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• Position: Long from 149.70

• Stop: Raised to 148.50

• Target: 155.20 (seems a bit optimistic at this point)

Not only did SPY generate a buy signal as targeted by my current swing method, it appears that alternate rule I talked about in the previous post (which would have given me an entry over a dollar lower) may be finding its way into my plan soon.

But what I want to talk about tonight is the fact that we got a buy signal from another method as well, a method with the weight of some 800lb gorillas behind it: The Turtle Soup method made famous by Linda Bradford Raschke and Laurence Conners in the 1990s.

Turtle Soup was designed as the contrary trade to the 20-day breakout/ breakdown entries used by the renowned Turtle Traders back in the ’80s. What Turtle Soup did was to trade the failure of a breakout or breakdown.

The way it works is pretty straightforward. Look for a new 20-day closing low on a stock that had its previous 20-day low more than three sessions back. The next day, if price breaks back above the earlier low, get long with a stop below the near-term low.

This turned out to be a very high-percentage trade, and it’s said that some people made their entire living from it. In the ensuing years, the technical sophistication of the market, continuing globalization of markets, and the millions of ways to arbitrage for every cent have caused these breakouts to get “noisy” and often a clean setup is hard to get.

Well, SPYdey gave us one today:

Yesterday’s close was a new 20-day low below the 6/7/07 low of 149.06. Today the price climbed back above that level, triggering a long entry with a stop at the near-term low (today’s, in this case) of 148.06.

The fact that “DSM I ®” generated a buy signal which is nearly identical to that of such a tried- and- true method tells me that this old hound dog is picking up on some of the same scents as champion hunters from the past. That’s goooood.

Gotta run, it’s after midnight, I’m due at work in a few hours, and suddenly I have the urge to scratch some fleas.

First, I want to point out something that may not be so obvious. During the peak of Kris Kristofferson’s Brilliant Lyricist period (about 5 years in the late 60s and early 70s), one of his songs begins,

If you hurt me, you won’t be the first, or the last, in a lifetime of many mistakes. But I won’t spend tomorrow regretting the past, for the chances that I didn’t take.

And the chorus says,

I’d rather be sorry for something I did, than for something that I didn’t do.”

That’s about getting laid, and that’s human nature. Successful stock trading often requires you to act in complete opposition to your nature. The rules are flipped, and it can drive you nuts. In stock trading, you’d rather be sorry for something you DIDN’T do, than for something you DID. Failure to heed this counter-intuitive fact causes us much weeping and gnashing of teeth.

A plan changes that. Here’s a for instance: the plan I’m currently testing in real-time, which I jokingly call “DSM I ®” and is mostly based on a 4-period RSI, has only triggered one trade in the last week, and that trade was stopped for a loss.

Curiously, the loss is not what hurts. It’s having to not trade. To further annoy you with another song quote, as Tom Petty said, “The Waiting is the Hardest Part.”

However, the waiting is not costing me money. It’s saving me money. I’ve seen at least 10 different places in the last few days where, 10 years ago, I would have bought and sold, and would be deep in the hole now. Why all the buying and selling? Anticipating the “Big Move”, and trying to be positioned to catch it. Then, on the next little surge or failure, getting out (at a loss) and positioning in the opposite direction, because it “seems” that’s where the Big Move will go.

Having a plan, and sticking to that plan, inserts some manual discipline over those emotions. Some boundaries. And believe me, we humans need boundaries.

So, the current method I’m testing has lost me what, about a buck-fifty on one stopped trade. However, I guarantee you it’s saved me three or four dollars of losses in, to insert some Southern Grammar here, untook trades.

Enough Already, What’s the DSM Signal Say?

I’m waiting (patiently, agonizingly) for the RSI(4) on the SPYders to drop below 15 for an “oversold” long entry. As of today, that still requires a price drop to around 147.60 or below. Dammit. I wanna be in there. I actually came up with a modification in April (hey, this ain’t no overnight whim) which added a rule to go long on any close which puts the RSI(4) below 20 and where 4 of the previous 5 days closed down. Well, we met that one yesterday, which would have generated a buy somewhere below 148.50.

