A Quiet Week and then...

Greetings Invisible Audience,

A quick correction - for some reason I indicated I entered a position trade on MGI on January 15th. Actually it was SLM. I have no idea how I made this error in my reporting to you, forgiving reader, but I did. I also said there was $1 of downside when in fact there was $2 of risk to $5 of upside. Still a good risk-reward ratio but not the slam dunk I thought it was. This just goes to show how messed up your head can get during the heat of battle. Scary and a cautionary tale. See, I continue to learn lessons.

Last week was mostly quiet as I held SLM all week as it kept right around my entry point just below $12. Since it was a position trade, I needed to be careful not to follow it too closely as day-to-day swings were not as important as closing prices. To tell the truth, it got kind of boring. I want to trade more actively and, sitting on a stock, watching it daily instead of throughout the day, was not what I signed up for.

But I was in this trade and I needed to stick to my rules. I had set support at $9.74, so if the stock closed below that, I needed to accept my loss and move on. On Tuesday the stock looked to move higher, topping out at about $12.40. Unfortunately for me, that was where it stopped out. It dipped a little lower and then gapped down Thursday - not as far as support but significantly down. I didn't check in until 11 am PST time Thursday so a lot of damage was already done. I held on to the stock through the close (sticking to my rules) although I had considered selling it out of fear around 10.75.

Friday morning I rose with the rooster and started to watch the stock. It started down and kept shooting down, below my support level. It seemed destined to keep going forever. I exited at a 9.39 for a loss of $2.40 per share. Good christ! Predictably the stock rose from there although it did end up closing below my established support level. One could argue I should have held out until day's end to see if it would indeed have closed below my support level, but I panicked and wanted out.

A post mortem on my decision making shows a lot of emotion. Maybe I should have moved to 15 minute candles and sold immediately on the gap down Thursday morning. Maybe I should never have entered this trade in the first place since it had not clearly pushed through resistance but was just dancing around it. A little time will allow me to look at the trade more objectively. In the near term it still stings so it is difficult to look at it objectively.

One thing I did do after exiting SLM, though, was start to put some Superheroes strategies in to play. I identified a few watch stocks that fit the strategy - look for volatile stocks and try to trade the trends on 1 or 2 minute charts. Do not hold the stocks through the close of the day. Of course, risk-reward rules and clear support levels must be established and respected.

I looked at MSCC and saw it consolidating with rising bottoms around resistance after a significant drop to open the day. I saw a likelihood to go higher, to reclaim some of its losses, and that i could get in at a low risk per stock. I bought 200 shares around 7.97. Sure enough, the stock broke out and rose up above $8.50. On the 1 minute chart I saw a bursting bubble candle. This led into a falling top, so I exited at 8.39 for about an $80 US profit, or a 5% gain.

I felt really good about this trade. I felt like I made correct decisions on both entry and exit, remained patient and was rewarded. I was able to watch the stock in real time, thus limiting my exposure to large gaps. I am going to try this again tomorrow - Monday. As Happy Gilmore said, "I should just try to get the ball in the hole on one shot everytime!"

Stay tuned!
Mike The Mixed Bag Trader