Who Wears Short Shorts? AAPL Wears Short Shorts!
Anybody else old enough to remember the “We Wear Short Shorts” commercials?
I’ve said before that the market likes to make its moves with as few people on board as possible. The way that extrapolates to our trading: remember the times where we see a setup, take a trade, then get whipsawed, stopped, spanked, and stopped some more until we finally throw the computer out the window and ignore it all for a while, only to come back and see we missed the big move by the skin of our teeth.
What to do? Well somewhere between giving up and not trading at all and going on TILT and overtrading there lies the path of backing up, taking a deep breath (or seven), then walking right back in and doing what you know. Keep on keepin’ on, as we say down here.
Soon, Mr. Jobs. Soon. (from last night’s post)
And me, I know Apple has been setting up over 89.50 for some time now. Gave Mr. Dow and Mr. Jones my notice last night that I weren’t skeered, and today they called my bluff:
Would have been a beautiful daytrade, but I was at the Cancer Center sniffing chemo fumes. But my assistant, Ms. Stop Limit, was ever watchful and got me short for the swing trade entry I’ve been anticipating.
Here’s a look at it on a daily chart:
It would take a massive rally to undo this break. Not impossible by any means, but improbable, which is what traders and p*ker players are looking for. Not certainty, not clairvoyance. Technical Analysis is about gauging probabilities, not predicting the future, and the misunderstanding of the difference is what gets TA its negative hocus-pocus image and “cult of the naive” following.
Also a little more on Q (that devious fellow). I’ve written many times before about the significance of high-volume bars, and have noted that since such a bar formed on the Qs on 11/8/06, the increasing price on diminishing volume has looked very much like topping action. Tonight I want to point out the significance of the 43.26 area I mentioned last night:
Not only would a break through the 43.20s be a failure of the recent range low, it would represent a longer-term thrust- and- failure above that 11/8 high-volume bar. Coincident levels of support and resistance. Keep an eye on the 43.20s!
Of course I can’t neglect dollars and gold. Look at a current chart of the dollar vs. euro and see if you don’t spot a nice little flag in that upper right corner:
If/When that little pullback breaks to the upside (i.e. dollar continues to weaken), the price of gold will increase, and I’ll have another swing trade entry. Here’s the GLD chart with that setup:
We could use today’s Dragonfly Doji to enter a trade, but with that resistance just above at 63.13, might as well wait for a break of that as a stronger entry and use the bottom of today’s bar as a stop. Of course, if the dollar and gold continue their pullback, the entry and stop points will change based on the chart.
Time for sleep. Nite.
Ned said,
December 8, 2006 @ 5:51 am
Nice work on the aapl short. congrats. BE skeered Mr. Jobs, be very skeered.
Fan said,
December 8, 2006 @ 6:30 am
ohhh and how about GS as another fearless short? What do you think?
Will said,
December 8, 2006 @ 7:16 am
Ned- thanks! Here’s hoping for some follow-through!
Fan- thank you for the heads-up; that action on GS looks like a fantastic shorting opportunity. Bearish engulfing candle at the top of an uptrend, which also fails back thru the top from a couple of weeks ago for what looks like an “Eve & Adam” top. My screens don’t catch over=$100 stocks, and I only manually follow a couple (SHLD and GOOG), but this $200 puppy is absolutely beautiful! I’m already plotting- top was 206.70, bottom of that bar is 200.00… (hmmm, big round price level, that makes THREE levels of support/resistance). If I can get to it before I leave for work (in 15 minutes, and still gotta shower), I’m gonna put in a Stop Limit order to short 3 or 4 shares on a break! Thanks again!
Fan said,
December 9, 2006 @ 8:03 am
will if you lost a penny on the GS trade I am going to feel like sh*t.
your blog is so funny and educational.
Livermore said to be careful when the stocks break through the big numbers and GS reports next week and everyone is expecting awesom earnings. May run up a lot on the expectation. who knows?
I was a dope to mention it but the candlestick looked purty great.
BEst.
Will said,
December 9, 2006 @ 9:29 am
Fan- no swing trade taken, since that $200 level held (to the penny!); still a great spot, still on the radar, and I’m always thankful for ideas from others! I’m posting a chart and writing a little more about it later on today’s post (Saturday 12/9)
Fan said,
December 9, 2006 @ 11:44 am
Thank goodness! Here are two more I am paper trading.
Long WLV
and Short RL.