However, I do not have that rule in place for “DSM I“, and so I’m ignoring it. If price takes off from here for a great 3-day gain, well, I may add it in for “DSM II“. For now, I’m still looking at

• Long somewhere below 147.60 if price drops down there or

• Long above 149.70

Market opens in 30 minutes (”too tired to write” last night). Let’s watch…

Current position: cash.

“DSM I®” targets for tomorrow:

• Long above 150.55 with an initial stop at the day’s low, or

• Long between a break below 147.30 and the close, with an initial stop 1.50 below the entry

That’s it. Low maintenance is what I’m shooting for.

The SPY trade was stopped out in one day at 150.24. Also I discovered another error in the spreadsheet I wrote for this project- it didn’t affect the entry and exit targets significantly, but it’s a good reminder to always be diligent in double-checking when you copy/paste new data into a sheet- particularly with cells containing indirect references (which don’t automatically adjust when the cells shift down and over).

I’m planning on calculating the profit/loss for this project based on different position-sizing strategies: fixed-dollar amount, fixed share number, and the one I personally use, risk-based position size (i.e. “R“).

Also, don’t think I don’t realize that I’m starting this tracking right when the market appears to be rolling over, and that I may spend the first “x” trades getting whipsawed. That’s OK. What I’m working on here is paying less attention to what my gut tells me, and only using my discretion within the limits of the trading plan (vs. saying “to hell with the plan, I’m going all in short!”).

Nothing teaches like real life.

Summary:

• Number of trades so far: 1

• Position: Cash (last trade stopped for a loss)

• Plan: Long above 151.60 or below 146.50, with an initial stop of approx. $2 on either one.

Per yesterday’s targets, “DSM I ®” triggered a buy this morning at 151.76, with an initial stop at today’s low of 150.25:

The Plan:

• Take half the position off at 154.50 (due to resistance at the previous high) and move the stop to breakeven.

• Take the rest off if we get to 157.00 without being stopped out. (Yeah, I know. Fat chance.)

• Otherwise, sit tight and respect the stops. Aka The Hardest Part.

(Remember this is a swing trading system I’m trying out, daytrades can of course go either way.)

The divergence between price and RSI(14) which I pointed out two days ago appears to be resolving. Price has been making weaker and weaker highs. When that happens, somethin’s gotta give, usually in the form of price falling, occasionally in the form of a huge burst upward on high volume. We may be going for the more traditional resolution:

I also said I was on the “cusp” of going fully to cash (wherever the hell I came up with that word), and as price opened up, dropped, retraced to yesterday’s close, then failed again, my long positions went bye-bye as the SPYders came back through 153:

I did not flip to short. I’m currently trying out the Dummyspots Swing Method® which I’ve developed over the past few months.

The DSM (Dummyspots Swing Method) ®

This idea started evolving when I tested the TradingMarkets R2 Method using Ameritrade StrategyDesk back in early March. (BTW, Bill is using the actual R2 Method over at his site right now- check it out and follow along.

I doodled with this and changed that, trying as best I could to avoid the common pitfall of modifying a method ad infinitum to make it backtest perfectly - a pitfall which also guarantees that it’s likely to work about 0% of the time in the future… too many conditions.

Anyway, I ended up with something I think has promise, so I’ve been watching it for a few weeks, and am gonna try it for real now. As I said, it started with testing the TradingMarkets R2 Method, and I’ve settled on using a 4-period RSI for my method.

(Shhh, that’s a big secret. I’m thinking of laying claim to the “secret” “magic” number 4. Did you know 4 is the square root of 16 which is the 0.786 Fibonacci retracement of 20.3562 which in turn is the 0.618 Fib of 32.94, which not so coincidentally will be my middle daughter’s age in the Spring of 2027!)

