This week has proven once more one thing that I have written about a while ago – Execution is key! When day trading it is not enough to “predict” a possible direction on the daily chart. A big green candle on the daily chart may look great but if the price action during the day is very volatile, one may not be able to optimally implement a trading strategy to take advantage of these moves.
Similarly, I “foresaw” many moves this week but finally I up ended trading them differently or not trading them at all.
In “LINU squeezes” I wrote about how I missed the “predicted” bounce plays of both LINU and SPI on Tuesday. Additionally, I mentioned that a bounce of CLSN may be due on Wednesday.
For the “bounce play” pattern I prefer a rather quite open of the stock. CLSN did not offer this price action. For the first 10 minutes of the session, CLSN experienced a short morning panic, crashing from $2.85 down to $2.5. There the price action reversed however. After the first green one-minute candle, I many buyers showed up on level 2 and I decided to buy this dip. When I entered my order, CLSN traded at around $2.57. As it turns out I got filled at $2.65. What had happened? Given the level 2 and the liquidity of the stock at that time, I had entered a market order instead of a limit order. This was a huge mistake and put me right in the beginning under pressure since I had bought at the top.
Lesson to be learned: Put in limit orders!
However, after some consolidation in the $2.65 area, CLSN broke out of its range and shot up to $2.75. There, sellers rushed in and I excited for a small gain.
From this point onward, CLSN traded in a range between $2.8 and $2.7 for quite some time. I considered buying again into a breakout out of this range. However, when CLSN fell below the $2.7 support, I considered the chart to be “broken” i.e. the pattern not to have worked out and I stopped watching CLSN.
As it turns out however, CLSN came back, broke out of the range at 9 pm (European time) and went as high as $3.15.
Thus, CLSN did have its bounce, albeit a small one. However, the bounce was a slow one that basically lasted the whole trading day whereas I had expected a strong morning spike in the first two hours of the session.
Another stock that decided to make its move was CCCR. In “Watches for Monday & Update on OLLI” I wrote about CCCR´s character of suddenly coming back after days and sometimes weeks of fading volume. Already two times CCCR´s share price had been in a down trend with a corresponding downtrend in volume. Then, CCCR would suddenly squeeze up on increased volume.
And voilà, CCCR did it again on Wednesday. However, as for CLSN it did so in a way I did not foresee.
CCCR opened the day lower on minuscule volume and only moved little in the first hours of the day. At this point I discarded the chart because as for CLSN I considered the pattern not to work out. However, CCCR grinded its way up throughout the day and later in the trading session more volume came in too.
Once more, the pattern worked out on the daily chart but did not occur as expected. Given the volatility and illiquidity of CCCR I do not regret missing this play though.
One thing that I have observed is the fact that I have the tendency to trade worse once I achieve the mark of 50% winning trades. At this point I tend jump into trades that are not right for me. Whether I get greedy, trying to get over the 50% hurdle or whether I subconsciously manipulate myself – I don´t know. But on Thursday the same thing happened again.
Another thing that I realized once more is that my exits when stopping out of a position usually are great. After my stop losses hit, the stocks usually trade down to levels where I definitely would not have held my shares anymore. What still is to be criticized, and I already wrote about this at length, are my entries.
These two aspects of my trading could also be observed on Thursday. Fueled by my previous day´s winning trade and the strong “bounce pattern”, I focused my attention on Bitcoin Services, Inc. (BTSC). Backed by the recent Bitcoin mania this had gone from 2 cents a few weeks ago to a high of 20 cents. Then however, it had crashed to the 7-8 cent area. Maybe at this point it was just myself wanting to trade but the chart was shouting out to me “Bounce Play!”. Given the fact, that Bitcoin was up on the day a bounce seemed likely.
So far so good. But my entry was terrible. When the market opened, BTSC jumped from around 8.36 cents to 9 cents – I was not in. “You idiot predicted this move and you are not in this trade, buy before it is too late!” – fear of missing out kicked in and when the first retracement took place I “took advantage” of the dip and bought at 8.95 cents – pretty much at the top. Right after my entry, BTSC started its decent and in the following minutes traded in the range between 8.3 cents and 8.9 cents. This actually is a range of 7% (!!!). BTSC tends to be very volatile. If one does not take account of this and enters with a big position size, a “consolidation like this” can easily cause a trigger of one´s stop loss. One thing I had done right before buying BTSC, was observing its volatility and accordingly entering with a very small position size.
