ParkTwain's Parlor

[ParkTwain]

Sold LMIA this morning for 13.1% gain in 13 days in market. Still looks strong, but wanted to book the profit more.

Still holding OXPS (avg cost 23.54/sh). Watching BRCM for breakout.

[ParkTwain]

Most of the way through reading Van K. Tharp's "Trade Your Way to Financial Freedom," which contains very helpful discussion of positions sizing and risk management for traders. Recommended book. Helps get you down the road toward really rationalizing your trading approach. Not about trading methodology per se.

Also leafed through Marcel Link's "High Probability Trading," which does not seem to offer all that much meat. Not recommended so far.

[ParkTwain]

Stocks expected imminently to breakout to an all-time high (based on closing data from last 3 market sessions):

ABC, ACR, ACTG, AGII, AGN, ANN, ASVI, AGII, ATR
BANR, BTJ, BWS
CAM, CECE, CLZR, CNO, CR, CTHR, CYTC
DCI, DHR, DJO, DO, DRQ
ELOS, EYE, EZEM
FII, FTI
GCO, GES
IBI, ICUI, IMN, ISE
LKQX
MCHX, MDR
NEU, NOIZ
OS
PAAS, PCTY, PRAA, PSS
RIG, RSTI, RTLX
SAFT, SCSS, SONO, SSAG, STGN
THOR, TIN, TNC, TRAD
UAG, UPCS, USAK, USPH
VAS, VTAL
WHQ

[ParkTwain]

watching CYTC today. Will probably buy into any fade near EOD.

[ParkTwain]

Will continue to watch CYTC. Opened small position in STGN instead, near EOD. Wanted to buy some BTJ, but it acted too strong going into the close. Maybe another day.

[ParkTwain]

Bot CNO this morning. Looking for breakout. Also like NADX, UCO, USPH, WFT, ACTG, CYTC.

[Lyehopper]

Good thread PARK. Glad to see you posting more regularly dude. I like many of the same stocks you're watching.... btw cool Avitar.... is that you?

I appreciate your participation in the POTW too.... thanks.

[ParkTwain]

That, my friend, is a portrait of Nicolas Darvas, author of "How I Made $2,000,000 in the Stock Market."

[Lyehopper]

That, my friend, is a portrait of Nicolas Darvas, author of "How I Made $2,000,000 in the Stock Market."

hmmmmmm.... If I made W.J. O'niel my Avitar, wonder if I'd get a letter like Doug's.

[ParkTwain]

Here's part of a post I placed today on the Yahoo OXPS board:

Observe this chart:
http://stockcharts.com/def/servlet/SC.web?c=OXPS,uu[h,a]daolyyay[dd][pb20!b200][ vc60][iUb14!Ll14]&pref=G

The stock's pps has been in an uptrend since mid June. The pps has touched the 20DMA only twice since Nov 1st. Otherwise the stock is tracing its 10DMA.

Observe the green and red lines in the ADX plot. This is showing what I would call a "buyer's strike" (that is, very little selling pressure, and pps rises each time buyers reenter the market) rise in the pps. In this case, since July 1st the red line (selling intensity) has not moved above the 20 level for more than a very few days in a row. The red line has recently been as low as it has ever been, especially since June 1st. The green line (buying intensity) has continued to hover between 20 and 40 since June 1st. Since June 1st, the stock's pps movement (including pullbacks) basically corresponds to the movement of the green line. Or, when the buyers show up, the stock rises. RSI and ADX for OXPS are still in an uptrend since mid-Oct and Nov 1st, respectively.

The best recent example I've seen of a "buyer's strike" rise in a stock is RIV between about July 1, 2004 and about Sept 10, 2005. In the chart below, notice in the ADX plot that the red line almost never moves above the 25 level and that the green and red lines move almost totally complementary to each other. This stock was in a strong uptrend for over 12 months. Like OXPS, RIV is/was a low-float specimen.

http://stockcharts.com/def/servlet/SC.web?c=RIV,uu[h,a]daolyyay[de][pb20!b200][v c60][iUb14!Ll14]&pref=G

[ParkTwain]

I'm thinking that I don't want to be long any consumer goods companies, especially anything higher-end that folks typically use credit to purchase, after January 1st, 2006. After this point, all minimum payments on consumer credit cards will be doubled, due to new Federal law. I'm expecting that this is going to put a crimp in consumer spending that will begin to show up on Wall Street by end of January.

[Lyehopper]

I'm thinking that I don't want to be long any consumer goods companies, especially anything higher-end that folks typically use credit to purchase, after January 1st, 2006. After this point, all minimum payments on consumer credit cards will be doubled, due to new Federal law. I'm expecting that this is going to put a crimp in consumer spending that will begin to show up on Wall Street by end of January.

Higher-end?.... I see people at MCD buying dollar value double cheeseburgers with a credit card dude!....

I love those $1 double cheeseburgers.... From the time I pull away from the drive-thru and before I pull back out into traffic.... I can eat two of those darned things!.... No better value in fast food.

[ParkTwain]

Feeling good about reaching 100% YTD gain in my trading account balance as of market close on Dec. 14th. As of Dec. 14th, I have 3 open positions.

