Followup purchases/short sells on swingtrades

From a mathematical standpoint, one method I use to determine the second purchase/short of a swingtrade that is going in my favor is to manually determine the average true range of the stock for the past 10-20 days. While most current systems such as Tradestation already figure this out as a standalone statistic, I like to manually backtest to keep the software honest.

Basically, you subtract the daily high from the daily low to determine the range for the stock. You do this for 10-20 days and take the average of this result. What I like to do is set the 2nd, 3rd, and 4th positions between 60%-100% of this range. So for example, if a stock I'm long currently trades at $25/share and has a average true range of $1, then I would set my next three buy points at say $.70 intervals, $25.70, $26.40, $27.10.

What I'm trying to avoid is getting caught in the normal volatility of the stock that autoexecutes a new buy but has the stock retrace those gains to close below the next buy point. At the same time, I want to avoid getting front run should a pending news item cause an overnight gap that blows through a potential buy point.

Pyramiding a swing position

The list of stocks I select as "swingtrades", I have it in my notes that should the stock move in the direction we are predicting, that we would add a maximum of 3 more purchases/short sells to the existing position. From personal experience, I've found when I exceed the 4th purchase/short sell of an existing swingtrade, my objectivity becomes tainted.

The usual method of turning a one time purchase/short sell into a high dollar gain is to make sure the first position is for slightly more than number of shares than the potential next three. For example, if i'm looking to swingtrade 500 shares. The first position would be 200 shares. If the trade goes in my favor, then anywhere from sixty cents to a set % from this trade, I'll make my next 100 share trade. In this manner, suppose if the trade starts to reverse after the 2nd position is executed, it will be easier to exit at a breakeven trade versus watching something go from a net profit to potentially a net loss.

Even if I use odd number share positions to execute swingtrades, such as partial sells or cover shorts, I must stick to a maximum of four buys or four short sells of the same stock.

Raise stop on ASEI to breakeven

For those who front ran my post, you're probably in between 69 and 69.30.

For those who got in at the close, you're probably in between 71 and 71.20.

Now that the market has gapped up on President's Bush's comments, raise your stop to breakeven. The stock is trading around 72.30 as we speak so at the worst, you'll have a scratch trade.

It is sometimes better to be lucky than to be smart.

Possible market on close purchase, ASEI and an offtopic healthcare site

This is one of the older casy plays which hit a 52-week high intraday. If the following two conditions occur:

1) The Dow, Nasdaq Composite, S&P 500 are green near the close.
2) ASEI is green near the close.

Then I'll buy 100 shares of ASEI. It opened at 69 and is currently trading just above there after being above 72 intraday.

Often when my normal scans show nothing, I scan the casy plays from the energy and material sectors to see if something is running that is not showing up on a normal chart scan.

For those who believe they can get specialized healthcare outside the U.S., one site that has sought to locate specialists outside the U.S. is planethospital.com. Supposedly for a $395 referral fee, they can setup travel arrangements and specialist appointments. I don't know of their reliability, but it pays to have it saved as a favorite in case you find yourself overseas and needing emergency care that your HMO or PPO doesn't cover.

Historical Precedents and Stock Trader's Almanac

As I mentioned to some of the traders, my 2007 copy of the Stock Trader's Almanac sits in the fireplace as kindling for the winter time. While no one can predict the future with 100% accuracy, there are times when knowing what has been done in the recent past can get you into or out of certain trades.

For example, with the lack of headline news, the almanac states between 1996 and 2006, the average 5-day performance of the averages on the week before the Labor Day holiday are:
DJIA -2.6%, NASDAQ -2.1%, and S&P 500 -2.3%. The Thursday before Labor Day, the market was down 9 of the last 10 years.

While Martin Zweig is known for his calendar and holiday analysis, absence of news, its usually better to rely on the 5 or 10-day intraday timeframes to see if a support or a resistance level is about to be breached.

This is one of the rare days when I am out of sync with the markets as the 90 stocks on my watchlist are all in the red and I did not have a short position to take advantage of today's move.

Trading with a Plan and Luck

Today's 286 point rebound in the Dow recovered three days of declines in the markets. Through sheer luck, we covered all the ultrashorts on the day before. Even sent an email to one of the traders as proof of when I covered. The only tangible explanation I can think of is I treated the ultrashort trades as timed exits. In other words, I treated them like as if I were trading options.

Before I inititated the position, I had already outlined within a few days, the earliest and the latest date I would close the position. See the post from July 27.

The market always prices future events today. The market is always giving signals of when there is a chance for a trend reversal. When you have a profit on a timed position, it is better to be early and close with a profit than to try and extract one extra day when the risk outweighs the reward.

Covering all Short ETFs today

Although it could play out for two more days, I may not have the chance to look at the markets until next Wed, so I have to close the three short ETF positions sometime today by selling the 250 SKF, 100 SRS, and 200 TWM. We're looking at gains between 4-8% on each position pre-tax. Which for me is ok given I sort of got lucky that today was not a follow through day from the prior two days of gains in the market averages.

The main difference between long and short positions is you do not have the luxury of holding a short position forever because it is subject to unlimited losses. Whereas a long position, the most you can lose is 100% of your initial investment.