Good evening, Elite Liquidity Providers.
Here is my error summary for the week. I'd be chewing myself out in my office, if I were my employee, so here it is.
Three losses & one B/E.
Each loss happened when the position got sucked into my (tight) stops as The Market pulled back forcefully on Thursday.
BZH was the worst by far. I added size, tightened the stop and it was instantly pulled under.
RES was similar, although without the second entry.
AAPL was quite a foolish impulse, buying a gap up at the open. The rationale for this was to respect the new high and cup & handle breakout, though logical trading requires a stop well below the bottom of the cup to be legit.
Z didn't get dropped as hard and spiked back up a few times. Momentum had been crushed by Friday, however, so the relationship was over.
The biggest flaw in each of the three losses was my stop was far too close. Had my stops been lower and I bought levels on the way down, each position would have rebounded to B/E within two days. My stops were well above the lowest demand zone of the pattern.
Humbled, I consulted my Infinite Guide (another way of saying I prayed for help) and immediately an image flashed in my mind of a column of limit orders extending from the breakout (buy signal) to slightly above the pattern base (double bottom or lowest low). The total difference between all limit orders and the ultimate risk stop equals the initial risk. I've been taking on 1% initially, until my equity curve shows some encouragement. I began deploying this tactic on FB, Friday.
It's a trend following setup that uses range tactics inside the box at the entry. The total risk is the same but the position is far more flexible, stop is further away, and if the full column of limit orders are not take up before the position breaks out, I can still apply the missing size as the trend develops.
These modern markets appear to be ruled by market makers who are covering their collective azz by constantly gyrating the price, in order to create a range to trade. They do this by popping stops. It could just be my imagination, but old fashioned trend following techniques seem to be easy prey for the market volatility in 2012. I noticed in my automated trading research that this started in 2009 - moves got much larger and faster on an hourly time frame.
