In physics there's a concept called inertia. A simplified definition is resistance to change in motion. You've experienced this when driving and taking a turn. When your body leans to the opposite side of the turn, it's resisting the change in motion. In other words, your body wants to continue in the direction it was going until another force comes and causes the change. This is how I think of stocks. They want to continue on the trend they are on and continue to do so in absence of another external force.
The trick is to identify the trend. In my opinion, the only way to do this is to use a set time frame. If someone ever says they think a stock will go a certain direction but fail to give a time frame, then that information is useless. This is part of the problem I have with most forums where they rate stocks either bullish or bearish. You almost never know if the person is saying the stock is bullish for the next hour or year. Knowing which would drastically change your strategy. For swing trades I generally am focused on shorter term trends, like the week or month. However, if a stock is in a breakout, I will look at the long term trend to see what the stock is going to return to. After all, the breakout is strongly resisted by the overall direction the stock was already going in.
I once heard a story of a weather man describing what it was like trying to predict the weather in the earlier days of forecasting. He claimed that the forecasters were usually just about 50% accurate. Not great. But if they would just say "the weather tomorrow will be the same as the weather today," they would get closer to 70% accuracy as they were only wrong during transitional stages. While this story is purely anecdotal and basically hearsay, in my experience stocks behave much the same. They keep doing basically what they have been doing except during transitional stages.
These ideas give rise to a couple rules I generally stick to:
1. Trade the trend.
2. Breakouts will return to the original trend.
All other information is designed to get you to more accurately enter and exit positions.
That being said, let's look at the trades I made this week. I had a rough week this week trading. I basically returned the money I made last week on a couple poorly executed day trades. I timed my entries perfectly but bungled the exits. I finished the week off at 202.89. A total of a 28.46$ loss or a net -12%.
This is mostly due to one trade I made on OREX. Here is what happened:
I hesitated due to the volume on the stock. That was my mistake. I was expecting bigger gains and then I was expecting a run that never came. Instead of looking for the indicators, which are in fact relatively easy to spot in live trading, I was hoping for a bigger win. It's a lesson that I have to re-learn every now and then because now I'm going into week three as if it were week one.
Here's all the trades I made for the week. Again, it shows a few dollars less because I can only trade with what is called buying power. You'll notice that my swing trades were mostly profitable with LGCY being the highest gainer at about 7% profitability. I think the highest potential profit from that stock could have been 10% from the time we sent out our watch-list on the previous day.
Set backs like this happen.
A really good friend of mine is a pro MMA fighter. I've never met someone so motivated to achieve their goals. As of yet, he is undefeated and quickly on the rise. Every match he walks out into the arena to the song Tubthumper by Chumbawumba. It's a ridiculous name for a song.... and a band. But the message of the song conveys in a humble way, that my friend is undefeatable, because even if he loses a match, he's coming back for more until he's the best. That's how I feel at the end of this week. I took one on the chin. Now it's time to shake it off, learn, improve, and get back at it.