Bought XOM @ 60.50, set the stop-loss at just below 60 at 59.98 because I was not able to buy it at that level. It looked strong. Today it hit the stop loss. I did not move the stop loss above it because I wanted to avoid getting hit by market noise.

Lesson learned: Should have waited to buy at a lower level to make the upside move of 1.5 points easier. I was very eager to put on the trade. Waited for few days when the stock was not moving up strongly. This tested my patience. Next time I have to use the bracketed buy to take advantage of the 1.5 to 2 points move every day. Risk = 0.50 cents reward = $ 1.5 to $2.

Bought 100 WFR @ 24.84, yesterday. It hit the stop loss 24.00 today. All tech stocks went down due to earnings disappointment by Yahoo and Intel. This is one of the reason the stock went to a low of 23.95. Surprisingly it finished the day at 24.51. Not too bad. Earnings release is scheduled for Jan 26. It is safer to buy and sell this before that. It is on a very nice uptrend. Loss on this trade - 84 cents per share.

The MACD was going down whereas the 22 day EMA was up. MACD histogram going down when EMA is going up would have kept me out of this trade from the beginning. This was a mistake that I realized after I put on the trade. Wait till the MACD hits the low and starts going up. That's the time to buy this puppy again.

Trader's Almanac 2006

A very good book on market behaviour that goes through different cycles throughtout the year. Includes the effect of mid-term elections and other important patterns. Shows when the bulls and bears are in control of the market.

Looking at the jan month, I have decided to buy on tuesday and liquidate on or before friday.

Read the article on over-valued stocks on Yahoo finance. Analyzed those stocks by dropping them into my trading system. Looks like the people who read the article have bought into those stupid analyst's comments. One of the stock that I picked to trade was contrary to the anyalyst comment (I bought it instead of shorting it).

Entered into that trade around 2 pm. Risk : 84 cents per share. Bought 100 shares. Reward : This stock can go up $2 easily. The long-term trend is up. Bought the temporary pullback to the EMA. Fast oscillator showed that it was oversold. So entry is fine. Stop loss is set at 84 cents below the purchase price.

XOM has taken off, it is way above the EMA. Let's wait and see if it will pull back for another chance at buying. The news is that oil price is up and the oil stocks are moving due to that news.

Second Trade of this year. Bought xom @ 59.43 and sold @ 60.43. Reason for exit: The rally was not a real breakout. It fizzled out after first week of trading in the new year. The market seems to be booking profits. Reason for entry: MACD histogram was rising breaking the back of the bears, EMA was rising. It looked bullish and set for a strong upward movement. Short term profit taking has made the bulls weak. The fast oscillator was not at a highly bought level. It was close to approx 75%. Stop loss was set very tight (only 50 cents) because of the signals from the chart.

Feelings: The swings tested my patience. I had to re-evaluate my original analysis of the stock due to the market conditions. Happy because I quickly moved the stop loss to breakeven. I did not want to turn the winning trade into a losing one. Another reason for the sell is to allow me to step back and analyze or let some clarity emerge from the charts.

Another reason for taking the exit early is to put on more trades and learn. At the end of the market, the chart shows a pennant (width of the high and low is getting bigger, 1,2,3,4 etc). I think a breakout will occur at the end of this chart pattern.

So the question is how to recognize the end of the pennant?

Garbled post. Will update later

Combining RSI with Bollinger Bands

I read a very nice article on Active Trader about using RSI that is sensitive to the market conditions. The usual RSI indicator has a fixed values to indicate the overbought and oversold conditions.

This new trading system uses Bollinger band superimposed on the RSI. It varies the values of the sell/buy signals by varing it according to the volatility. Backtesting of the system uses 1 million dollars for the period 1995 through 2005. The results show 3 years out of 10 in the red. The results are better compared to the performance of using just the RSI by itself. Drawdowns are very minimal. The return is very high. I think it varied from 5% to 30% from year to year, with an impressive profit at the end of 10 years.

The only variable that is bothering me is the trading capital used. Not everyone has the luxury of trading with 1 million dollars with 5% risk per trade. So how would this perform for an account with 30k or 100k with 2% as the risk per trade. Only testing can reveal the performance for this scenario. This was for the stocks.

The same system was backtested for futures and the result was 100% return on 1 million dollars.