Monday, April 03, 2006

Bills are more deadly than trading losses

Day 3 - Tuesday
Total Account Value: $5908
Available Equity: $3039
Positions Opened: 4
Positions Closed: 2

This morning I had an unavoidable dentist appointment. I hate the dentist. Not the woman herself, nor the drill or the discomfort, but rather the realisation that my mouth will soon be setting off metal detectors at the rate I'm going. Oh and the exorbitant cost...

It was even worse today because the appointment was at 10am, the same time the ASX opens for the day. All I could hope for was a smooth morning and trust that my stop losses were in the right places. But to cap it off, I now owe $548 and must come in for more treatment!

Automatically my mind drifted to CFDs, hinting that I could make the money back in short time. But placing undue pressure on myself was a huge mistake, and I need to learn never to raise my hopes up like this. I've heard that the best traders don't have aggressive goals or reasons for raising capital, such as buying a car or planning a holiday. If you relax and let it flow, minor losses will not be felt so badly. This is also primarily why I never set a target growth figure for my initial $6000.

Rushing back to my computer with a slack jaw and numb lips I surveyed the situation. LLC, which I had thought would continue falling after making some ground yesterday, proved me wrong. When it reversed, the price was nowhere near short-term support of $13.60, so I will keep such behaviour in mind when I trade LLC in the future. My readjusted stop loss at $14 had taken me out, which luckily for me restricted my loss to a piddly $21.70.

I was glad to see my trailing stop loss strategy has some merit. After holding a long position for two days, I will trail my stop loss to 1c below the low of two trading days ago. The opposite will be done for short positions - 1c above the high.

To illustrate this more clearly, let's say PMN hits a low of $5.40 on Monday and on Tuesday trades higher before reaching a low of $5.45. Before Wednesday trading begins, I will place my stop loss at $5.39, just below Monday's low. This ensures I can retain profits whilst still allowing for price volatility. I will monitor the success of this strategy in the coming weeks.

I notice that Macquarie Bank (MBL) has gapped open this morning above long-term resistance and is looking quite strong. I love gaps. They usually indicate strong gains (or falls) and the following day's price action can be monitored against them. It doesn't take long for MBL to surge over the recent "three times tested" high, so I jump in at $66 even. As the day progresses it posts considerable gains before settling back to just $66.12, but there is enough buying pressure to force it higher the next few days.

My last minute play on CML yesterday now appears to have been a little rash. A star (candle pattern indicating indecision, where the current price is the same as the open with sticks on either side) has formed as the stock struggles at the resistance level, with significantly lower volumes. Common sense says the market will fall tomorrow, which may or may not present another buying opportunity. I reluctantly decide to sell as the frustrating market indecision continues throughout the mid-afternoon. Hesistancy after making decisions is something I must discipline myself not to do.

Tabcorp (TAH) gapped above resistance yesterday and made impressive gains. Today a long red (negative) candlestick formed alongside it and was holding around $15.56. Interesting psychology was involved here. Since the gains were so impressive, I'm sure many longs grew anxious and took their profits earlier in the day. However, the gap was yet to be filled and with so much selling going on, surely some confidence began to resurface in the market.

I bought in with two scenarios in mind:
  1. The price would hover around the $15.55 mark and resume its bullishness the following day (as it would have remained above resistance-turned-support).
  2. the price would make a late rally and surge up to near the opening price of $15.82, at which point I would have taken my profits.
Not long after I purchased a large $23000 worth, TAH followed scenario 2, boosting my profit at one point to $100+. However, only halfway up the day's price range it began to fall again finishing up right near the low of the previous day. I didn't mind the short-term loss, as scenario 1 was looking likely. Still, with hindsight, selling at the high of the mini-rally and entering again at the close would have been much more intelligent. Once again the hesitancy. Now all that needs to happen is for TAH to do what I expect and continue upwards.

Otherwise I might have egg on my face, particularly if you look at my final balance for Tuesday.


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