Friday, August 04, 2006

Paper Trades Update 2

I took a beating this week. I haven't lost all that I made previously, but I did give back about 3/4s of what I had from earlier paper trades. I'm doing a post-mortem on the trades to see what I could have improved on in my decision making process to either avoid the trade in the first place, shave a bit off the loss or even stay in the trade a bit longer for a profit (if that is even possible on any of the positions).

Between Sunday and Monday night's analysis I entered 5 new positions that looked to have good reward:risk ratios, and 3 confirmation signals supporting my position. Confirmation signals included: reversal candlestick at some previous level of support/resistance, stock pulled back (or rallied up) to a channel line or Moving Average, favorable volume characteristics, crossing Stochastics, and/or positive (or negative) Chaikin Money Flow.

To me, the market in general looked like it was heading for another downturn as both the S&P 500 and the Dow-Jones Industrial Average were hitting a previous level of resistance from about 3 weeks ago. The Bear trend does seem to be weakening after a 2/3rds retrace from the Bull move starting from the low in October of last year to the high in May, but I figured that there was at least one more good bearish move left in the market before we see true confirmation of the emerging uptrend.

Because of this read, and some nice technical setups I entered 1 long and 4 short positions. I was feeling pretty good about the bearish trades in particular but unfortunately the market decided to head back up/consolidate on Wednesday. One after another they all started to go against me and hit my entry stop-loss, only making enough of a move on the entry day to fill the order. I held out hope on a couple trades all the way until Friday, but eventually they closed for a loss save 1. The one profitable trade was a very small 1% gain. I gave it room to move but when the 2 EMA crossed the 5 EMA I closed the position.

This week's trades did bum me out a little and in response I've decided to crack open Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by John J. Murphy. I've also decided to order Trading for a Living: Psychology, Trading Tactics, Money Management because I realize that even though these trades are only virtual, it really harshed my mellow, if you know what I mean. It was just a little hard to take because all the earlier ones went so well. Anyway, I'm looking forward to this further input to my trading education and will spend some quality time with the John J. Murphy's book this weekend.

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