All Out

Last Tuesday I bought (CYD) on a nice breakout that staged an ugly reversal and led to about the fastest 7% I've ever lost.

Not long after I stopped out on (GFA). That one just never acted right.

This took me back to even since August. Not what I was looking for - I didn't lose money but I didn't make any either.

I've gone ahead and put myself in the penalty box for three weeks. It's the holidays, the market has been tough, and it's an ideal time for me to back off and enjoy the time with my family. I have a strong watchlist of some great stocks setting up nice patterns, so I'll be ready to take another look next year.

Without question this has been my worst year trading - but I also think it's been my most educational. We shall see.

If anyone out there reads this, I wish you and yours a Happy New Year!

New Buy:(GFA), Sell Stop:(RINO)

The current market continues to be very difficult to navigate, for me at least. There are opportunities, but a trader has to be quick, decisive, and CORRECT to profit. More experience would certainly pay off here.

Thursday my buy stop order for (GFA) triggered at $35.28. It's possible I interpreted this chart wrong and got in early, IBD had an article on the stock and called it a cup shaped base with a $37.72 buy point (if the stock does not form a handle). If (GFA) clears that point in high volume I'll add to my position.

Then there's (RINO). This stock had qualified as an eight week hold based on it's tremendous performance, then last week the company announced a secondary offering. Friday morning I stopped out at breakeven - had been up as much as 25% in this position.

I believe this was the third or fourth time I've had a high performing stock announce a secondary offering and fall apart. I've never had one succeed after announcing they would issue shares. Based on this I believe I will add this event to my sell rules - but I'll wait a couple of weeks first to make sure it's not a knee-jerk reaction.

My record is now:

1 - 2 - 6

Profitable since August.

Took Profits on (MELI)

I'm very pleased to report that I booked a 17% profit on (MELI) today after selling it for $51.76. This stock took just over three weeks to meet the 20% profit threshold, so rather than hold it for eight weeks the correct move was to take profits.

This has my current win/loss/push record since my 'August reset' at:

1 - 2 - 5

More importantly, I'm profitable since that time. Not only am I up on closed positions, but I still own (RINO) with a 20% profit and that stock has qualified as a potential big winner, so I will attempt to hold it into January.

I missed (CAAS) yesterday as technical issues delayed me logging into my trading platform and it moved very quickly, but the good news is I'm still picking stocks successfully. This means if I stick to my rules, which have been working well for the past few months, I should continue to profit.

Next stock on my radar is (GFA). The future growth of this stock is huge. I'm eyeing an aggressive buy point of $35.28 reading the chart as a short, ugly cup with handle.

The market continues to see it's skeptics which is fine with me. For now the trend is up and I'll follow it.

Sell Stop:(HMIN), New Buy:(RINO)

Last Thursday I stopped out of (HMIN) by just 3 cents for a 5% loss. The stock has since recovered nicely but that's all part of the deal. In fact, I'd rather see a stock move back up after I stop out because that's a sign of overall market health. The main thing that I still need to evaluate is my stop loss choices, I just don't have much tolerance for taking an 8% loss but I need to make sure this isn't costing me more in the long run.

Today I bought (RINO), a stock which I've watch make a monster run for the past few months. The company's latest earnings qualified it for my basic fundamental criteria and the technicals still look great so I went ahead and bought it at $27.40. This buy point is 10 cents above the previous high off a pullback to the 10 wk moving average. In this very brief correction we've just had, most of the buy points I've seen are leading stocks that pulled back to the 10 week line over a span of three to five weeks. Not an ideal setup but I'll try to take what the market gives me.

This rally has been a bit sketchy but today it finally saw a nice up day on higher volume than the day before. Having said that, volume was still well below average so a cautious approach continues to make sense. In fact, that's why I waited a couple of days before making another buy once I stopped out of (HMIN) - it's worth letting a couple winners go by to make sure I'm not over trading like I used to.

Some Catching up to do...

Once again I've fallen behind here. Time is short these days so I'll keep it brief.

Towards the end of October when I saw the market heading to a correction I moved up my stops to protect my gains (small though they were). I knew there was an issue with my timing and that by the time I'd gotten my system on track the best days of the rally were over. Therefore I was happy to exit that foray into the market even, and that's exactly what I did. Not bad really for a tough whipsawing market.

Then late last week the market looked as though it may have a follow through day on Thursday, so I took a position in (MED) which I've been looking to get into for a couple of months. The stock did well but the market did not follow through, so I closed the position with a 1.5% gain at the end of the day. Hard to sell a good stock I've wanted to own, but I will not initiate new longs in a correction.

I was out of town for a long weekend and the market did stage a follow through day yesterday which has us once again in a rally. I took a look at my watchlist last night to prepare and found that (HMIN) had released earnings and was up considerably after hours.

I bought (HMIN) on the gap up to a new high at open - this is one of the setups I look for. Additionally, I bought (MELI) as it pulled back within a couple percent of the $42.55 buy point it took out last week. I'm not totally comfortable going in this fast to a new rally, so I kept my stop loss orders tight at 4% to reduce my capital exposure until I see how things shape up.

Sell Stop (HMIN), New Buy (PWRD)

Volatility remains high and this rally hasn't gotten any easier. Trading is very tough. My recent 'success,' if I can call it that, is a result of a commitment to my rules - they are what's kept me in the game. What's encouraging is that the rules appear to work even in very challenging circumstances. There are numerous times over the past couple of months that I would've been shaken out of a position if I was actively managing my holdings - instead I've held on, and time will tell if I profit from this.

