The Debriefing On the Latest AAPL Trade
Stop got tagged today at 89.50 for a wash:
Time for the usual review, but the questions have been answered before:
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Looking back, am I comfortable with the setup and trade entry?
Absolutely! The median duration of my swing trades is 4-5 days. This one broke my entry point (89.50) and went substantially profitable almost immediately, eventually reaching almost $4 in the money within 3 days before failing.
So, given the opportunity to go back 10 days, I would definitely take the same trade again.
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What prevented you from capturing some of that quick move in the direction of your trade. Put another way, how did the price make it all the way back to your entry point without your taking a profit?
That, my friends, gets back to my old saw about stops.
Over the years, I’ve come to think of successfully managing stops as the most crucial part of trading- and the most elusive.
…
Few positions are losers from the instant we enter until we exit– most are in the money at some point. The gains or losses we eventually take on them are due to our exit strategy.
To make matters worse, we usually don’t modify our exit techniques at all after a loss due to bad stop management (or none). We play the game of “woulda, coulda, shoulda,” bemoaning how this one “got away,” and set about looking for the next entry “opportunity.”
(From my July post The Importance of Stops).
I had used my old bread and butter trailing stop method which dropped the stop to 89.50 on the nice “lower low” two days ago, and was content to let it do the work. Maybe not just content. Maybe a little neglectful.
What did I overlook? It’s been said variously on this blog and many others that, when managing your stops, you must always consider areas of signifcant support and resistance. Don’t sell down into the 200, don’t buy up into it. Sell half when the position reaches “1R”. On a daytrade watch for resistance if it claws its way to 1) the O.R. high/lo, if that was a significant trip, 2) the 138% Fib extension, 3) the current or previous day’s hi/lo. On and on. These are times when your position (or at least part of it) is stopped by how far it has extended, not how far it has retraced.
Here’s what I neglected- a very significant support level:
Two days ago, that thrust downward put the price 1) below the support of the “-2″ and “-3″ day lows near 87.00 and 2) just above the longer-term support around 86-86.40.
That should have been an eagerly-anticipated range on the part of moi, and was the prime point to either close the position and wait to re-enter on a further break, or close half the position to lock in some of the rapid profits it had accumulated.
I did neither.
So thank you, Mr. Dow and Mr. Jones for the gift of another Apple short, and I promise to be more diligent next time.
P.S. Doesn’t the way today finished look a little weak? Perhaps another pullback and short setup? Kinda sorta maybe? Short the break of today’s low? Short the break of 86? Short the sun rising tomorrow?
HA! I LOVE THIS STUFF!
Lloyd said,
December 15, 2006 @ 8:15 am
Will, I posted something you mentioned weeks ago about reviewing what was going wrong in your day trades and how you planned to review it on different timeframes to see if you missed something. Well my last basket of trades have not being doing well and I decided to review my setups and viola! My 5 & 30 looked like crap and my 15 looked shady at best. Thanks for giving me the idea. But I didn’t take it up until Boots from XOOEE pulled up the 5, but I started staring at the 30. Upon review my setups were poor and validated the shadiness of the 15 min charts. I plan on having a separate window that has all three charts up before I pull the trigger. You are one smart cookie.
Hope all is well!
Will said,
December 15, 2006 @ 10:12 pm
Lloyd- thanks, but as I’m prone to saying, if I were so smart, I’d be rich. I’m more like a crazy man running randomly through an empty field in search of land mines, and I seem to do a pretty good job of finding quite a few! If checking on the shorter/longer timeframes as you trade is having a positive impact, hell, I’m just glad I could help.