A Scottish Trading Philosophy

[ScottishTrader]

Thanks Melf,

Great comments as always.  Oh those little demons, they continue to plague me 

[ScottishTrader]

Well I am late to updating my trading log here, but it is an important part of my new trading startegy, and is useful to take the time to have a look back on the week and see what went right, what went wrong and why.

Well, this week didn't really go that well, I think I am working my way through breaking every rule that I've made - maybe i need to do that to learn each one the hard way, I don't know.  After not being able to trade on Monday (the ol' pattern day trading rule), on Tuesday I jumped into a whole slew of stocks.  Most of them were half positions, but I felt like there was so much going on that I didn't want to miss out (why do I always break this one???).  Picked up some HSOA, AVNX, SIGA, CHINA, INSM, MOVI and CHDT - all pretty speculatively.  Basically I realised the wonders of margin, and if stocks look good you can just keep on buying them, it doesn't matter if you are out of money(another rule broken!! and a surefire way to lose even more money I'm not careful!).

HSOA was trading up in the pre-market before earnings were released, it had just made a symmetrical triangle pattern breakout and I was expecting things to be good, but when earnings came out the stock got killed.  And me, being the fool that I am decided to average down as I only had a small position (brekaing yet another rule).  Of course, to spite me, HSOA went lower.  In the end I closed the entire position that day for about an 11% loss.  Really not very pretty.  And another broken rule: if you are not sure about an earnings play, then don't play it!!!

Stops have been giving me trouble as well - several times already since I have been using them I have been stopped out literally at the low of a particular move.  Often this has happened because I have raised my original stop because I feel nervous about the level of risk that I am taking in a trade.  Lesson:  if you are not happy with the level of risk that your entry would give you, DON'T MAKE THE TRADE.  OMNI was acting weak last week, and after an extended discusson with Melf Elf, I decided to be more aggressive in protecting against a loss, and raised my stop from 8.69, below what I saw as clear support, up to 8.80, right in the danger zone.  My buy price was 8.86, so the lower stop level wasn't exposing me to too much risk, but I still felt I should be more aggressive.  Of course, first thing, OMNI dipped, putting in a low of 8.76 and taking my stop out, only to rally all the way up to 9.74 later in the week.  Did much the same thing with MOVI, which gapped up on higher than expected revenues (they delayed releasing their ER though).  I bought the gap up thinking it could run big having been killed so hard after  the last ER, but it spent the rest of the day acting fairly weak but holding above 2.50.  My stop was set at 2.39, just below the high of the day on the pre-gap day, however, because I was nervous about the level of risk I was taking with that (logical) stop, I raised it the next morning to 2.45, which was MOVIs low of the day, took out my stop and has rallied to a high of 2.89 in the days since.  Dare I say it, but this also happened with AVNX as well this week - this time I raised my stop from 1.89 to 1.95, my buy price on Friday as AVNX had had a precipitous drop the day before and "I didn't want to let a profit turn into a loss".  On Friday AVNX tagged 1.94, broke my stop which was executed at 1.94, then reversed and rallied above 2 to finish the day.  Now it looks like a successful re-test of support, just without me in it.  However, having said all that, my stop did work with DNDN, which was doing so well until they announced the sale of a bunch of stock, completely out of the blue.  My stop saved a bit there (although it could have been higher), and most importantly took my decision as to whether or not to sell out of my hands.  I like that, as I have a tendency to hang on hoping that it will rebound.

So there are definitely things to learn from here, mainly that while it is alright to adjust a trading plan as the trade evolves, doing so for reasons that your emotions are telling you but that are outside of what the chart is telling you is only going to get yourself in trouble.  Also that stops are there for a reason - they are your get-out mechanism when your trading plan breaks down.  Therefore they should be significantly below percieved support (several ticks, even if this exposes you to more risk).

Overall my new portfolio is somewhat down this week.  I have an overall loss of 4.77% including open trades.  However, my real concern is that on closed trades only I am down 8.5%, so right now my real problem is closing trades while they are successful and minimising the losers by not making trades that assume higher risk of ending up in a losing situation.  I need to be much less impulsive, and really stick to making trades that I have planned in advance and that I am very confident in. This is what I'm going to work on this week.  Potential buys that I am looking at are SNE, AAPL, both for plays until January.  Some others that I quite liked the look of are PRFT, MRVL and NFLD.  Will see how things go.