Friday the market opened hard and (HMIN) took out my break even stop loss order. This position was opened from a conventional canslim buy point well above the moving averages, and those have had trouble in this rally. Since I'd been up 10% the stop loss was at break even so that's fine with me.

My record since my 'reset' is now 0 - 1 - 2.

(EJ) has been really tough to watch. It's been up as much as 25% and come all the way back to within a few percent of my stop loss order. Turns out the company spun off a unit into an IPO of (CRIC) on Friday. That may have marked a bottom for EJ and it came off the 50 dma Friday morning and is up over 10% now from that point.

Friday I took the capital from the sale of (HMIN) and put it into (PWRD) which I've been looking to get into. It's been trading around the 50 dma for about a week. It remains to be seen if the stock is consolidating or if it will bounce off this area. I purchased close enough to the 50 dma that I was able to put my stop loss at 2% so I have very little capital at risk in this position. So far this morning it's up nicely on solid volume.

Backtesting the New Idea

Here's my very quick study of the top stocks on my watchlist, trying to apply a simple and mostly mechanical purchasing method using the 10 wk ma. I attempted to be very conservative and didn't really throw too much logic in - for the most part I just looked at the charts and bought within 3% of the 10 wk - there are however some noted exceptions that I found to be no-brainers (like STEC on crash day, obviously would not have purchased that one).

Leaders from around 8/21
Rules - Buy limit 3% above 10 wk ma
Sell Stop 5%, breakeven after 10% advance
1 week hiatus after stock stops out
EJ - could've been purchased around $18.60 on 8/25 and survived 5% stop loss (now breakeven) - current price $23.58
HMIN - could've been purchased around $28.75 on 10/2 and survived 5% stop loss (now breakeven) - current price $33.30
PWRD - could've been purchased around $36.69 on 9/2 and survived 5% stop loss (now breakeven), high of $50.49, current price $43.82
FUQI - could've been purchased around $24.35 on 9/2 and would've stopped out same day for 5% loss
FUQI - could've been purchased around $27.44 on 9/18 and would've stopped out for breakeven on 10/1
FUQI - could've been purchased around $28.20 on 10/8 and still holding with 5% stop loss - current price $28.00
STEC - did not come near the 10 week until it gapped down and crashed through - easily avoided
GMCR - was below 50 dma and to be avoided at this time, basing
BIDU - could've been purchased around $337.21 on 8/27 and stopped out on 9/1 for 5% loss
ARST - broke the 50 dma several times and therefore would be avoided
MED - could've been purchased around $18.27 on 10/2 and survived 5% stop loss (now breakeven) - current price $22.38
VIT - 5% loss, then avoided (too wide and loose)

Scorecard:
4 - 3 - 1

4 winners up 26%, 15%, 19%, and 22% - each stock has been up at least 20% at their high since purchase
1 stock still held down less than a percent
3 stocks stopped out for 5% loss
1 stock sold for breakeven

Adaptation

We've been having some interesting discussions on the Trade to Retire forums and I wrote a post there that I'd like to put here on my blog as well as it highlights my thoughts and approach to this currently rally.

Here's how I handle market analysis - it's one thing to have an opinion about the market (it's gone too far too fast, etc.) but it's another to act (trade or not trade) on that opinion. I try to separate the two. If the market is in an uptrend and I see a stock I like in a position I like then I will buy it - whether or not I think a rally is extended. This probably adds to my risk, but I'm just not good at picking market tops, so it's best for me to let the market posture and/or my three strikes rule handle that for me.

Now on the other hand, I do think it's important to adapt to the current environment. Standard CAN SLIM buy points have not worked for weeks. They just haven't. The stocks have closed below the buy point, shaken out holders, then turned and advanced. They advance 10 or 15% from traditional buy points and pull back to a moving average instead of the 20% one could historically count on. I saw this through the middle of the year (it was a very expensive lesson) and since I've adjusted my buying strategy I've managed to survive for a few weeks. I would NOT attempt any buys on breakouts/new highs at this time UNLESS the 50 dma/10 wk line were within about 8% of the buy point - that would allow me my standard stop order while giving me the cushion for the stock to pull back to support ((HMIN) did this).

Better yet, I'm looking to buy around the 10 wk line if I like a stock. I think (PWRD) is setting up perfectly for this, and I will look to purchase this if it dips under $42 (assuming nothing else changes). This position would allow for a tighter stop around 4 or 5% and let the stock work up the moving average or just stop out if it can't hold that area. This is how I bought (EJ) and it allowed me to ride out a lot of volatility.

I've decided to conduct the following exercise. I will go back to August 21st on my watchlist and pick my favorite five stocks, then look at the charts from that day and see what would've happened if I'd picked them up around the 10 wk line (within a percent or two - I bet most or all of them touched off this line since August 21st) with about a 5% stop loss order. I'll bet about 75% of these trades would've yielded a 20% gain, possibly before the stock even made a new high. Furthermore, I'll be I could still own the stock today and be in good shape - in fact I do still own (EJ) from that type of purchase around that time.

Short version is this - I think in the current market, traditional CAN SLIM thinking has had me buying when I should be selling (around the new highs) and selling when I should be buying (stopping out around the moving averages). I don't think it's ALWAYS going to be like this and I firmly believe in CAN SLIM, but I also believe in reviewing past trades and adapting as necessary.