"This question comes from David C, an active SpikeTrader - Alex"
I have a question for the group regarding Entries. I have been having difficulty lately making the decision to pull the trigger on certain types of entries. I realized I don't actually have a sound methodology/logic. I am curious as to what others do in these situations: I will give you two examples using Buy Stop Limit Orders:
1) Gap Moves - Stock ends Friday at $29.90 with a high of $30.0. I place a Buy Stop Limit Order at $30.01. I believe the stock is ready to move higher. On Monday it gap opens at $30.50 and continues to move higher. What do you do?
On the one hand the stock is doing exactly as you had hoped, but on the other hand, how long do you wait for a pullback, what criteria do you use, and if it pulls all the way back to $30.01 do you still want it?
2) Failure to hit your Buy Stop - Price never gets to your Stop, it either declines or remains flat. I have seen some Spike members pass on this trade altogether, but sometimes they buy at the lower price. I realize both answers may be correct, by I am confused and would love to have more color on this.
On the one hand, you bought the stock you wanted at a better price, but on the other hand, if you saw this type of price action on Friday (before you placed your order) would you still want this stock? And I know you are probably doing your best with your one and only Spike pick for the week, but would you change any decision for your personal account?
Of course the goal is to make the trade if the probability is still in your favor. I have closely followed the Spike group for a few months now and sometimes they take the trade and sometimes they do not.
What criteria do others use in these instances? Personally, I have had several trades this week that gapped up on Monday and I did not make an entry. So far, they have gone on for much larger gains on Wednesday and Thursday. Last week a large gap down on Monday cost me 10+% on my SpikeTrade pick. I had believed that most of the time the gap is filled sometime during the day, but this was not the case with any of my selections. I had to decide whether to chase and for now I just watched.
Appreciate any responses.
David C
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Hi David,
ReplyDeleteI wonder about exactly this question a lot. Recently I realized it is a custom of some Spikers to choose an entry ABOVE the Friday high on the next Monday. That was counter-intuitive to me, but made a lot of sense when I thought about it, as a confirmation of trend. I suffered from the expectation that Mondays would be gloomy and depressed when I had large LONG positions, and they usually were, but the week often improved. So I got it in my head that Mondays are bargain shopping. Not so. Some weeks they might be, and other weeks, like this last one, the MOTU (Masters of the Universe) have skimmed most of the cream off the top before the market opened its doors, with a big gap up. That's where I get confused what to do, if I was planning to buy. I have been wondering about market order entries on a Monday, since I am not psychic, and maybe a strong gap up means an uptrend for the week. I cannot monitor trades mornings, but if I could, I would look at general market trends, and if they are up, I would try to catch the morning dip in that volatility before 10:45 am, even if the range opened above where I planned. I seem to pitch too low in planned SpikeTrade entries lately. FSLR might have been an easy 14% last week if I had used a market order entry, instead of imagining the 3-day weekend would lead to a depressed open. I would be especially fearful of using a market order on some low volume stocks, however. I hope to read other's comments on how to manage the 'gap-up before entires' situation.
Kim B,
ReplyDeleteThanks for your comments. I have read a lot of investments books including "entries and exits", and I really don't believe I have read anybody really talking about this. Two examples of where I would love to hear the Spiker's thoughts:
1) Sergey had a buy limit order on FUQI for his Spike pick last week. It gapped up on Monday and closed something like 9% higher on that one day. He was not in. Some how, he managed to buy it on Thursday where it did absolutely nothing while the market rallied in the afternoon. Then as the market stalled on Friday, FUQI exploded on Friday. That may be genius or luck or a little of both. But certainly something I did not see and that perplexes me.
2) Jeff P, another Spiker who I follow closely picked AEE using a buy stop order. The price never hit his order having declined a bit, but he still bought it and then after hours it announced a new stock offering - killing the trade.
Both of these guys are superb traders. They know what they are doing. I just don't know why. I frankly don't struggle with making picks long or short or managing a trade. I am struggling with entries when the price gap's up or is sluggish.
