In the course of trying to get in on Monday and missing that move, and then getting whip-sawed on Wednesday, I noticed some possibly interesting things on the intraday charts and decided to look into it further.
Below is a 25-min chart for AVY covering Mon 3-23 through Wed 3-25 [CHART 1]. It shows a series of short-term areas of support and resistance that you don't have to squint too hard to see. (But the chart is a little busy, so it will take a little scrutiny.) There are two points of support at 22.10; one point of resistance and one or two of support at 22.50; and solid resistance on Tue 3/24 (and possibly the close on Wed 3-25) at 23.00.
I noticed these zones during the day on Wed. Since I did not have any idea which way the market would go, I decided to try a buy limit/buy stop (OCO) order that used these zones. Around mid-day I placed a buy limit order at 22.60 (just above the 22.50 area) with a stop at 22.10 (a rookie round stop!). I also placed a buy stop order at 23.00 with a stop at 22.60. As price dropped, the limit order was filled (no slippage), and as price dropped further the stop was triggered. Price touched the 22.10 support level and bounded back up to near the 23.00 resistance level! If I hadn't used such a dumb stop I might have survived the trade. I thought, "Well, that was quick," but then I thought that maybe there was something to this support/resistance business. I decided to try the same thing the next day
Today, Thu Mar 26, I placed another buy limit/buy stop (OCO) order before the open: buy limit 22.60, stop 22.07 (a few ticks below the 22.10 line); and buy stop 23.00, stop 22.43 (below the 23.50 line). I was filled at 23.28 - that's 28 ticks slippage, but I did get in and have a little ride (see CHART 2)! Yesterday's support/resistance lines weren't really tested today, but price went up to 23.60 in the first half hour, hovered between 23.00 and 23.60-23.70 for half the day, then oscillated around 23.70 (23.70 zone not marked on chart) before breaking out to close near 24.00.
Looking back on all of this, I think that the lines of support and resistance may have been useful guides. I also may just have been unlucky (first trade) and then lucky (second trade). Time and more trades and experience will tell. In fast markets, slippage and gaps are inevitable. I think that when things are squirrelly, as they have been lately, if a decision is made to trade, bad fills should be anticipated and controlled with very careful money management (stops and position size). It is likely in such conditions that entries will be missed, winning trades may not be as good as usual, and losing trades may increase. I am guessing with this, but it stands to reason that when uncertainty goes up, the results have to suffer somewhat.
One other point: Besides the issue of thinly traded stocks usually exhibiting more slippage than very liquid stocks, I noticed that of the two stocks that I have traded so far, DECK seems to have a much higher bid-ask spread than AVY, even though they trade with similar volumes (1/2 to 1 million shares/day). This is something that I will watch out for in subsequent stock picks.
Steve,
ReplyDeleteOne of the first things I look at is where the indexes such as the S&P 500 and the Dow are trending. I then look at the comparative relative strength of the stock I'm interested in compared to those indexes.
If you look at your AVY example, you can see that, recently, it is in virtual lock-step with the indexes. This gives you another datum point from which to justify getting into a trade.
Alex and Kerry's NH/NL helps me a lot, too, in conjuction with the RSI.
I would love to show you my two charts as examples, but I can't figure out how to put them into this dialogue. Maybe you can help me out.
Regards,
Clark Gunness
Clark --
ReplyDeleteThank you very much for your comment. I would very much like to see your work. I understand that we can't post attachments to a comment (that's why my remarks became a separate blog entry - I was intending to post a comment to Stephen M's entry). However, we can get in touch by email. I'll send an email to the support folks and ask that they forward it to you (I think that's how it's done).
Regarding my post, I should have made it more clear that the intent was to describe an approach that I tried to enter a long trade in a volatile market. The interest in the previous two blog posts had to do with the unpalatable idea of chasing a stock as it skyrockets, as well as suffering the slippage and risk that often result from entry into a fast market. I had already decided on the basis of the daily and weekly charts to enter.
Having said that, I have not used the market comparison and NH-NL information that you mention in a rigorous way to help with the decision of whether or not to enter a trade. I've only looked at comparisons with the S&P500 to get an idea of a stock's strength relative to the index. (I attached a chart showing the S&P500 vs. several stocks to one of my Spike entries - see Mar 16-20 archives). I do examine the daily NH-NL charts from Kerry and Alex and read their remarks, but I haven't used it for daily decision making. I would definitely like to see what you do, and I thank you for being willing to share your information.
Best regards,
Steve Alcorn (Stephen A)
Stephen A,
ReplyDeleteWell said, "it would have to involve not only careful entry technique but also a somewhat different attitude toward the quality of the fill." Your example illustrates 2 modes of entry in this market of beat down stocks, the second of which catches the upside break out. We are so careful not to become "greater fools" but in this environment in an undervalued beat down stock, when we suffer slippage with a stop buy, more usual than not the only greater fools are the shorts scrambling to cover.
I agree, resistance levels are the entry targets. I also like to look for cup and handle, ascending and descending wedge BO's and head and shoulder formations for entry points - which give a little extra explosion IMO.
Thanks,
Steve M
BTW I also would like to know how to post a chart.
Steve M --
ReplyDeleteThanks for your input. You nailed it when you said that we fear becoming "greater fools". Also, we (that is, I) need to be reminded sometimes that we cannot control the market. I like to sail, and a sailor who holds the attitude that sea and weather can be controlled assumes a very dangerous mindset. We can only scramble to adapt to the situation, both in the elements and in the markets.
And thanks for mentioning the tools that you like to use (cup and handle, ascending and descending wedge BO's and head and shoulder formations). I will look into them (in a couple of cases find out what they are!).
Best regards,
Steve Alcorn (Stephen A)
I would like to come back to two Stephen M’s sentences: “Perhaps a little less caution should be on entries and more on exits?“ and “ … pull the trigger and get long... even at the market the next day “. I would love to be able to do that on a regular basis and Stephen too I think so: sticking to my entry point and forget the rest. In fact, each time, I did it, trades were big winners. Maybe I was lucky.
ReplyDeleteWhat is "the rest"? First, the real time. It hasn’t lead to an improvement of my trading until now. I get lost in the details and forget the overall picture. I’m hypnotized by the movements of the ticks like a mouse facing a cat in spite of all the resistances and supports drawn and the analysis written down. I get lost in the fractal geometry.
Second, the news. Markets are so sensitive to what Reuters pours into the networks that I feel that I can’t escape them. How do you deal with that on the morning when you are about to enter the market?
In a nutshell, am I overflowed with data?
I take note of Stephen A, Clark and Sam’s suggestions: correlation with SP500, resistance as an entry point. It is true that the prevailing feeling is the fear of paying the big price, close to the high of the day and then see the stock going down to the its lows.
Thank you to all to share your experiences. That’s very enlightening.