December 26, 2007
One Idea for Wednesday; Update on Friday’s Idea: PPDI
The box found another short for Wednesday, December 26. If you’d like to join the list of folks receiving these daily ideas, just email me. I’ll send out today’s idea around 5 AM (ET).
I thought it would be useful to look at the idea for last Friday, PPDI.
Long PPDI above 40.38
Protective Stop below 39.77
1x initial risk covered at ~ 40.99
Target: 42.91 to 43.35
Now the stock had a crazy open on Friday but quickly traded back down to the zone where we’d be interested in buying (just above 40.38). It then proceeded to trade lower and came darn close to hitting the protective stop loss order just below 39.77, but didn’t.
During Monday’s abbreviated trading session it opened strong and shot right up to not only the 1x initial risk level, but also the 2x initial risk level. You can see from the chart that it’s still below the target range.
I’m still struggling with how to manage these open swing trades, i.e. how to adjust the stop. Reader “peter” was kind enough to send me a copy of Ryan Jones’s book on money management, The Trading Game, which I’ve begun to read. I hope with the help of my readers and the hundreds of people receiving the ideas that we can come up with an intelligent and consistent way to manage these trades.
The box gives no trade management advice, it just generates trade ideas, and as anyone who has traded knows: trading ideas are a dime a dozen but money management is everything.
December 26th, 2007 at 12:32 pm
Are you taking these trades? just curious.
December 26th, 2007 at 3:05 pm
Glenn: Not during the evaluation period though if it proves its mettle during this time then I’ll consider starting to make the trades, especially if I turn it into a subscription service. (Money where my mouth is, etc.)
December 26th, 2007 at 4:12 pm
Hi CM, I was wondering if this black box could be used on any market data or is it specifically for US Stocks?
December 26th, 2007 at 5:00 pm
Even the Big Boys get in trouble on RIGID Blackbox trading,especially in a volatile market.I used the info as part of a buy,using the stops and areas as a general outline and guideposts.I use my 40 years of experience in the market and still mess up.A few years back I got popped on options and prefer stocks and etf’s.Cramer whom I don’t follow much says stops can burn you.Volatility can be a friend or fo but must be taken into consideration.Am in PPDI since your first call and doing well.Thanks!!
ike
December 26th, 2007 at 7:08 pm
@Cedric: It can be used on any market, any time frame.
@ike: I assume your check is in the mail. It’s true that stops can burn you, but it’s truer that not having them will destroy you, absolutely assured … I have yet to meet a successful trader who isn’t fanatical about money management.
December 26th, 2007 at 8:21 pm
I agree that Money Management is a problem.Am still in stock and hoping.These goals help,but again refering to Cramer if He makes a tiny profit out next day.I am not a trader but it depends on stock.Many have had 10 years.
ike
December 26th, 2007 at 9:30 pm
ike: Cramer might not be the best example since he’s a quick-trigger trader — loves something and ten seconds later hates it… there’s nothing wrong with that if you’re skilled (he was a skilled day trader).
December 27th, 2007 at 4:19 am
“quickly traded back down to the zone where we’d be interested in buying”
I believe in buying into strength. Just because it is at your buy target doesn’t mean you get to ignore how it got there, especially with that kind of volatility.
In this case it didn’t really matter, but if you waited for it to come back up to your target you would be even more convinced about your stop loss, and perhaps it would become a higher priority trade.
December 27th, 2007 at 8:07 am
Dan: Yes, but that assumes you’re sitting in front of a screen watching intraday action which most people can’t do.
December 28th, 2007 at 12:18 am
i didnt follow the whole story on this blackbox (a scanning tool?), but if it comes up with swingtrade candidates, theres a guy out there, who is into this, his name is dave landry…he promotes to take profits on half of the trade as soon as the initial risk is covered and pull the stop to b/e for the remaining shares as a basic mm rule…he says, his helps to generates income…so, if your goal is to build wealth, it might not be the right thing to do, thats why i said that trade managment depends on your goals
December 28th, 2007 at 2:22 am
I’ve never understood the sell half at breakeven rule. You take losses on the full position of your losers and gains on the half position of your winners.
December 28th, 2007 at 6:49 am
@peter: I remember Dave Landry, is he still around? Like bjk, I’m not a big fan of both selling half and moving the stop to B/E, but I respect what works for other people. When I was day trading I very frequently moved to B/E once initial risk was covered and then let it run, but it was a judgment call every time, there was nothing systematic about it. With these swing trades where the time factor is entirely different, I’ve had to re-think money management.
December 30th, 2007 at 12:34 am
you can find that a lot of traders scale out of trades, although van tharp (if i recall that right) says this is nonsense, cause the avg win could be higher if you dont scale out…
January 26th, 2008 at 6:16 pm
what do you say to the negative comments on ryan jones in elite trader forum?
January 26th, 2008 at 7:13 pm
ashraf: I haven’t read his book yet and don’t know anything about the guy, but if his book has value (once I read it, probably around 2012) I’ll probably write a post about it.
January 26th, 2008 at 9:58 pm
to the best of my knowledge, landry is. his stuff was good.
January 26th, 2008 at 10:07 pm
someone: Yes, I just bothered to Google him and came up with his site … 1 Month Service Subscription, $175 … I may have underpriced my trading ideas, lol.