When you’re right & wrong at the same time

It’s was wednesday at 12:58pm, 2 minutes before the close when I first saw the $RAD chart. A violent breakdown with the market & a low volume drift back up into resistance. Immediately I pulled the trigger short. No fundies, nothing other then price, action & volume on this trade. One of those “know that you know” scenarios. Being able to recognize & act immediately becomes very important years into a trading career. Here’s what I saw 2 min before the close on a 30 min chart (which for me stays linked to the same name on a 6 month daily chart & a 3 year weekly chart for perspective)

I risked .10 on this trade.

Entry 8.6 stop 8.7

Screen Shot 2015-09-18 at 6.28.51 AM

I woke up the next morning to a 8%+ gap down in $RAD and achieved a gain of 10r that day

The problem is my risk really wasn’t ten cents as I planned for it to be. I didn’t check EPS which happened to be that morning. I was along for the earnings ride. A complete failure to manage risk effectively by overlooking EPS as I rushed to put the trade on with a minute before the close.

The lesson to take away is that making money doesn’t mean you acted appropriately or within the scope of your system and equally true, losing money does not mean you did anything wrong!

Here was $RAD at the close the very next day.

Screen Shot 2015-09-18 at 6.29.06 AM

One more interesting note I can add here is that $RAD was the last LONG setup I posted before the market correction. Stay flexible & be willing to change directions with the tide at a moments notice. Here was the potential long I saw in $RAD weeks ago.

CLkwNnLWEAEpedK.png-large

Disclosure: scaled 20% intraday & holding the remainder short for the time being.

$RH update post eps gap

Screen Shot 2014-12-11 at 6.43.05 AM

The RH trade I posted a few days back proved to be a great lesson in sticking to your plan. Unfortunately that plan and my risk mgmt measures mean I sold out prior to the after hours report. Profits are a function of time. This makes it difficult to take a trade just a few days prior to earnings because it gives you less time/lower odds of getting a sufficient cushion or to a scaleable-point which would allow you to participate in the eps move. You can see the R:R this setup provided above.

$RH

Restoration Hardware triggered on strength this morning.

$82.5 is my initial stop

Testing old high near $95 would be +3R

Screen Shot 2014-12-05 at 9.48.00 AM

UPDATE:

rh update

Working well since the buy 3 days ago but i’m choking this off at b/e & will close pre-eps which is after-hours today unless it has an explosive move giving me a cushion.

A free screen of mine

Attached is one of the many finviz screens I run daily. I have found it more effective to run more screens with fewer filters rather than a few more restrictive screens which have a tendency to eliminate some great R:R setups that don’t qualify for just one of the filtering criteria.

http://finviz.com/screener.ashx?v=211&f=cap_microover,fa_epsqoq_high,fa_epsyoy1_high,fa_salesqoq_pos,sh_avgvol_o100,sh_price_o4,ta_sma200_sb50,ta_sma50_pa&ft=4&ta=0

This screen is filtered by the following criteria & reduces the universe of stocks from just under 7,000 to 119.

Mkt cap > 50 million
Price > $4
Q-o-Q eps > 25%
Next years eps >25%
Price > 50 sma
50 sma > 200 sma
Sales growth > 0%
Average daily volume > 100k

Below are 10 names from the 119 that stand out although some of the patterns will require time to properly develop an actionable pivot. They are sorted by next years EPS growth (highest to lowest)

http://finviz.com/screener.ashx?v=211&t=FORM,EVLV,FXCM,INGN,INFN,MRCY,MTRN,NX,RH,EIGI,&o=-epsyoy1

Screen Shot 2014-12-04 at 8.43.33 AM

Excerpts from Trading in the Zone

I make a point of re-reading trading in the zone, or at least my notes from it, pretty frequently. Always a great reminder…

Here are a handful that stood out to me on my latest read.

Trading in the Zone 

by Mark Douglas

“The consistency you seek is in your mind, not in the markets. It’s the attitudes & beliefs about being wrong, losing money, and the tendency to become reckless, when you’re feeling good, that cause most losses, not technique or market knowledge.”

Trading in the Zone -M.D.

“If you perceive market information as painful in some way you will try to avoid that pain by either consciously or subconsciously blocking that information from your awareness. In the process, you systematically cut yourself off from any number of opportunities to enrich yourself.”

“Energy from the outside, in the form of whatever is expressing itself, gets transformed by our nervous system into electrical impulses and then gets stored in our inner, mental environment as a memory or distinction about the nature of the way things exist.”

“Anything that has energy has the potential to act as a force expressing its form, and that is exactly what our memories, distinctions and beliefs do. They act as a force on our senses from the inside, and they have a profoundly limiting effect on the information we perceive in any given moment, making much of the information that is available from the environments perspective, and the possibilities inherent within that information Literally Invisible.

There are many ways in which the external environment can express itself that we don’t perceive simply because we haven’t learned about them yet. (the first time you looked at a price chart did you see all you see know? No, but all the information you now see was there the first time as well but you hadn’t learned to see it.)

The structured energy that’s inside of you now acts as a force on your eyes, causing you to recognize the various distinctions that you’ve learned about. Since the energy wasn’t there the first time, all the opportunities that you now see were there, but at the same time invisible to you.

Most have no concept of the extent to which we are surrounded by invisible opportunities inherent in the information we’re exposed to.”

“People see what they want to see. People see what they’ve learned to see, and everything else is invisible until they learn how to counteract the energy that blocks their awareness of whatever is unlearned and waiting to be discovered.”

Paradox of embracing uncertainty:

Micro level: believe in uncertainty and unpredictability of the outcome of each individual hand.
Macro level: believe that the outcome over a series of hands is relatively certain and predictable.

If the market generates information from neutral stand point where does the threat of pain come from? It comes from the way we define and interpret the available information.

Expectations:

Trading in the Zone -M.D.

When I put on a trade I expect only that something will happen.
All I know is the odds of it moving in my favor are acceptable, at least in relation to how much I am willing to risk to find out if it does.
The losses create no emotional damage because I interpret them not negatively but as the cost of doing business and the amount I must spend to make myself available to winning trades and trends.