Current holdings:
CNXT  900 @ 2.03  +6.85%
NVAX  500 @ 4.75  +11.4%
CHINA 300 @ 7.34  +2.6%
INSM 1500 @ 1.45  -1.6%
AMKR  250 @ 9.29  +4%

Starting value: $12,325.55
Net value at 17/11: $11,737.90
P/L: -$588.15  %P/L: -4.77%
P/L on closed trades: -$1047.36  %P/L: -8.5%

Good trading all
ST

[ScottishTrader]

Just wanted to update my trading log with links to some of the stocks I have going on at the moment.  Things this week are going very well - I'm up on pretty much everything I'm in on and my portfolio is up over 11% since Friday.  My only concern right now is I have been buying stocks left right and centre and am now margined up to the hilt (which I originally said I wouldn't do, but the temptaion is too much sometimes).  Smaller positions in all of them, but still, I need to scale back on this before it turns around and bites me.

One thing that seems to be working well for me is taking partial profits, either when I remeber, when a stock gaps up, or when I am nervous about protecting a profit.  Takign at least some profit off the table really frees me up from the nerves of hanging on to the rest of it (and I get pretty nervy), stopping me from doing silly things like raising stops or impulse selling, and leaves me happier to let the rest run.  At least I know I have that much in the bag, and if I can raise my stop for the remainder to above my brekaeven point, I'll be up on the trade.  I could never do that before, as it cost too much to make each trade, but now I am becoming more comfortable with more little trades to get myself in and out of positions.

Anyway, I have been posting like a demon all over the place, so I thought I would leave some links to the trades I'm in on right now.  I'll do my best to update them regularly with my actions.

AAPL: http://www.3stocksonfire.org/trading/index.php?topic=7545.msg78253#msg78253

AMKR: http://www.3stocksonfire.org/trading/index.php?topic=4527.msg78032#msg78032

CNXT:  http://www.3stocksonfire.org/trading/index.php?topic=1207.msg78029#msg78029

CRDC: http://www.3stocksonfire.org/trading/index.php?topic=7418.msg78026#msg78026

CHINA: http://www.3stocksonfire.org/trading/index.php?topic=7458.msg78003#msg78003

ERS:  http://www.3stocksonfire.org/trading/index.php?topic=1482.msg77797#msg77797

INSM:  http://www.3stocksonfire.org/trading/index.php?topic=6858.msg78018#msg78018

NFLD:  http://www.3stocksonfire.org/trading/index.php?topic=7386.msg78023#msg78023

NWACQ:  http://www.3stocksonfire.org/trading/index.php?topic=6915.msg78012#msg78012

SPWR:  http://www.3stocksonfire.org/trading/index.php?topic=7420.msg78002#msg78002

SUF:  http://www.3stocksonfire.org/trading/index.php?topic=2852.msg77802#msg77802

Wow    That's a lot of stocks!! (for me anyway)

[AussieTrader]

Hey Scots, Let me play devils advocate here.

You seem to have thrown away your revised and well worded trading plan You are up 11% thats great for now. A quick question for you though, money management wise, if all your open positions were to hit your protective stops (possibly unlikely but risk is there) what would that do to you portfolio? And is that risk level something you are comfortable with.

Good Trading

[Samantha Stephens]

AND I HAVE TO APOLOGIZE!!!! When you said you had no more money to invest ... I didn't realize you were a recovering tradaholic....read you're trading plan.

DO NOT FOLLOW ME INTO ANOTHER GOOFY TRADING IDEA!!!!! I will slit my wrists if I am your downfall.

I do wish I had a little of that so I could just "pull the trigger" ...

You're brilliant ... I can't wait to see your portfolio double, so I don't have to worry about losing you as a resource ... no pressure!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

I applaud you for posting, your plan and your account tallies. You're honest ... that's rare.

It's awesome ... you're awesone.
Love you man!
-Sam

[ScottishTrader]

Aussie,

Thanks for paying devil's advocate here, and you are right (in fact I know it full well) I am playing  a somewhat dangerous game right now, and it is most certainly not what you (or David) would call "risk averse money management".  It is also not playing by my rules either.