Tis the season to eat the rich. Guess that’s why I am anxious to short GS and RL. Blue blood in the water. Or am I dreaming.
Best to you Will.
Fan said,
December 10, 2006 @ 7:57 am
another chart with a bullish harami is FDP. FWIW.
cheers
Lloyd said,
December 10, 2006 @ 11:03 am
Will,
Have you ever calculated your risk of ruin in conjuction with a per share risk tolerance or position size? I’m trying to figure it out and I can’t think statistically how to do it. I just visited the traderscalm website and I think that it can lead to less fear and more confidence, but I’m not smart enough to figure it out.
LP
Will said,
December 10, 2006 @ 9:46 pm
Lloyd- I’ve just visited that site, and spent quite a bit of time clicking around, and left pretty frustrated. Something smells funny… the way it’s written, I keep waiting to click onto the page where they finally show me what they’re SELLING. Blah blah blah, click here,then there, then read down some more and click somewhere else. Vague information, some useful (and true) axioms, a testimonial (notice by the writing style that the guy’s not American… British maybe?). I never found the “send money for the REAL information” page; perhaps it’s embedded in the “coaching” we’re supposed to solicit vial email. I dunno. I’m NOT comfortable with “we didn’t understand options, so we started out with futures” and “I finally got rich doing diagonal option spreads”. I just feel my wallet shriveling reading that. Or maybe it’s just my butt pinching up.
Regardless, it has nothing to do with your smarts. You’re very intelligent; it shows in your writing. I think what I hear you looking for is a mathematical way to determine your most *efficient* position size- as you know, too small and your profits never get traction, too large and your risk of vaporization from a few unfortunate trades is very high.
I’d instead refer you to some other reading (you may have already done): First, explore the Kelly Formula. Not from any of the stock-related sites that purport to tell you their version of what the Kelly Formula is and how it applies to trading, but from the above biographical link to William Poundstone’s site, and with a pencil and some blank paper in hand. After a bit of scribbling, head scratching and cursing, you’ll end up with a practical equation that you’ve dissected and are comfortable applying to your trading. And you’ll notice some errors and misunderstanding in many of the stock sites’ versions.
Second, read Trader Mike’s post on Expectancy (can’t link to it right now, his site’s down and he has it set so Google doesn’t cache it… another post on it is here at Ezine Articles). Have the same pencil and some more scratch paper handy. Deconstruct it, rearrange it, scribble and curse until it morphs into the version you’re comfortable with.
Next, you can build a down-and-dirty spreadsheet to fool around with these calculations and variations on them. Not necessary, but I know I did and I bet you can’t resist, either
You’ll quickly see the similarity between those two (and the “risk of ruin” info as well), and personally I think they’re the best leads on a mathematical way to quantify your expected gains, losses and drawdowns.
Now the bad news. As an experienced trader, you’ll immediately notice that every such formula has a land mine in it: some variation on “how often you expect to be right and how much you expect to win when you are.” Holy Mother of Bob, how closely can you estimate those? I’m here to tell you, the moment you put your guesstimates to those variables, the entire calculation changes to “here’s your answer, plus or minus 50%.”
I’m more simplistic about it- I try to size large enough where comissions aren’t a significant factor (easy now that it’s not $30 each way), and I size small enough that a day with 4 losses in a row doesn’t make me turn into Job, shaving my head and beating my chest and such. I find that when I set those parameters, I come up with a pretty narrow range of where I’m comfortable. Second, if my account drops a certain amount (right now that amount is $3000), I have to *stop trading* until I add that money back the old-fashioned way… a dollar at a time by working overtime, etc. Very painful, and those dollars get so much more precious when you gotta put ‘em back in blood, sweat and tears. It keeps me firmly connected to the account balance that can all to easily begin to feel like Monopoly Money when I’m trading. That’s just what I’ve come up with to keep myself in line. YMMV.
I’m certain that in particular situations these kinds of equations are very helpful. Unfortunately, those are like the question of “C Corp, S Corp, or LLC?” — Fun to think about, but not relevant until you’re making so much money you giggle at the dilemma. The example on “traderscalm” about the guy who was making 7 digits and over 100% per annum return and “wanted to reduce his drawdowns so he could sleep at night,” for instance.
Did that help? Sorry if not. I’ve been chauffeuring little girls from appointment to event to whatever… to the tune of about 300 miles driven LOCALLY yesterday and today, and am at risk of severe rambling…