The summer rally is now over, and while a few of my more profitable positions are still open, a lot of others have bit the dust. I made on average 5% over all my accounts, which was better than my expectation to lose money since this was the kick-off rally for my trading plan and therefore many mistakes were anticipated.

 

Since this is the first rally since the debut of my plan, here are some adjustments I think are needed:

 

  • Do not hold through earnings unless profit > 5%, >10% preferably.
  • If my screens put a stock in my watchlist, I have to buy it if it breaks out properly. I missed out on $FENG dithering rather than acting.
  • Earnings reactions tend to get more negative as a rally ages as expectations become more and more irrational.
  • Stops need to be kept under logical support to avoid getting shaken out too early. If this is more risk than I can afford, I should lower my position size.
  • Sell at least 1/3 to 1/2 of shares at target profit (usually 2-3 times my risk multiple). This makes me more comfortable holding the rest of my position for the long haul. I can always add more at support areas or the next base.
  • Do not buy lower volume breakouts unless the stock is a true leader ($TSLA was a good example of a good low volume breakout from the high, tight flag)
  • Stop buying after either the NASDAQ Composite or S&P500 log 5 or more distribution days
  • Usually a trade that goes 3-4% the wrong way immediately after breaking out won't be a winner. Get out and wait to get back in. Retracement to the 50-day or 10-wk moving averages should occur only after some price progress has been made and should ideally not undercut the buy point.

 

Besides this I plotted the rise of distribution days in both indices superposed by the total average profit (open or closed) of total purchases made over the course of the trading days during the rally. You can clearly see that as the mountain rises, the quality of my gains deteriorate. Sticking to buying while d-days are low is probably key to not wasting money cutting losses on losers.

 

 

Have a great weekend!

RocketPower (Twitter, Stocktwits)