However, I do have a game plan for each and every one of the stocks that I own right now, and that game plan includes a reasonable limit of risk per trade.  In all of my trades I am risking less than 6% of equity, however, the leveraged nature of my current trading leaves me open to substantially more risk, and it is appropriate to look at this in detail.  When I look at the total risk on my present portfolio vallue, as of yesterdays close, if all of my stops were hit, I am risking 11.3% of my total current portfolio value.  If this were to happen, my portfolio would be down approximately 6% from its opening value.  I am working very hard to get myself to a position where my total risk would still leave my portfolio net positive from its initial value. 

To this effect I am looking to take partial profits on my positions when possible, to limit the risk per trade.  I am also looking to raise my stops when appropriate, although I have had some difficulty with this, being too aggressive with my stops and getting triggered within normal range trading (Quite a few times, my stop has ben triggered right at the LOD, so I have to be careful with this).  Anyway, thanks for bringing this up, and making me think more seriously about the risks I am taking here.  It really needs to be done, and I will keep ongoing track of this, as it is very important.  But the market is very strong right now and  I am looking to grow my portfolio quickly, I'm young, somewhat risk tolerant (maybe a bit foolish too), and want to prove to myself that I can be a successful trader.  Most of these are short term trades and I will be looking to scale down my overall positions - and risk - as and when I can.

[ScottishTrader]

Well this week was a very good week for me, trading wise, my portfolio is up 14% from last weeks close, and I am now up over 8% on my original value when I started this new portfolio.  As I mentioned in a previous post, a lot of this has to do with heavy leveraging of my account using margin, which has worked well for me so far as almost every single one of my holdings is up, some substantially.  However, I am also aware that this can be very dangerous if I do not apply very rigorous trading rules to each and every one of these trades, to minimise any compounded losses that may arise from margin trading.  As AussieTrader mentioned, it is important to really keep an eye on your total exposed risk, and make sure if things turn bad that you aren't burnt too badly.  Currently I have a total exposed risk of 13.8% on my open trades from yesterdays closing value. (this is up from what I posted previously as I have seen further gains since then).  This is large, but I can only reduce this by raising my stops and/or closing positions.  Currently, if all my stops got hit, I would be down 6.7% on my initial equity. As I stated previously, I want to bring this up to a position where worst case I will be breakeven on my initial portfolio value, and this may be a useful rule for me to determine how much leverage I will let myself use in my portfolio.  I'll be having a closer look at stops on my open positions over the weekend, to see if I can safely reduce this risk level.  I am also considering implementing a trailing stoploss on positions in which I have a substantial gain, to protect these gains, but right now I would rather use identifiable support levels as stops (although, as I have mentioned, I have had mixed results with them so far) as volatile stocks can easily swing more than 8% or so, even during a sustained uptrend.

Last week I was primarily concerned with the fact that I was down heavily on my closed trades, despite some strong performance on my open positions.  So this week I made sure that I started locking in gains where I needed to, and I have also been paying close attention to any signs of bearishness in my open positions.  If I think a stock is looking bearish, even on intraday charts, it seems better to me to close my position, protecting any profits I have gained and keep an eye on it for re-entry, if it looks like it was just a short term blip.  As david mentioned in the AMKR thread, trading this way, I may be unlikely to see any really big gains on stocks unless it is in full-on crazy bull mode, as all stocks will have pullbacks in any uptrend, it is just the way things go.  AMKR was a case in point, in which I had a pretty nice entry, at 9.29, and it was looking very strong, building nested ascending triangles on the intraday charts.  I got nervy when it broke down out of one of them (light blue ascending trendline) that I was following on a 5min chart, and raised my stop to 9.65 to protect my position, as other indicators were suggesting to me that AMKR could be due for a correction.  I got stopped out, basically at the LOD (again!!) and it reversed on what turned out to be a perfect tag of the much more significant ascending trendline (dark blue).  I didn't even see this because I was only looking at the 5min chart at the time!!  Anyway, I rectified the situation the next day, buying AMKR back at 8.89, when it made another successful re-test of that trendline, and I'm glad I did too, as wee had a major breakout above 9.92 resistance yesterday, and AMKR looks to be on fire after this little bullish consolidation in the 9s.  I was too aggressive, and short term in my perspective on the stock, but I also realised immediately afterwards that I was wrong, and acted on this, so I fortunately only lost out on 25c or 3% from my original position.  On the other side of this coin, careful analysis and an appropriate sell after a bearish intraday breakdown got me out of my NVAX position with a nice 12% profit, before it broke down heavily the other day.  So I don't mind a little bit of nerviness, provided it is based on objective analysis as opposed to emotional reacitvity.



