Quote from mlsignups:
One more things to potentially clarify my thinking as outlined in the prior message and document.
My current thinking (always changing) is that we scan the stocks for dryup over a period of days with the goal of generating a return over a number of days. I believe (still to be reviewed) that this normally only going to happen within a good daily channel. Therefore, my current thinking is that I will not enter a Hershey trade with a large goal (7% to 10%) unless it sets up that way by being at the bottom of a well defined daily channel.
Nevertheless, there may be times when you have a Hershey signal and you are not at that point or the daily channel isn't that well formed. In that case I may look at the 60 or 30 min channels and try to establish a good entry position, thinking I may only be in this for a smaller (1% to 3%) gain if I am correct.
In the prior message I focused very much on one stock in one situation but wanted to add this overall thought.
Mike
I suggested that I continually modify my thinking as I learn more and given a lack of a real life I did some research tonight.
I went back to Spytraders Excel spreadsheet (in prior journal) and looked at most of his top 10 trades and most of his 10 worst trades (in terms of return). (I plan on doing more but I ran out of patience tonight).
My goal was to see, in retrospect (for me), where his best and worst trades fell into the channels. Also, to see if holding through lack of FRV would have been good or bad.
Anyway, I noticed a few things new tonight in doing so...
1. He made his money by having a reasonable number of very good trades (20 out of about 100 were over 7% and many over 10%) while having only 10 trades worst than 2% loss and only 2 at 5%. Therefore, he managed his losses tightly and gave himself room to make good money on many trades.
2. Of his good trades he didn't always enter at the bottom of the daily channel, which had been my plan (but is hard to do). More than 50% of the time he was towards the middle of the channel. BUT, each time he was succesful there was at least (ballpark) 15% upside before hitting the upper channel from where he entered; sometimes more. .... During the time he was in the stock and in most cases thereafter it never cracked above the top; therefore you need to leave room to make money when buying in.
3. His best winning trades were either buying into a daily uptrend or in 2 cases buying into a stock the day it broke out of a clear daily downtrend.
4. Of his worst losses (again not too many; good for him!), about 50% were because the entry was near the top of the daily channel.
5. Of the other worst losses a few could have been gains had he not gotten stopped out (they looked like good entries). There was also one that was an odd entry because it looks like it was below an up channel (meaning a breakdown had occured).
Anyway, attached is a word document containing pictures and a little commentary of each of the top 10 best gains from his spreadsheet and worst losses (I missed a couple). I tried to draw channels as they would have existed at the time of the trade. I put a box near the start of the trade and in most cases a yellow line at the price point.
Based on all of the above and subject to further review of more trades my channel rules are as follows:
1. If you can find one that is breaking a clear daily downtrend channel get in! These gave him his best 2 gains.
2. If you are in an uptrend, make sure you are no worse than in the middle of the uptrend and/or that you have at least 15% (or more) to the top of the channel. If you enter with less, no at what % you will need to sell since it likely won't break thorugh the top. (My old rule was to get in only at the bottom of an uptrend but clearly this is not necessary and rarely happened for him).
3. Don't take a trade if the daily trend is down (unless there is a clear breakout).
4. Don't take a trade if you are near the top of a clear daily channel (inverse of #2).
5. Don't take a trade if you are at a breakdown below the bottom line on an upward sloping channel (breakdown).
For me this continues to be a work in progress to refine my understanding. If you have comments or observations I'd love to hear them.
Meanwhile between sitting on my butt and eating Xmas cookies I have gained 2 lbs this week and need to work on THAT stop loss.
Mike
