Sunday, February 12, 2017

Review of My Trade Journal


I have developed a system of trading that has enabled me to increase the size of my trading account every year for the past 25 years.  It took me a long time to come up with my winning system and I consistently backtest my system.  Every so often, I look over my trade journal to review some of my losing positions.  I do this to verify if my system is still valid.  I want to continue to do what works and avoid doing what doesn't work.  In May of 2015, I lost money on   $AVGO   but on Jan 20th 2017, I profited   +44%   of the capital at risk  (Credit Option Trade)  within just 3 days.  I wanted to verify as to why the trade worked for me last month but a similar trade failed just 2 years ago!  


The Backstory

In the past, I've discussed my   strict criteria   for stock selection and   $AVGO    actually made it through my gauntlet of must-haves in May of 2015.  This stock was a great candidate in my opinion, especially because it:

  • Was in a defined uptrend channel after the market correction in October 2014
  • Earnings were already out of the way
  • The stock had moved into its buy point zone
  • The market was in a confirmed uptrend  

So I put together a trade plan with a   +10%   profit target and a   -3.33%   as a loss thresh hold for the stock and then I pulled the trigger on an option trade in early March of 2015.

Why It Went Against Me

Even the best stocks still have risk associated with them.  In this instance, the stock wasn't actually the problem, though.  In late March of 2015, institutions started a massive sell off with a number of their holdings.  As a result, the market moved back to uptrend under pressure within just 3 sessions!

I was stopped out at my   -3.33%    loss thresh hold and thankfully so.  The stock continued its fall that day and ended down   -6%   by the market close.  What's more,   $AVGO   went right off the cliff after that and eventually moved down   -16%     ouch! ouch!    Obviously I made the right call with planning my stop loss in advance of taking the position.

What I Learned From Losing Money on $AVGO

I honestly believe that you can learn more from a loss than you can from a win so I have incorporated a sort of   "post mortem"   phase with every trade, regardless of the outcome.  When I sat down to document my findings on this losing trade, here is what became clear to me:

  • My ability to select strong growth stocks wasn't the issue here
  • Fundamentals on this stock were not a contributing factor of the loss
  • Institutional behavior dominated the outcome of this trade

In Conclusion

Any time you lose, it's easy to start second guessing your methods but you have to fight that urge and think objectively.  Tweaking your system is a time intensive endeavor so you don't want to pursue that unless it's necessary!  It's critical to back test and let the data drive your decision making process.  


Stocks I am Monitoring This Week


My market outlook is still bullish.  The 3 major idexes that I follow - $DJI, $SPY and  $QQQ,   have been marching higher after  6 weeks of consolidation.   $QQQ   has been the leading index since the beginning of Dec 2016.  With that in mind, here are some stocks worthy of a closer look for profitable opportunities:
  1.  $NTES
  2.  $AVGO
  3.  $NFLX
  4.  $ZION
  5.  $BABA
  6.  $MS
  7.  $AMAT
Always be aware of earnings due date for any stocks that you follow.  $UBNT  gapped down  -16.68%   on Friday Feb 10th in volume that was  +15  times above normal average daily volume.  That kind of a loss in a trade can devastate your portfolio.


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Happy Trading!

Amin

DISCLAIMER



Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.


The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.


YOU SHOULD NOT MAKE ANY DECISION, FINANCIAL, INVESTMENTS, TRADING OR OTHERWISE, BASED ON ANY OF THE INFORMATION PRESENTED WITHOUT UNDERTAKING INDEPENDENT DUE DILIGENCE AND CONSULTATION WITH A LICENSED PROFESSIONAL. You understand that you are using this Information AT YOUR OWN RISK.