A Little Q & A

I received an email from Richard yesterday which contained several very good questions related to my posts about those two trades I made yesterday. I thought others would like to see my answers so I’m going to answer the questions here:

Q: Regarding that ADTN trade, do you ever re-enter a stock after having been stopped out? I see lots of times, such
as the ADTN 5 minute chart, where that would be profitable; but I haven’t been doing it because I have to keep myself from “revenge trading”.

A: I usually don’t re-enter a stock for the same reason as Richard. Once in a blue moon I’ll do it if the stock gives an entry that I like but I’d rather just move on to the next stock.

Q: Also, you mentioned making 15 trades today. That’s 4 times as many as I’ve been doing; you must be trading lower volume stocks than what I’ve been looking at. What kind of volume do you usually look for?

A: 15 trades in a day is the most I’ve ever done. It’s about 3 times normal for me but my trades tend to come in bunches. I’ve had several days over the last month in which I’ve done 10 trades but then there are days when I may do 1 or none. The two main scans that I use (top Nasdaq % gainers & losers) are set for a minimum volume of 200,000, minimum price of $5/share and volume > 50% of the 20 average volume. I usually bump the volume surge filter up to > 100% of average volume after 10 or 10:30 and on days like yesterday I’ll bump it up again later in the day. I don’t really know where 200,000 came from. I’ve been using it on my TC2000 scans for years so it’s just stuck in my mind.

Q: And how do you divide up 15 trades long vs. short? If the tone turns negative and I’m long, it seems like often I’ll be stopped out on all my trades.

A: Yesterday all 15 of those trades were longs. However, I don’t think I had more than 8 or so open at one time. I got stopped out of some with a quickness but I was able to hang on to some others for hours. The direction of my trades is based off of the intraday trend of the Nasdaq, so if it’s trending higher I’m only looking for longs. If the trend changes intraday then it’s decision time. I’ll either ratchet up my stops or if things look really bad I’ll just bail outright.

The only reason that so many entries triggered yesterday was because the market’s trend was so strong all day long and the stocks triggered throughout the day. If they all triggered at once there’s no way I’d jump into 15, or even 8 stocks all at once. Likewise, if my first two or three trades went sour real quick I’d be real cautious about taking any more trades.

Q: Do you size your positions based on an acceptable loss for the trade, or for the day given your expected number of trades?

A: My positions are sized solely by the percentage of my equity (well under 1%) that I want to risk per trade and the stop loss point of a particular trade. I don’t know how many trades I’ll take on a given day so I couldn’t factor that in even if I wanted to.