Consequently, there I was with my position and was hoping that we would break out of the range – to the right (up) side. For some minutes it looked good and a massive amount of buyers at 8.5 cents or above showed up. When more and more buyers were taken out by the sellers however, the tape was indicating weakness. When the 8.5 level broke, I took my chance and exited at 8.45 cents for a small loss.
After going as low as 6.7 cents, BTSC finally did come back and closed at its highs of 9 cents.
Friday was the most frustrating day of the week since it somehow was a day of missed opportunities. This day emphasized the distinction that I made in the beginning of the post – there is a difference between the correct directional bias and correct trade implementation.
My focus once more was on BTSC. Since it had not experienced a real bounce on Thursday I expected the bounce on Friday based off of the daily chart.
Because of the strong close I expected a morning spike. However, I committed myself to not chase the stock once more but rather to buy after a consolidation phase even if this would have meant that I missed the move.
In fact, in the first minutes of the session BTSC tried to spike but quickly pulled back and consolidated. It then made its way back up and at the 9 cents level quickly spiked to 9.5 cents. At this point I thought a break of the high of the day was likely and bought on a “dip” at 9.2 cents. Event though I bought rather high, just as the day before, my entry at this point was according to plan and can be justified in retrospect. Nevertheless, the entry turned out not to be too well chosen and BTSC sold off subsequently. However, in the ensuring minutes the lows became continuously higher as can be seen from the trend line on the chart below. There was a clear uptrend. During this time I continuously watched level 2 which I think was to my detriment at this point since it displayed a lot of noise. When BTSC tested the level of 9.4 cents for the second time and incredibly many sellers showed up on level 2, I decided to exit my position and sold at 9.4 cents.
This however, was the worst exit possible, not because of what happened subsequently but because of the irrationality of the trade. A few minutes before I had committed myself to only sell if BTSC would trade below the trend line, taking out “key” levels. This did not happen however. Rather I sold at the 9.4 cents level because there I could lock in “some profit” and “at least not lose”. This however is the completely wrong approach to trading. I have to be comfortable loosing a little bit in the pursuit for bigger wins – and given my small position size selling below the trend line in the low 9s would not have resulted in a big loss.
However, I exited and BTSC grinded its way up to as high as 11 cents. During all this time it perfectly held the trend line. When it finally broke the trend, it consolidated for some minutes before crashing from 10.8 cents to 9.6 cents in a matter of minutes.
Due to my small position size, taking into account transaction costs I basically broke even on this trade. However I have to mark it as a loss.
At first sight, not taking advantage of this great opportunity feels very very bad. I literally sold minutes before buyers rushed in and BTSC went to new highs. What makes matters even worse is the fact that my sell decision was led 99% by fear of loosing. Whereas I have pointed out my strong exits in the beginning of this post, this was the worst exit which I ever executed in my opinion.
Despite these negative facts, I once more was on the right track of strong potential. “Only” my execution was lacking precision which makes me confident that in the future (maybe already next week ?) I will be able to better trade these incredible opportunities.
However, I am well aware of the fact that I must not be in this mood, appreciating possibilities while I am still loosing on my trades for too long. This relates to the next missed opportunity of Friday as well, which seems even more stupid.
The shares of the technology company MoSys, Inc. (MOSY) offered the perfect opportunity on Friday. This stock had squeezed from the 80 cents area to almost $2 on Wednesday. After the crash on Thursday one could be rather certain that short sellers would be crowded in this trade.
When the market opened, MOSY offered the perfect setup of a rather quite beginning of the trading session. MOSY held support, put in higher highs and was close to breaking the high of the day. In the $1.35 area the perfect entry presented itself with a risk of the high $1.20s. As it turns out, MOSY quickly spiked to up to $1.7 in a matter of minutes ones the high of the day was broken an short sellers started to cover their positions.
I have to admit that my possible trade idea sounds like the worst hindsight bias possible but I have to refer to my older post “Watches for Monday & Update on OLLI”, where I wrote regarding SPI:
What I would like to see on Monday is a quite open, possibly even a breve morning panic with subsequent recovery and higher lows towards the red to green threshold. I would then enter my position on these higher lows in anticipation of the break from red to green.
Given this perfect setup it feels even worse that this play was not on my watchlist. But as I mentioned previously, these bounce plays seriously seem to work and I will be freshly attacking on Monday!