Saturday, December 16, 2006

Weekly Calls Dec. 18-22, 2006

On last week's trading calls and executions

The W/L ratio of both weekly and daily calls came in just above 2:1, which was not bad at all considering the volatile market we had for the past week.

Last week's execution, on the other hand, was terrible. Even though I planed the week before that I will force myself into the trades when a pre-planed setup arrived, but I largely failed to do that. In addition, I had multiple winning positions which I failed to let me run at all, often left more than 80% of profits on the table. I felt increasingly frustrated and disgusted about the fact that I just could not overcome the "fear" factor to stick with the well-thought trading calls and the technical signals. It is a terribly feeling the see such a gap between what I am capable to do and what I actually did. I really really need to come up with some concrete protocol to tackle this psychological issue.

I have been dissecting my decision-making process. I think that when I abandoned the plans, I was griped by the fear of losing. Specifically, fear of losing profits for the winning positions, or fear of suffering loss after entering a setup. Now, let's look at the facts on these two types of fear:
** The fear of losing profits for the winning positions: there is no doubt that sometimes, had I not taken the small profits, I would've lost the profits or even incur small losses. However, if I stick with the trading plans and always let the winners run, very likely that at least 50% of the winners would generate at least 3 times more of the profits, which should more than enough offset the possible loss of the small profits or even small loss resulting from the existing practice.
** The fear of suffering loss after entering a setup: it is true such risk always exists, however, the W/L ratio of my trading calls have been basically around 2:1 or better, which means if I act on every call, the winning chance beats out the losing by 2:1. What's more compelling is that I often have a very close by stop-loss point for each setup, which means that the loss is very limited even if the trade fails. On the other hand, if I can let the winners run here, the actually W/L ratio would be substantially larger than 2:1 dollar wise.

The problem right now is I am almost unwilling to take any losses, which obviously is not right. Whenever I face a decision to act on a setup, I find myself obsessed by the potential loss instead of the possible gain. This is a very negative thinking pattern and I really need to snap out of it. One way to minimize the fear of possible loss is to cut down the size of the possible loss. This can be done by two measures:
(1) use smaller size, such as 100-200 shares and
(2) act only on the setups that have a very tight stop-loss point AND a good risk/reward ratio (1:3 or better).
Knowing that the possible loss is small and limited, I may then be able to free up my mind and focus only on the technical signals.

Whenever I have a winning position, I fear the profits will evaporate, and such fear drives me to take profit prematurely rather than thinking big and letting the winners run. It has been common that the profits I take are less than 20 or even 10% of actually attainable profits, and this is simply terrible. To solve such problem, once again, I should use smaller size so that I won't worry too much by the possible small loss if I don't take small profits prematurely, and I may also feel less compelling to take the small profits as they might be too small due to the small sizes.

AT this stage, I probably should also consider some concrete protocols to deal with a winning position, such as:
(1) Don't enter a position if the initial profit target (based on the choosen trading size) is less than $100.
(2) Unless there is compelling technical signals, never ever take a profits that is less than $50 (excluding commissions),
(3) when the net profits exceed $200, either lock in partial profits or raise the stop-loss to guarantee at least $100 profits;
(4) when the net profits exceed $300, set up a trailing stop order that allows no more than $100 loss from the set point.

I am committed to overcome the "fear" factor, and I will really push myself in the coming weeks. There is no excuse to let the "fear" factor rule and ruin my trading any longer.

On the market:

It was another victory week for bulls last week. Both DOW and SP500 convincingly broke out their early Nov. high and closed at new highs. It is intriguing that NASDAQ failed to accomplish the same feat -- it challenged the previous high on the opening moments on last Friday, but failed to close above that. In addition, NASDAQ's weekly gain (0.81%) is significantly smaller than SP500 (1.22%). From the weekly charts, all major indices show clear strong up trend, with no signs of tops. On the daily charts, everything is looking bullish, except last Friday's action, where the market started strong, but was sold down for the rest of the day and barely closed in green. The "distribution" was especially clear in NASDAQ.

On next week:

The up trend is strong and clear, the seasonality also favors bulls. Unless NASDAQ falls significantly, I expect market to go up and NASDAQ to make new high. However, be very careful going long as many stocks look tired. On the other hand, don't go short unless both weekly and daily charts show clear bearish signals. On the execution, use all the resolve to act on trading plans and over come the "fear"!!!

Weekly Calls:

1. AAPL: CTT between MA50=84 and 90 use tight stops. Re-evaluate the technicals if it moves out of this trading range.

2. AMZN: L1 on pullback, entry zone 1=39.2 (MA10) -39.6, stop just below 38.9; Entry zone 2= just above 38 use MA50=37.9 as stop. IT=42.2.

3. BIDU: CTT between 110/111 and 123/125 use tight stops. Also consider S3 on top if it approaches key resistance around 119 and 121. MA50=104.5.

4. CEPH: L3 when it breaks or closes above MA10=72.5, stop just below 71.9, IT=73.3.

5. CTRP: L1 on pullback, entry range 60-61.5, stop just below 59.9.

6. DVN: L1 on pullback, entry point 1=around 69.5, stop just below MA50=69.3; entry point 2=around 67.3, stop just below 67.

7. ERTS: S1 on top if it spikes towards 55.1 (MA50=55.1), CS=55.1, IDS=55.55, IT=52.5.

8. ESRX: L3 on bottom, entry point 1= just above 68, stop just below 68; entry point zone 2=66-67.5, stop just below 65.9. MA50=69.4.

9. FFIV: L2 on bottom if it spikes towards 73, stop just below 72.8.

10. MSO: L1, entry zone 22.7-23.2, stop just below 22.5.

11. RACK: S1 on top if it spikes towards 32.5/33.6 use very tight stops, MA50=32.2.

12. SNDK: S1 on top, entry zone 43-44, stop just above 44.2. It may break down further if NASDAQ falls.

13. STP: consider L2 if it breaks 33, stop around 32.8, IT=37-38.

14. VRTX: CTT between MA200=35.4 and MA50=40.4 use tight stops. Don't trade the mid range.

15. WMT: S1 on top if it spikes towards 47, stop just above MA200=47.1 or MA50=47.2, IT=45.5.

16. X: CTT between 72.3 and 77/79, bias is on the long side. MA50=70.1

1 comment:

shortswings said...

Hi Man,

Sorry, I didnt write you the comments yesterday night, because I went out for a late-night dinner with my freinds and came back almost at dawn. The market went down today. Red was everywhere. Dont know if its going to go down further tomorrow. I agree with all your calls but SNDK. I saw an opportunity to long here because daily histogram is making a possible bullish divergence and weekly histogram showed flat. In fact, I long 100 shares 10 minuets before the market close. Let's see if my wishful thinking is going to work.

Good luck!