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A cold hard lesson - earnings, downgrades, & stop losses

 
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Bluto



Joined: 26 Nov 2005
Posts: 146
Location: Va. Beach, VA

PostPosted: Thu Apr 27, 2006 11:44 am    Post subject: A cold hard lesson - earnings, downgrades, & stop losses Reply with quote

I bought ROCK (Gibraltar Steel) @ $29.21 several weeks ago because it was performing strong in it's sector and had a nice pattern for some intermediate growth. I've been busy the last few days and haven't been paying attention to earnings & downgrade/upgrade news like I should. Fortunately, I religiously check and tighten my stops last thing every evening. ROCK tanked this morning on a downgrade report and has dropped $4.51 so far down to $27.00 or a hefty 14.3 % on yesterday's close. I kept a 5% stop on this one because of relatively low volatility. Fortunately, my stop took me out @ $29.90 for a net gain of $.69/share.

The moral of the story:

>> always maintain adequate stop losses for every position and don't just leave them set at some arbitrary percentage. Maintain them daily and customize each to the character of the specific stock based on past pivot swings, volatility and other factors.

>> monitor your positions and keep an eye out on the news feeds for upcoming earnings and/or upgrade/downgrade reports. As those approach, thightn your stops because if you're going to get blasted, chances are pretty good it's going to be at one of those events.

I should've known better on this one. Crying or Very sad
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doji



Joined: 06 Apr 2006
Posts: 10

PostPosted: Thu Apr 27, 2006 3:10 pm    Post subject: Reply with quote

You offer a nice lesson for traders, well done.
Exits are the toughest component of my trading, it's the one area I feel I haven't mastered yet, and I'm coming to the conclusion that I never will.
Anyone seeing your post as a lesson might want to break down exits even further. I have an initial stop loss which is my catastrophic loss, this loss is my safty net. Then I have a trailing stop - safty net exit strategy - but I rarely get hit on either one of these.
I keep them in the market 'just in case'.
Slipping up just one time can cost you a bundle, nice work on the recovery, you turned the mistake into a professional exit.
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trade350



Joined: 03 Apr 2006
Posts: 21

PostPosted: Thu Apr 27, 2006 5:19 pm    Post subject: Rock stop loss Reply with quote

Rock on Wednesday took out the lows of the prior 7 days of candles, then closed up as a huge doji.
It also broke through a trendline too.
ROck only trades less then 200k a day-therefore big swings.
ROck stochastic was overbought and headed down.
I think you missed yesterday's doji or high wave candle. It happened after an uptrend with high upper and lower shadows.

From Nisons book
"A tall upper shadow is important at high price levels or resistance area or when the market is overbought. It would hint heavy suppy entering at higher prices or evaporating of buying."
"Also a doji is important if it is the ONLY doji in recent action"

From Bigelows book
" A long legged doji with excessive shadow length indicates MASSIVE indecision. The trend has lost its sense of direction."

But my opinion is still that it took out the lows of 7 whole days of trading intraday. That is enough for me to get out.

ONe more thing I just noticed is that the white bar that made the highest high into a bollinger band did so on a small gap up. The next day was a down day that took out the gap! I think that indicates something is wrong, because a gap up is strong. but this was obviously that last gap since there were a couple other gaps in the run.
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Bluto



Joined: 26 Nov 2005
Posts: 146
Location: Va. Beach, VA

PostPosted: Thu Apr 27, 2006 6:22 pm    Post subject: Re: Rock stop loss Reply with quote

trade350 wrote:
Rock on Wednesday took out the lows of the prior 7 days of candles, then closed up as a huge doji.
It also broke through a trendline too.
ROck only trades less then 200k a day-therefore big swings.
ROck stochastic was overbought and headed down.
I think you missed yesterday's doji or high wave candle. It happened after an uptrend with high upper and lower shadows.

From Nisons book
"A tall upper shadow is important at high price levels or resistance area or when the market is overbought. It would hint heavy suppy entering at higher prices or evaporating of buying."
"Also a doji is important if it is the ONLY doji in recent action"

From Bigelows book
" A long legged doji with excessive shadow length indicates MASSIVE indecision. The trend has lost its sense of direction."

But my opinion is still that it took out the lows of 7 whole days of trading intraday. That is enough for me to get out.

ONe more thing I just noticed is that the white bar that made the highest high into a bollinger band did so on a small gap up. The next day was a down day that took out the gap! I think that indicates something is wrong, because a gap up is strong. but this was obviously that last gap since there were a couple other gaps in the run.


That's a good analysis there, m8. You've got a good command of candles and all the basics. However, and not to be a rebel here, but depending on the kind of trade, sometimes you have to look beyond candle signals and stochastics.

In the case of ROCK, I bought that purely as an intermediate buy & hold instrument because it had all the makings of a good solid momentum stock. In this kind of trade, you're going to have little overbought/oversold waves over the longer upward trend. That's ok because I'm not swinging this one for short-term pump & dump profit. I would ignore doji's, pullbacks, etc. because they're not relevent as long as this thing is sliding on up above the 20-day SMA. It's expectable to see intra-trend cycle reversals every 7-10 days. As for stochastics, they're totally unreliable for uptrending stocks because by their nature, they'll just park in the overbought status. I find Bollinger Bands, RSI, DMI & ADX more reliable for for gauging strongly trending momentum stocks like ROCK . I keep an eye on Accumulation/Distribution, Chaikin's Money Flow & OBV for negative divergences as a sign a stock is cooling off for a possible sell signal. The thing that tripped me up on ROCK was my own stupidity.

I guess what I'm saying is that Bigalow's teachings and style are formidable, but you can't blindly follow the methods in those books for every type of trade.
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trade350



Joined: 03 Apr 2006
Posts: 21

PostPosted: Thu Apr 27, 2006 9:41 pm    Post subject: Rock Reply with quote

I too am a momentum trader doing intermediate buy and hold trades. It is just that I can't seem to hold on to them that long because I keep taking my profits along the way. Which makes me a swing trader-unless I can hold longer because it rockets up like GOOG or AAPL. I don't always follow the rules either because long term rules dont often apply to each of my trades. Got a BIG gain in GOOG by not following IBD rules. I agree, to heck with the rules.
BUt I think if you take another look at say a 6month chart of ROCK, you will see that compared to previous price action, that doji is HUGE! And that hugeness I think counts as an INTERMEDIATE trend warning. A small doji maybe not such a big deal. But SOMETHING was going on that caused that huge range. Perhaps intermediate range traders were exiting after the long run up from $22?
ONe way I trade is to not let more than 55% of my profit disappear after holding for a few weeks. It just doesnt make sense to me to let profits evaporate. That is why I like using candlesticks, trendlines, anything that can help me hold on to my profits.
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