Taking partial profits in my winners (as I mentioned previously) has helped a lot and left me feeling more comofrtable about letting them run with a reasonable stop.  I have brought my loss on closed trades down to 3.5%, and I anticipate turning this positive next week. While I have sold some of my position in my biggest gainers so far this feels like a good thing, and in fact I have then gone on to add more (doubling my position in INSM yesterday) from continued indicators of strength.  By the way, I really think INSM is going to make a huge move next week when the trial announcement comes out, and I have positioned myself accordingly.  Having read some of the court transcripts and court submissions, it really seems like they have a very strong case for outright dismissal, and there is no doubt in my mind that the heavy trading this week directly reflects that.  I mean c'mon!! INSM has traded aver 14M shares and it is up 32% for the week, while TRCA has traded less than 500k and is down around 1%.  Which side do you think the market is hedging here???

Finally, a comment on ZVUE - it has been a fickle little beast to me, having made some money on it last week, I traded it twice this week, once short, once long, both for a small loss.  It was only small positions and I kept my stops tight, but it reminded me that sometimes if you haven't traded a stock well, maybe you should just steer clear of it, even if it is absolutley on fire.  That kind of volatility can swing you in and out of positions faster than you know, normally for a loss, and there are a whole lot of other stocks out there, so just because it has crazy volume, is up like 500% in the last week or 2, doesn't mean you HAVE to be in it.  Stick with what you know, what you are comfortable with and what WORKS.

Current Holdings:
CHINA 200 @ 7.34 +21.7%
INSM 2000 @ 1.64 (avg) +15.6%
AAPL 50 @ 87.49 +4.7%
CRDC 300 @ 6.86 -1.97%
ERS 200 @ 10.66 +1.64%
SUF 400 @ 5.17 +2.13%
NWACQ 300 @ 3.30 +20.4%
SPWR 60 @ 38.13 +2%
NFLD 150 @ 15.28 +3.66%
AMKR 200 @ 9.89 +4.4%

Starting value: $12,325.55
Last weeks close: $11,737.90
Net Value at 24/11: $13,392.07

P/L this week: $1654.17 P/L%: 14.1%
Total Portfolio P/L: $1071.53  P/L%: 8.69%
P/L on closed trades: -$423.72  P/L% -3.44%.


Good trading all and I hope you are having a nice weekend!
the Scotsman

[ScottishTrader]

Hello!!!

Well, I haven't been around in a while, (at least posting) as the week after that last post, all of Aussie's warnings came absoultely true, I made a series of very bad decisions and saw a significant portion of my port get wiped out.  Mostly due to overtrading on margin and some bad decisions

Basically I decided that I need to take some time out from trading, I find it too stressful and need to do other things with my life.  So I'm thinking about that right now.  But I will be back in the new year, hopefully to take up the mantle in a more restrained way.  Having read back over my tradig philosophy, I realise that every point I made there is still valid, and I am still breaking every rule.  So back to the drawing board.  Maybe I will run with the 3SOF port for a while, just to get back into calm collected objective trading, I'll see.

Anyway, to any and all reading this, I hope it is a bountiful holidy season and Merry Christmas all!!

As always, good trading,

ST

[AussieTrader]

Oh no, this for sure is an occasion when I am sorry I was right

Enjoy Christmas, away from trading / ticker / temptation etc.

I look forward to you coming back refreshed and positive, your contributions to the 3SoF community have been great and I am sure will be again soon.

Cheers

[JKN]

Merry Christmas Scottish Trader !!!

I can highly recommend the 3SOF trading style for a 'break'.  Day trading literally wore me out and I had to quit.  I still hover over the ticker too much.  I'm also suffering from a case of 'pink hypercovetosis' and some bad decisions that still have me in a hole.  The group therapy sessions for failed traders is standing room only.