I do have lots of rules for stops and “stop- and- reverses”, which I felt the original R2 method didn’t address adequately, resulting in too much exposure upon initial entry, and missing moves which would have been caught by a decent re-entry procedure. I also pay attention to important things like support and resistance areas on the chart of daily bars, and to a lesser extent, volume trends during these moves.

So, what are the numbers I’m watching? (Oh, I should mention this is all based solely on the S&P 500 via the SPYders). Here goes:

• In cash for now (even though I wanna be short)

• Long if price reverses above 151.75 (and probably growing an ulcer from it). If this long is triggered, the initial stop will be the lower of the current day’s low (that’ll be tomorrow, 6/21) or the previous day’s low (that’s today, at 150.96)

• Long if price falls all the way to 146.90 or below, at which point I will look to enter at the most advantageous point I can spot between there and the close. Any nice intraday hammer, volume spike, hesitation or reversal will do. The initial stop for this entry would be 145.50, or about a buck fifty below the trigger point, which I consider to be a nice “loosey goosey” swing-trade sorta stop. How’s that for scientific?

• Otherwise, I’ll be staying in cash. No shorty. And you all know how much I’ll miss that, because I just love to get small short.

Been out of touch lately, here’s a quick catch-up.

The Vacation

It rocked. Riding those mountain roads was awesome, as always.

The Market

Very tenuous. I’m not shorting here, however. I’m on the cusp of going fully to cash.

I’ve made the life-changing decision that my swing trades will be either going from cash to long, or from long to cash as long as the market remains in an uptrend, which it still is at this point. No more swing shorts in an uptrend. Daytrades are another matter- I’ll go short or long based on the particular day’s action, of course.

This life-changing decision is also the conscious decision to miss out on the big swoop when the market switches from uptrend to downtrend, and the chest-thumping of “I caught the top” when that happens. My swing money will simply be in cash, and will switch to the converse strategy of short- or- cash in the new downtrend.

No charts tonight, but pull yourself one up and look at the divergence between the price bars and the RSI(14) over the last few weeks. Spooky.

I’m off to have a few cold ones and listen to some blues. And speaking of blues…

I’m Being Sued

This knock at the door changed my life, and is part of what’s put much of my writing on hold. Last year, I put a couple of clearcoat scratches on a car that pulled up behind me and waited to be hit. Under 1mph. The cop had to ask me where my car touched theirs, ’cause he didn’t see it. They were busy on their cell phones, calling the lawyer from the TV commercial.

It now seems that those scratches (neither of these “ladies” was even the car owner, BTW) in the clearcoat were enough to cause two pages of injuries to these parasites, according to their parasite lawyer.

I’m having to rethink my entire outlook on life. I’ve been ultra-responsible and honest (yeah, farm boy- I still change tires for little old ladies, too), and there’s the potential for 40 years of that to mean squat. This could affect my daughters’ college, etc, etc.

Plus I may be having to choose between buying some QQQQ or buying some hamburger meat.

We’ll see.

Dropping Like Flies

I have not, despite being tempted several times, stopped blogging. Seeing Estochastica, Victoria, and X retiring their blogs has caused me to rethink continuing mine, as I’m sure it has many of you. This can be pretty thankless, and you’ve gotta do it just for the love of it. Then when your passion for it fades or life gets in the way, you stop. That’s the way I prefer it.

(There’s another way, where you pump and dump and promise fabulous riches to the lemmings who flock from site to site looking for the easy answer. Then when the crowd fades and the ad revenue drops, you move on… unless you’re really “good,” in which case you sell your pumped-up project to the geniuses at some corporation during its peak. Brilliant? Or just clever (wink, wink, snicker, snicker)? Whatever.)

We’ll miss the great folks from those labor-of-love blogs for the education and valuable content they provided, and our RSS readers won’t be the same without their feeds.

Gotta run. Blues waiting. Later ya’ll.