 Platinum Customer
Joined: 4/17/2006
Posts: 271
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I'm a newbie and would appreciate some feedback re how to possibly avoid buying a stock just before it crashes. E.g YMI had rapidly rising TSV, OBV & MS, BOP & vol building on up move. 1/31 it gapped down hugely, losing 53% for the day. I had had my eye on it, but, luckily, didn't buy...whew! What were the signs leading up to the crash that might have suggested impending disaster and to avoid or even short this stock? I'm sure seasoned traders see many more signs than I see which are as follows: 1) 1/22 huge bearish engulfing candle; 2)dramatic fall in MS after looking like it was strengthening; 3) mid Oct and end of Nov big red vol days; 4) a preponderance of red vol days over green even as price was advancing; 5)weakish stochastics and MACD as price increased. Any glaring or subtle signs more others can see that I'm missing? Similar situation with STSI which was starting to look strong, even gapping up on 1/17 before swooning 32% on 1/19. (Didn't trade this one either...another whew!) Thanks for any feedback folks might have.
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Registered User
Joined: 3/25/2005
Posts: 864
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QUOTE (sharkattak) YMI -- What were the signs leading up to the crash that might have suggested impending disaster and to avoid or even short this stock?
Uh, how about the fact that it is a penny stock?
That alone is enough to say 'Buyer Beware'.
Also, there is that little thing we call news that
can make or break a company's stock -- especially
when the company is a drug venture as this one is.
Play with Penny Stocks and you play with fire.
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Registered User
Joined: 4/3/2005
Posts: 91
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SharkAttack,
IMO, there was no signs visible to me and evidently to many others. I
had also looked at it in the past month when it was under 3.00 because of
uptrending factors and company basics ( financial and pipeline), but found better choices, and of course I am glad I wasn't in yesterday. As was said above, news was the factor rather than poor action on the part of management or the company. If you read the report on the ending of the drug trial, you will see that it wasn't due to safety, but instead it wasn't going to improve the survival rate as utilized. Maybe it never will, or maybe the data collected will indicate different dosages or utilization. The company quickly acted to their credit.
I agree that the lower price comapanies are much more risky as they are usually very poorly financed and ran and more susceptable to try and get out of problems to the benefit of inside people. However, price alone should not be the determining factor in my opinion, just as technical indicators alone should not be the entire decision triggers. Research must also be done by reading the SEC filings and the staatistical pages of Yahoo or if your broker provides research publications, use them. I can read indicators in a few minutes, but the research can takes hours. I use indicators to find candidates and then research before buying/selling, so if a trade does go against me, I have a better chance or decision making.
But Large companies can screw up royally also. I was in Merck when their big news on vioxx hit and saw the price go from 40+ to low 20s, and they evidently tried to cover up their problems and it WAS a safety issue, so you may do better with higher priced stocks on the average, but they are not immune from problems with surprises.
Keep learning and good luck, All just my opinion.
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Registered User
Joined: 10/7/2004
Posts: 2,181
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shark;
I'll throw my two cents in here. I'm certainly not offering anything new to most of the traders on this forum (especially since I don't know as much as they do!); but these might be just a few more insights for newer traders to stash away in the ol' noggin. Incidentally, it seems like you've done a pretty fair job of TA on this stock yourself.
One component of successful trading is probability; and to what degree one wants to mess with that. I like relatively aggressive returns but within the bounds of high probabilities. I like consistency; so I'm always looking for the balance of how high I can turn up the heat on gaining returns without starting to take losses too frequently.
For me, if I had been watching YMI, the buy signal would have come on 12/29 and my entry would have happened right at the open on 1/03. If I can't get in somewhere around there, while it's riding along a squeezing 20,20 bollinger band and near its supporting long-term trendline, then I'll just put it in a watchlist to check back on later.
And I sure wouldn't have gotten in during all that congestion that came after 1/19, when it had gotten outside the upper bollinger band and then turned back inside of it. A real good rule of thumb for me is when a stock has had a nice climb, a la 1/03 to 1/11, roughly 17% gains in about a week and a half, then it gets completely detached from the upper bollinger band, that's when you know the probability is not on your side like it was.
And then there was the meat-cleaver-to-the-forehead signal that came on 1/22 with the massive drop on a volume increase. Oh yeah, other than smashing your thumb with a framing hammer, how much more pain do you need to know the stock is shouting, "Get out! Get out now!"?
Finally, draw a resistance trendline across the highs of 2006 and you can see that YMI barely broke that trend line, ran into congestion and then fell back below it. At that point, you definitely don't have probability on your side. Pretty good time to take your leave. The Bible says not to overstay your welcome...never more true than with the stock market.
The bottom line? I'd rather get out when I'm not feeling confident and live to trade another day. If the stock goes up, I haven't really lost anything, others will go up and I'll hitch a ride with them. If I'm in and it gaps down...not good. I like probability on my side.
Just some thoughts.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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I agree with memorableproducts.
We've seen some success in low priced stocks on these
posts. This is the other side of the coin.
There is no technical analysis the could have predicted
these results. Since they were news driven.
I guess we could say that the trader could keep on
top of announcement dates for news related to the
company. Its doubtful they would though. Since it is
the danger, volatility, cheap price, that has attracted
to this type of security in the first place.
The only real tool you can use with absolute certainty
(not matter what you buy) is diversification.
If a stock falls 50% and it is 10% of your portfolio.
It only creates 5% damage.
The only advice I can give:
Focus on higher quality stocks.
Don't keep all your eggs in one basket.
