Hiatus

It's been over a week since I've posted anything and in that time the market has continued to lurch about in a volatile fashion. The index is near the top of the range that it's been in since falling through support in early August.

I've been spending most of the last week or two working on my trading. I started by going through the best and worst trades of the last 6 months and it was pretty clear that reversals weren't working for me because I was generally getting in 2 or 3 days early. That can be quite significant since the reversals on the chart above show that a couple of days early is usually pretty costly. Standard 1-2-3 entries, even if a little pre-emptive, were working well for me.

I've been trying to refine when I take the 1-2-3 entries; examples based on the chart above might be the buy signal in late June or the sell signal in early August.  I've also been trying to codify when I should take continuation signals and I'm still trying to work out when to take reversals. Along with all this, I'm keen to resolve the issue of stops. So far, stops can be larger in time and price at the beginning with a 1-2-3 signal but need to tighten up once the position is performing. Stops need to be particularly tight with continuation patterns. Anyway, I'll post more about all this when I've come to some firmer conclusions.

The index has rebounded 100 points this morning and I have one position on, a long in Fairfax. I bought this on a 1-2-3 signal. I'm playing with the idea of needing a bullish bar to break above what I think is the swing low but I don't need an actual breakout. In this case, I bought just before the close at 95 and because it's already quite extended I only bought 20,000 shares to risk roughly 2k. The stop is at 86 and there's sometimes slippage. I'm thinking of moving the stop to trail just below yesterday's low given that the price has pushed through last Friday's swing high. My logic is that if the stock was just going to chop preparatory to a break out then I'd need to be patient and assume that Wednesday's low would hold but if it's trending then it will have a reaction once momentum stalls and I'd be wise to exit quickly.

In terms of the risk/reward, two thousand dollars might seem a lot to risk given that the chart above would suggest a move to 110 as a good outcome. That's a profit of 3k versus a risk of 2k which is not outstanding. However, the thing to remember is that this is quite a robust pattern and the hard stop is not going to be triggered too often. For example, if the stock gets up to 100 today, I'll move the stop to breakeven.

I've also found that I've been too quick to take partial profits and not quick enough to completely exit positions. For example, if I'd been long in early October at 83 (almost a 1-2-3, more strictly a reversal pattern after a first wave and minor second wave pullback) then a trailing stop would have seen me exit at 93 or an alternative approach of using the first serious setback would have seen a stop on the close of the previous bar which saw a failure after an early high. In that trade the position size could have been around 40,000 shares since the stop would have been tighter with the swing low at 79.