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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…

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.)

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.

Had to share this:

There’s lots of those friendly people
They’re showing me ways to go
And I never want to lose their inspiration

Time for a cool change
I know that it’s time for a cool change
Now that my life is so pre-arranged
I know that it’s time for a cool change

(From “Cool Change” by the Little River Band)

I won’t be writing posts or answering emails for the next week or so. The Yellow VFR and I will be spending some quality time in the mountains, leaning hard to the left or right on some two-laned backroad, focused intently on what’s around the bend, looking to recapture some of the sanity that’s been slowly seeping away as I’ve lived my monotonous, necessary pattern of life.

The caution light on my sanity gauge came on months ago, and I’ve been running on fumes now for much longer than I should. (Some would say I’m bone dry.) But I’m convinced that there are latent stores of it floating in the air on those roads through the hollows and over the ridges, just as there are on the turn rows of cotton fields on cool October nights, out in the woods on still winter mornings, or sailing on the cool and bright clear water.

There are so many “modern” people living only for the next distraction, the next material gain or social connection, spinning faster and faster, people who fear that if they turn off the cell phone, the computer, the iPod and the TV and sit still for just five minutes, the entire universe may disappear. They miss the secret that it’s in those five minutes of quiet focus, of un-distraction, that life’s music can be heard, and its rhythm brings the peace which overcomes the anxieties we work so hard to distract ourselves from.

I’ll have my journal (the analog kind, a spiral notebook and pen) and at least one of my cameras with me on the trip, but only to write or click when convenient- little markers to jog my memory in the future, or at least to document that I really was there. I learned long ago that you can ride, or you can take pictures. I prefer to ride.

The essence of these rides lies in what can’t be captured on film or paper: the exhilaration of being singularly focused on the present moment for hours on end as the valleys and the cliffs and the trees and the critters whiz by; the physical fatigue and weariness of 14 hours of nonstop physical exertion and the blessed sleep afterwards which no pill could match; the chilling mornings and suffocating afternoons, the sweat and the sunburn, the thousands of different aromas on the wind which change with every passing mile, and the never-ending awe at the amazing views you see coming at you at an angle as you round each new curve.

The magic actually lies in the fact that what’s most important is what can’t be captured. You can’t bottle it up and take it home. You have to experience it in the moment. That je ne sais quois. Like the experience of seeing the Grand Canyon compared to only having seen a picture. It’s what Roger Waters described as that fleeting glimpse, that when you turn to look, it’s gone. Or as Miles Davis said about great music- “Don’t play the notes, play what’s between the notes.”

So bear with me till the next measure. For now, I’ll be between the notes.