As of Dec. 7th, I had these YTD figures:

58 total closed positions
33 winners: avg gain ~11% (>10% gainers: 15, >20% gainers: 3), avg days in market per position ~9 days
25 losers: avg loss ~5.5% (>10% losers: 6), avg days in market per position ~6 days

So I have realized YTD only a 2:1 return/risk ratio on my trades. I want to improve that figure significantly in 2006.

I plan to use the guidance found in Van K. Tharp's "Trading Your Way to Financial Freedom" to fine-tune my trading performance in 2006.

[skiracer]

Feeling good about reaching 100% YTD gain in my trading account balance as of market close on Dec. 14th. As of Dec. 14th, I have 3 open positions.

As of Dec. 7th, I had these YTD figures:

58 total closed positions
33 winners: avg gain ~11% (>10% gainers: 15, >20% gainers: 3), avg days in market per position ~9 days
25 losers: avg loss ~5.5% (>10% losers: 6), avg days in market per position ~6 days

So I have realized YTD only a 2:1 return/risk ratio on my trades. I want to improve that figure significantly in 2006.

I plan to use the guidance found in Van K. Tharp's "Trading Your Way to Financial Freedom" to fine-tune my trading performance in 2006.

Park,
What was the % of longs vs shorts. Do you go short very often? That's an impressive % overall considering the 58 closed trades average about 1 per week. I'm averaging between 3 and 4 per week but my average holding time has increased this past year because I've been taking positions in the strongest sectors/groups with ETF's more often an sometimes I will stay in one of those positions a few weeks which increases the holding period % somewhat. Normally 7/10 days in a stock position. I generally use 7% as a stop but have been thinking of loosening that up by going more with specific resistance or fib lines as opposed to the standard 7% stop. I see where you've had several losing positions greater than 10%. So to average 5.5% over the 25 trades you must have stopped the others close. I don't know for sure if it's just general circumstances but it seems that lately a number of my positions have been getting stopped out more often at 7% and then rebounding. It's something I have been studying with my own trades. I'm running somewhere around 5/6 out of 10 losing positions a few of which I have cut off under 7% for whatever reasons at the time. I haven't gone over the numbers completely but I'm up around 30/35 % on the plus side this year. I haven't looked at the r/r on a total basis but I would think that on average it would be under 2:1, but not a whole lot, an if your operating at an average 2:1 ratio and you're up 100% then at least your picking strong setups. My own personal feelings are that you will begin to lessen the number of setups, decent setups, by trying to lessen the r/r to much. It's a good thought an always worth trying to improve, but you're up 100% ytd that's kind of hard to beat as it is. Great work.

[ParkTwain]

Hi ski,

I do my trading in an IRA account on E*Trade, so it's a cash account. No short positions at all. My "days in market" figure includes only market session days, not calendar days.

This year especially I focused on setups involving stocks making breakouts to all-time highs. I have a particular set of technical indicators and measures that I scan for almost every day in the market. My rules call for buying only after the breakout and within 5% of the pivot. I know that, in fact, I didn't achieve that in a majority of my trades. Last year, I had found that I had some success in identifying a combination of setup measures that anticipated these breakouts, but this year that approach didn't pan out with a regularity that I have come to prefer. Also, as my account grew during this year, I was able to take on positions of greater size, thus making it more acceptable to take a profit at a lower % gain, such as closer to 5%. Earlier I had been oriented to holding for a 10% to 15% gain per long position. Also, given that I use an IRA account, I am restricted to waiting for the closing of a position to clear before I can close another position that uses those proceeds.

Until late in 2005, E*Trade provided a chart that plots the history of my account balance. I could see that my balance showed a good rate of growth with relatively short durations of drawdown that rarely exceeded 10%. That suits my goals in this account, given that I can't watch the market from open to close every day.

About choosing a typical stop loss %, that is a function of the reliability of one's setup criteria combined with the inherent volatility of one's targets. By sticking to entry points at prices within a few % points above true support prices, the inherent volatility can be kept pretty low, such as my goal of an entry no more than 5% above a pivot price. Because I am buying only stocks making an all-time high, I don't have a "built-in" (such as from looking at upcoming resistance levels) max gain per position, so the return side of my risk/return target isn't hard and fast but rather is driven by a desire to be able to turn over the "inventory" of my account's funds within no more than about 10 market days.

But of course the tradeoff is, the higher you allow your stop loss % to be, to grow one's account then the higher the average gain that must be achieved per position per time period to offset it, and/or one must improve the win/lose ratio.

In my research, I had come to believe that my approach should lead to a kind of "one-way valve" phenomena (price tends to rise with a substantial built-in safeguard against downside risk), and given my account's low drawdown history, it has been borne out during 2005.

I have found that a breakout to an all-time high provides these characteristics. So I have learned to be more patient and wait these stocks out, even when they have taken a long trip up from a reversal. I have learned that it is the downside risk that is important and that a price move above an all-time high provides substantial risk protection. Yes, I am buying higher than some, but I get stronger downside protection and can exit after gaining that 5% to 10%. After gaining an all-time high, stocks very often increase the slope of their existing uptrend, allowing me to get that 5% to 10% gain faster that one would have expected from looking at the chart up to that point in time. I attribute this phenomenon to the absence of overhead resistance in the stock after the breakout.