Wednesday, July 05, 2017

The perfect chart and goal

Originally published January 17, 2014

A lot of us on StockTwits fit within different variations of what is called “active trading” even though personally we have slowed down a lot as the years have gone by.  Sometimes we think that many years down the road as we get close to retirement ages we will trade even more infrequently (10-12x a year?) and look for those sweet trends to jump on.   A text-book case here is $WYNN
Take a look at this chart (click to enlargen):
Entry on trend-line break.   Look how it acts — it goes to top of standard deviation 2 on the Bollinger Band (#1 and #3) and then corrects by going to test the upper standard deviation 1 (#2 and #4) and then bounces back up.    Just perfect.   Also a good case scenario why we don’t like shorting the top of Bollinger Band (while we do like buying oversold stocks testing bottom of Bollinger Bands) — there’s not much meat there.   On a strong trending stock price action often goes horizontal until the BB meets up and then resumes trend.  Not worth the risk going contra-trend.
The trick of course is finding these stocks before they start their multi-month trends up — you need the right market condition and the right stock, and then you need patience to sit on the winners — something a lot of traders, including ourselves, struggle with on an ongoing basis.   As a rule of thumb, the less volatile the market, the longer we try to hold the swings.  The more choppier the trend the more we go into “daytrade mode”.
If you started trading in the last couple years do note that this is not the “norm” — this is an exceptionally benign and bullish market.    We’re naturally cautious traders — probably because we were marked in our early years by the horrendous tech crash of 2000-2002.  We haven’t “maximized” gains during the bull run because we are not the pedal to the metal types and when we get overbought, we get defensive and raise cash.   We have no regrets on this — one of the things you learn in your career is to find a balance between quality of life (stress of positions– we don’t want to lose sleep or obsess about our positions once we leave the office) and PnL.   Our goal for many years now (for all of us this stage came after we started after having kids) has been not to make the maximum amount of money but to balance out a good life with a good income.   Easier said than done but always the goal.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.