Lessons Learned

Posted by downtowntrader | 10/18/2006 09:26:00 PM | 3 comments »

Since I will be sticking to my rules :) and not trading the next two days due to options expiration, I decided it would be a good time to review a few trades. I haven't done this on the blog before, and hopefully I can help some of you become better traders by learning from my mistakes. Let me know what you think.

I actually felt a little better about today's highway robbery after seeing the next two charts. Both of these are where stops saved me from virtual disasters.

Illumina, Inc. (Public, NASDAQ:ILMN)

Let's start with ILMN. I had a decent looking long trade in ILMN in late September but it abruptly reversed after breaking out to a 52 week high. I was able to make a little money as I was aggressive in locking in profits. It really pulled back hard eventually breaking a long term trendline. It then retraced up the trendline observing it as resistance. It started to narrow in range and volume was pathetic. I shorted on a wide range day that took out the previous daily low. I booked a little profits the following day because the general markets were rallying very strongly. But as it climbed near my stop, I added more to my lot. I was stopped out two days later in the high 35's.

So what did I learn? I think I had a good thought process here, and you can't win all your trades. My biggest error was in adding more shares to my lot as it got closer to my stop. I didn't move my stop, but adding shares ate up the little profits I booked. Thankfully, my stop prevented me from today's 20% gap up.

Intervest Bancshares Corp (Public, NASDAQ:IBCA)

Next on the list is IBCA. I entered IBCA after it pulled back from breaking the downtrendline of a breakout pullback. I waited for it to come back to support. After a narrow range candle formed, I decided to enter if it made the higher daily high. The trade immediately went in my direction but didn't really make the expected move. It continued to trade sideways, and I added to my position as it dipped. It eventually petered out and stopped me for a small loss. Again, very lucky as it fell apart a week later.

What did I learn? I think I should start thinking about putting in a time stop for trades that don't move. Also, this stock was too thin and I kept worrying about the large spreads. Another mistake was not taking some profits as it kissed the upper price channel at 44.64.

Diodes Incorporated (Public, NASDAQ:DIOD)

Here is a decent trade in DIOD. I was looking for a semiconductor stock, expecting strength in the sector. DIOD had the potential for an explosive move so I looked for a good entry. I waited for them to pull into the gap and when they filled it they ended in a hammer. I bought the next day as it dipped into the hammers body. This trade went nowhere for a few days but then had a little move up. I chose to show this trade, not because I made a ton, but because I didn't fool myself into sticking around longer then I should of. I made more in FLSH and NVDA but this was a better learning experience. I raised my stop and locked in a solid gain.

What did I learn? I learn more from my losses then my winners, but one lesson that I reinforced was that it's usually best to wait for the C of an ABC correction. I find myself getting in early too often and I was rewarded for being patient here.

VAALCO Energy, Inc. (Public, NYSE:EGY)

The last trade I will show tonight was a very nice one for me. I was looking for a short covering move in the Oil / Oil services sector and EGY was one of the stocks that held up through the correction in that sector. I was more interested in how Candlesticks were showing support at the 200sma. If you look at the three candlesticks highlighted on the chart you will also notice that ended up forming a small reverse head and shoulders. One of the most important things about candles that beginners miss, is that where certain patterns form, is infinitely more important then what candle is formed. Three bullish engulfing patterns at the 200sma was a clear signal that someone was buying there. I entered as EGY reversed intraday the next trip to the 200. It completed the reverse H&S and had a three day breakout. I took a little off and finally closed it on the third day as it reached the previous pivot high. Another thing I do, is try to not get carried away with a parabolic move. The market has a funny relationship with the number 3 and If I get three strong up days, I almost always take my money and run. This looks like it will move again after it breathes a little.

So what did I learn? Well, I didn't really learn this, but it reinforced the idea that when a stock moves in synch with it's sector, the moves are much more powerful.

So there you have it. Four trades, two winners and two losers. They key to these was that I cut the losers pretty short, and tried to squeeze what I could out of my winners. While some of you would trade these completely differently, I tried to be true to my methodology and stuck with my strengths.

I have a quick thought on the markets. Notice that the QQQQ has left a gap in the chart and has had two days of selling on increased volume. That gap will serve as resistance and will become stronger the longer it goes unfilled. Also, yesterday was more bullish in how it closed, but markets that gap higher and close near lows are signs that the bears are gaining control. Tops take time to form, but be warned that the market may be giving us a clue here.

Good Luck,


  1. Anonymous // 11:45 PM  

    Thank you for your insight into your trading. Could you take a moment and look at SMSI and AOB from a TA stand point. Much appriachiated.

    Scott K

  2. Muaad // 4:38 AM  


    Once again thank you very much for sharing your trading processes and lessons learned.

    Here is a question thats been popping in my mind lately, and seeing as you have mentioned it a few times... Are there certain dates that "the fundamentals" take over, or other events that create difficulty (e.g. Options Expirations), and technical traders would do best to stay out of the markets? For example, Earnings (in general or for specific companies currently traded), FOMC meetings, Economic data reports, Options Expirations, etc.

    What recommendation would you make to technical based traders to keep on their "Economic Calendar" as days better spent away from the trading desk?

    Thanks again,

  3. downtowntrader // 8:58 AM  

    Scott, I commented on SMSI in the comments section a few days ago. But basically, it is looking pretty good if you are already in, which I assume. I would not be chasing up here, and where to sell depends on your timeframe and methodology.

    Good question. I will post on this later today as it is an interesting topic.