Wednesday, August 23, 2006

Coaching Call Week 9

In today's coaching call we decided to postpone chapter 3 about fundamental analysis for next weeks call, instead we favored doing a check in on my progress. This was perfect timing as I wanted to solicit Rob's feedback on several trades. It also flowed into my trading journal very nicely too and gave me an idea of what to write and track in said journal.

We looked over several of my trades to see how I was managing entry and exit. The main trade we looked at was a trade I placed on ABI. This went against me, which is why I was particularly interested in what Rob had to say about it. Let's file this one under "The Bad" (as in The Good, The Bad and The Ugly). Here's the closing chart showing where I entered and where I was stopped out for a loss:

With the information available to me on 8/14 (entry, marked by the green line), you can see that the stock was in an uptrend (black line), but had a deeper pullback than previous pullbacks and had violated it's trendline. Also, you can pretty clearly see that the uptrend showed some signs of weakening before I entered the trade. The previous 2 swing highs were not as high as they should have been for a strong uptrend, and it even retested the peak. It was looking suspiciously as if the peak became resistance and that it was forming a reversal pattern as the stock crossed the 50 day moving average. The volume charateristics weren't ideal, but they weren't too bad. The CMF was negative and the Stochastics were showing some divergence (highlighted in yellow). All of what I've writen so far is me evaluating the stock today after having discussed it with Rob. Hindsight is 20/20 right? So instead, let's look back into what I wrote in my trading journal upon entry:

ABI pulled back a little deeper than I’d like to see and volume on the selloff was higher than I’d like to see, however the Institutional Intent shows a buying pattern during the last week. Stochastic is setting up nicely and I’m expecting a return to at least retest the previous swing high.
Upon exit (8/23) I wrote the following:
Lost all of what I risked. Most likely it’s just a trade that I should not have entered. I entered when the stock dropped below the 50, near where it found support before. This was definitely a sign of a weakening trend. Additionally there was some divergence on the Stochastic. Note the previous dip and failure for a swing high in early July. Could it have gone up? Yes, of course, but I could have found a better stock to trade.
The basic mistake I made on this stock is that I did not reevaluated my outlook as the stock started to show signs of weakening. I decided I wanted the stock to go up because I thought it would go up 3 days before entry and since I wasn’t filled I would just get in for a better reward:risk. I think this is known as trying to argue with the market. My mistake, market, you are correct, I will listen to what you have to say and never attempt to tell you what to do again.
That's it, that's all I wrote, and that's all I saw at the time. Of course my knowledge and skills are growing and becoming more refined, and part of that has to do with reading, studying, coach Rob's calls, but quite important to this learning process has been my self evaluation and trading journal. The mistakes are great because they provide such a learning experience. I've gone into a bit more depth in this blog posting, and this is far more reflective of how I journal today, and I'm sure how I journal will evolve over time also.

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