PS. Being a Newman, I believe I have Scottish roots.  We supposedly came to America in the early 1700's and settled in Mississippi in the early 1800's.  It's still family tradition to hate the English! 

[Samantha Stephens]

Scottish Trader -
I totally hear you on this... if only because I too have a list of bad trading issues I need to work through. I like to think you're my dark evil twin ... who has just as many bad habits ... but a completely different list of demons to deal with. You trade to much ... I can't pull the trigger... You trade on margin ... I can't buy if I don't have the money. WE ARE YING AND YANG.

Your plan is solid. At least in theory... and on computer screen...it looks brilliant.

Merry Christmas and a Happy New Year to you.
2007 ... may it bring us all a bit of discipline and ... perspective.
hohohohHohohohhooo
-Sam

[Melf Elf]

P.S. Didn't mean to call you "old".  After all we are all as young as we feel!!

Scotsman,

Yes, add insult to injury!  I feel about 98.   

P.P.S.  Can I suggest you have a wee look at FRPT?  I know its already run 3000% but I think it has another 50% move or so in the works.  Big things cookin. 

We're going to try to catch the last 50% of a 3,000% Parabolic Rally? 

I can see that I'm going to have to wrestle you to the ground, to protect you from your Impatient Demon.

I'm not going to bother with wrestling you to the ground, to protect you from your Impatient Demon.  It's apparent now that I'm going to have to roll up my sleeves, and perform an exorcism on all of your demons.

     

I'll be interested to see what this FRPT Demon calls himself, when I yank him outta you.

I'm going to guess that he's called, "The Financial Suicide" Demon.    

If this exorcism doesn't work, I don't know what I'm going to do with you.  I guess I'll have to turn you over to Setravis, and we both know...

It won't be pretty!   

[Ares]

Hi Scottish trader,
After reading this thread, I feel a little relieved to find out I was not the only one who broke my own trading plan.
I like the idea of those doji pivot points.
I'm just wondering if you always use automatic stops.
When Daytrading, I've seen so many times how those stops were triggered by 1 to 100 shares. (This would turn out looking as a false breakdown on a chart - breakdown from a tight bollinger band with small volume - stock tanks(automatic stops triggered) - followed by selling volume capitulation(sellers exhausted - some bulls that panicked and sold to the market maker that was waiting at the bid - for that current time frame).
These Market Makers purposely trigger those stops so that they could buy at a lower price.
Your stop is triggered, next thing you know, the stock flies.
The most recent example is CYTR.
You may want to check out my notes (under "CYTR moving up and out" at the stock picking forum - reply #50) and compare it with your Hourly and minute charts.
Just something to think about.

Ares

[ScottishTrader]

Yeah,  I eased up on using stops because I was so sick and tired of constantly getting stopped out of positions right near intraday lows which pierced my perceived support values, only to see the stock rally back up without me.  I think this is the problem with more easily manipulated small caps that don't have huge $ trading volumes, and stops (if used should be set accordingly.  Of course this means more risk.  I have also been using them to some success to protect intraday gains on partial positions against pattern breakdowns, but because my account isn't large enough to allow me to daytrade (I'm restricted to the pattern daytrade limit) I often can't re-enter the stock.  There are so many recent stocks that I have made solid gains on, that I got out because I saw a pattern breakdown and was concerned about a reversal, which are now much higher.  David is so right when he says buy and hold is the key.  Its all about finding the right stocks to buy and hold though - my recent posiitons in XING, GIGM, SYX, ONXX, AOB and many others would be worth much more if I took a more relaxed approach and let stocks have their down days.  Sometims it feels like a risk, and you think you "could have" bought back lower if you observed that intraday pattern breakdown/sell signal, but how often do you actually do it?  Not nearly as often as you wish you had, thats for sure.

I need to resurrect my trading log, and will look to do so.  I'm still about where I started dollar-wise having made over 200 trades (which is a real shame, and goes to show exactly how hard it is to trade so aggressively).  But am completely at cash right now, so it may be time to do that, and get serious about moving my protfolio to where I want it to be.  I still have a target of $25k by the summer.  David has proved that you can make big gains on a small protfolio in a short amount of time if you play it right, so thats what I have to do.  Take my trades more carefully and play them right.  Time to bring it on.