Seeing that I have posted 142 updates to stocktwits (now 143), I figure now is probably a good time to provide you with some information regarding what I’m doing. I have a tendency toward wordiness, so I’m going to attempt to keep this brief. Anyway, my stocktwits feed is used to post each and every trade that I make. Winners, losers, great trades, moronic decisions…they are all there for the world to see. My goal, initially, at least, is completely self-serving. Basically, I’m using stocktwits as a sort of trading journal. I have always been able to be honest with my record keeping, but have yet to reach a point where I provide a detailed record of my trading decisions. By posting a basic price and volume chart every time I make a trade, I feel like I’m on my way to documenting and reviewing my winners and losers much more effectively. Additionally, along with making my trading decisions public comes an additional sense of accountability. I am going to think twice before I dick around with open ended losses in levered inverse ETF/ETN’s (which I did with great tenacity in EDZ and VXX in September-October 2010…much to the chagrin of my account balances). So, yeah, I think the transparency will help make me much more accountable.
I don’t really ascribe to one particular investment philosophy. In my 10+ years doing this, it has been such a dynamic process of learning from my mistakes and trying to hone what I’m doing to what is working in the market at that time. I usually take fundamentals into consideration, however I never base a trade purely on fundamental analysis alone. I’m not smart enough for that. I look at charts, but it really comes down to price and volume. After years of looking at countless charts, I have seen similar patterns form over and over again. Price charts are fascinating because they represent a visual depiction of evolving market psychology. Hell, I don’t really even use the most basic of technical indicators (i.e. moving averages) to make trade decisions. I’ll take note of where they are in relation to price, but I haven’t found any sort of edge using them as a means to trade. I do like to look at volume. I like to see it drying up when I’m looking to buy. In regard to volume, my thoughts are: if a stock is declining and people are becoming less interested in selling it, chances are it is nearing a point that presents pretty good risk vs. ‘percent chance being correct’. I also keep losses small. My sell points try to factor in ‘mildly catastrophic’ events, so even if I’m caught on the wrong side of a downgrade, chances are I’ll still be able to sell within my initial risk profile. I get really antsy anyway when I trade doesn’t work within a couple of days, as most of my winners show signs of life within that time frame.
Since all of my trades made since joining stocktwits are documented on my chart.ly page, you can find plenty of examples there. You can see that I very rarely (if ever) buy a stock making a new relative high. Don’t get me wrong, I may be buying a few percentage points below the high, but I do not trade on breakouts. Without going into great detail, I started in this business trading breakouts, but the risk/reward just isn’t favorable enough for me to employ that as a primary strategy. Buying the dip is an acquired skill, as many are turned off by trying to enter a stock that is selling off. Through years of patient and prudent observation (and paying my “trader tuition” i.e. losing trades), I have become very comfortable spotting patterns that appear to repeat themselves over and over.
So how can this blog be a companion to my updates on stocktwits and chart.ly? Good question. I haven’t really figured that out yet, but I’ve been sitting on this for a while now and figured it would be a good time to finally get something written down here. Here are a few things I have been tossing around in my head:
- highlighting stocks that I think look interesting and may be thinking about purchasing
- reviewing trades that go right and wrong
- trading psychology (one of my favorite topics)
- general commentary about the markets
- possibly even commentary unrelated to the stock market…likely regarding sports
So, on that note, I’ll be signing off. Enjoy your President’s Day hiatus from the markets.