It's very interesting question for me too. I use Dr. Elder approach regarding gaps. There are several categories of gaps. So if stock opens with gap I try to understand what type of gap it is. Technicaly I don't see way for automatic enter after the gap because gap eats a lot of profit. I have another question connected to this post. I saw many times (in this post too) that Friday's high or close is very important. Could anybody please explain me why it's?
ReplyDeleteThanks :)
This is David C again..
ReplyDeleteMy original question of Entries with my example of Gaps, is also relevant to limit orders. There were 4 Spikers this week who used Buy Limit orders that never got in their trade, either scratched or limit never hit all week. If you review these trades 3/4 continued to move up most of the week with only GE really gapping up and then doing nothing. So there was money to be made in 3/4 trades. There is nothing wrong with not making the trades, but what criteria do the spikers use, I am curious? Also there were other spikers who had limit orders that eventually moved theirs up to get in the trade. Principal among these was Sergey who bought FUQI after it already gapped up on Tuesday, somehow bought it on a temporarily dip and had a nice trade. What was his criteria on this? Why did he get in his trade and the others did not?
As far as the question of Friday's high goes, here are my thoughts:
As spikers we review stocks for the upcoming week based off of the price action the prior week. If you are going long, you are betting the price will increase. What better way then picking a stock that is already moving up. One that preferably closed close to the high on Friday. By placing your Buy Stop above those highs you make the stock prove its worth. If it makes a higher high, your chances of success are likely higher.
I always used to use Limit orders because being a consumer I wanted to buy something at a better price (get a sale). I know there are sound reasons for using such an order type (perhaps at support levels) and many spikers use them. But I admit I am not good enough as a trader to distinguish what is a bargain and what is a lemon. So, until I figure that out, I will make the stock prove its worth by moving higher. I read somewhere in one of the many, many books I have devoured in the last couple years that "it is not the price you pay for a stock that determines your success, but when you buy it". Think about that.
As a beginner, I’m still struggling with this issue. So, I won’t be able to answer your question. I just note that the shorter my term, the more critical the entry price.
ReplyDeleteI think that there are almost as many spikers as ways of calculating that data. They use different moving averages, different time frames and as a consequence, see different resistances and supports for the calculation. Some reading showed me that a common way is to evaluate pivot points. In the bottom line, this price is something subjective.
Therefore, I gave up hope to be so accurate when calculating my entry point. I rather rely on my future ability to assess when I can switch from a value approach to a momentum approach. Two things reassure myself and relieve some stress when the stock doesn’t behave as expected: having a stock with good fundamentals and decreasing the quantity of shares.
In addition to that, I read several stories from full time traders and one common point is that they have their favorite stocks that they trade for a while. Maybe, they can evaluate the entries with a better accuracy.
In relation to the previous point, I think of accelerating my understanding of the stock’s behavior by writing several statistical charts about the gaps made by that stock. Over a certain amount of time, I would like to see the daily trend and the average of the % of open prices above their previous close and going back to that close before 10h30. This is just an example. This could be a way to explore but you need to have a significant set of historical intraday data and time to code these charts.
I didn’t address one important point: my speed of reaction, rather slow in these high protein markets. It will never be intraday. So whether I have to evaluate again a stock, it will be when the markets are closed.
I work this problem over a lot. Here are a few ideas:
ReplyDelete1) I prefer to buy on moves following narrow-range days. So if price has a long-range day, I'm not interested until the action starts to form narrow range days.
2) If I'm interested in a trend-type trade--Holy Grail, bouncing off rising 20 EMAs, etc.--I buy $.05 above yesterday's high (again, narrow range day).
3) Bottom and top reversals are the same--$.05 beyond high or low of yesterday.
4) If I'm trading reversion-to-the mean type trades, I buy on the close if lower than the day before.
5) Don't trade on Monday's opening and don't chase gaps.
6) Don't buy on market openings--wait until mid-morning, or market closes or with limit orders.
7) Buy on quiet days and quiet markets--avoid the emotional froth if possible. Sell on long-range, high emotional days.
Those are a few rules I try to follow. Remember, there's always another trade coming, so I try to avoid risky entries.
Thanks Grant,
ReplyDeleteYour rules/observations are just what I was looking for. Some of these I have learned from following/analyzing your picks over the last several months, but many are new for me.
David C