean that I should add the axis with the price levels? I can do that.
b. Sometimes I mark the stop loss in TOS but never the entry because I am trading with IB/TWS. Would it be useful for you to see my entries and exits?
2)
Difficult to say. Some of my double target trades are still running. I calculated with my own statistics that 50% at 1R and 50% at 3.5R would be the best for me. But because I went back to the roots and simplified everything now I use 2R for every new trade. I will mention what kind of money management I use/d when a trade closed in the weekly summary.
3)
Scaling into trades is called Pyramid Trading. You add more when the trade moves in your favor.
Yes, I traded a strategy similar to the Turtle Trading Strategy and for this one I had 4 entries. But I do not trade like that at the moment. Maybe I will try a variation with Pyramid Trading when the market is in a clear uptrend again.
And for investments I always use 3*1/3 or 4*1/4 of the size I want to invest.
I hope this answers your questions.
Feel free to ask whatever you want. 🙂
Alessandro
(25. November 2019 - 18:25)dear Alex,
I curious to know how (and “if”) you split your portfolio between your trading activity and your long term activity.
Do you have several different accounts for each of them? or you keep everything together?
and if you keep everything together, do you calculate your position size of your trading activity based on your total net liquidation, or you take your long term wins/losses out of that net liquidation total?
Alexander
(29. November 2019 - 20:49)Hm, it feels like I already answered your question but it seems I have not. I only wrote about technical analysis and long term investment here. Therefore:
Yes, I am using different accounts. My trading account and my long term account are different accounts at one broker. Then I have an account for ETFs and one for funds. The advantages and reasons are different but not for being prepared that one broker will get broken.
But strict is that I only use each account size for each strategy and I do not mix it up. My trading account is for trading only and I am using the “net liquidation total” of this account for calculating my trading risk.
For example: You’re trading account is small one with 10k and your investment capital is 990k. If you would risk 1% of your whole capital, it would be 1.000k * 0.01 = 10k. Then you would need much more than the 10k of your trading account to buy stocks for only one trade and if you lose your whole trading capital is gone. It’s not logical.
Alessandro
(2. December 2019 - 21:36)dear Alexander,
sometimes, when analyzing charts, I’m searching for a previous test of a particular SMA/EMA, and sometimes I see the candles testing 2 or more Moving Averages at the same times. This happens oftentimes, when the candles are very big, or/and when the moving averages are very near to each other.
I know: this is from chart to chart different, from situation to situation different.
Still, I’m wondering if you can say something in general, about such situations. In other words I’m a bit confused how I should interpret candles which test many moving averages at the same time.
Alexander
(5. December 2019 - 09:53)The more detailed the question, the less clear the answer. 🙂
I mentioned it at least one time in another comment: Most important is that you stick to your system. You have to decide what’s good for you and then use this approach all the times. No variations, no exceptions.
Personally, I do not change my approach when several moving averages are hit. For me, it’s important that the moving average line is respected and price tried to break down but did not have a chance to do so. This can not be answered simple because I look at the candles, the slope of the curve and the overall picture.
Alessandro
(5. December 2019 - 15:39)dear Alexander,
given that I have a proven good strategy, tested and backtested on the US market, could I trade it on different markets as well? in Europe? in Asia? or wherever else?
would you suggest particular markers which you find particular interesting/liquid where we can scan for potential trades? Is there markets you would not trade at all? If yes, why?
do other markets / companies have earnings every three months, like in the US?
finding out earnings days for foreign companies will be challenging (I currently use finviz for that purpose)… where could I find such information for other countries?
thanks a lot)))
Alexander
(5. January 2020 - 18:29)Check the new article for some of the answers please.