(think I've heard that before)
Thanks
diceman
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Registered User
Joined: 3/21/2006
Posts: 4,308
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Some are strictly technical traders (myself included), I agree with Diceman, this case is the ugly side of trading, but this can and does happen to any stock in any price range, bad news or catastrophe have destroyed fortunes across the entire spectrum of securities trading...
Not in every case, but in this case there was plenty of negitive signals to abandon ship.. If you got stuck in YMI then it was your own fault..
Tobydad has already pointed to them on 1/19 there was a revers hammer candlestick and the next day the price was droping like a sack of potatoes, I would have sold at $3.70 below the low of 1/18 and you still would have had a nice profit (If bought on 1/03) like Tobydad has suggested..
We on this forum (I thought) have moved beyond the disputes concerning which price range is the best way to trade..
Pay attention to the proper technical signals, and for the fundimentally enlightened then pay attention to those signals as well.. It does not matter what price range you trade in. If you do not pay attention to your holdings then you will not be holding them for very long..
As usual just my opinions..Apsll...
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Registered User
Joined: 3/21/2006
Posts: 4,308
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One more point, Diceman you know that I respect your experience, but you say that "there was no technical analysis that would have predicted this" Well I beg to differ..
I have already made reference in my above post to the candlestick pattern that I feel showed you that it was time to sell, but the indicators also gave many clues...
On Monday the 22nd (the day I would have sold) TSV and Money Stream took very sharp turns to the down side. And BOP fell below zero.. There was extream selling presure in the form of exelerated Volume to the down side..
As far as Technical analysis goes, I am sorry but every negitive sign was there. Everything exept the red flags waving....
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Registered User
Joined: 1/28/2005
Posts: 6,049
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Any stock at any time. Even blue chips can be hit by bad news.
The problem with lower quality issues is they have less
of a leg to stand on.
They could be a "1 trick pony" where bad news can essentially
"break" the company.
A larger more stable company has more resources to withstand
the storm.
Thanks
diceman
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Registered User
Joined: 3/21/2006
Posts: 4,308
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There is no doubt that your point is valid.. I just believe that success comes from how you play the stock.. That is why (as you stated earlier) that there has been success in the lower quality stocks on this forum latley.
You could have had success with YMI if you had played it correctly, (This is not to brag) but my success, I think comes from proper technical analysis and timely acction. Proper entry and exit strategies, Diversification and money managment..
These are skills that should be used on all stocks. I play the low quality stocks because they have quicker price action and I have confidence in my ability to play them properly. I agree that they are more risky.
Poker is risky, and the uninformed will lose there shirts every time. But the ones that are good and take the pot consistantly do so becaus they know how to play the game..
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Registered User
Joined: 3/25/2005
Posts: 864
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Thanks for the support, Diceman.
As for the rest of you guys, you can justify proper entry to proper exits, before any major problems will unfold, all you want. But, no matter when you think would have been the optimal time to take a position in this stock, there is no way you can predict when the bad news is going to hit. It could come right after you guys would have gotten in on 1/3 (or whenever your optimal entry point is) and you would have then experienced the same exact thing that happened on 1/31 anyway. And, undoubtedly, it would have hurt you even more than if you had been in a higher priced stock because you probably would have had significantly more shares on the table. And, not even a stop-loss would have kept you from suffering a really significant loss (but it would have if you had been in a higher priced stock).
For example, you may have had 3000 shares on the table with a $3 stock as opposed to, let's say, 300 shares with a $30 stock. Let's say the stock then declines a $1 in value. This means that you would have lost $3000.00 as opposed to $300.00 (and that's with a stop-loss in place).
I don't know about you but I think losing $300.00 is a heck of alot better than losing $3000.00.
And, finally, I disagree hold-heartedly that there is quicker price action in low-priced stocks. You have more
chance of a $30 stock going up $3 in a day (or two) than you do with a low-priced stock (and your risk are reduced significantly more because you have much less shares on the table being exposed).
If you want to keep playing with fire, that's your business. But, don't say I didn't warn you.
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Registered User
Joined: 3/21/2006
Posts: 4,308
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Memorableproducts: Are you even reading these post clearly before you put your fingers to the key pad??
The scenario that you paint on how one would play these (penny stocks) is not even close to how successfull traders actually play them.. I thought you agreed to stick to what you know best (stocks over $13.00)
If you had read the earlier posts more clearly you would have seen (what I wrote) that a successfull trader would have read the technical warnings for IMY and been out of it on the 22nd with a profit..
I do not say that quality stocks are not more reliable. And everyone on this forum is now more sensitive to the inexperienced traders, It shows up in many of our posts that do not trade these stocks if you do not know what you are doing..
Clearly some of us do know what we are doing and we have the right to discuss our theories openly on this forum..
You are just trying to re-hash an old argument that was settled a long time ago.. How valid is your point about penny stocks when you read the stories of those that are making profits (I know you might think that they are making it all up) but the stories I read are of someone doing analysis and giving good solid reasons to buy the stock before the price gain takes place. And then a few days later they will tell how they sold the stock for a profit How can you make that up.
No one is disputing the fact that low price stocks are risky.. So what exactly is your problem...
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Registered User
Joined: 3/21/2006
Posts: 4,308
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One more thing look at ZONS (In your price range) 10/26/06 and 10/27/06 these down side gaps can happen in all price ranges.. And I do agree with Diceman that a sturdy company can weather these types of storms beter than the lower price companies..
Diceman and Havenocents both have said that if you are a good trader then you will have success in all price ranges, and I do....
Lets please not turn this into an ugly thread, we have had to many of those (and yes I know that I have been a major player in all of them) I guess that that is a very small thing that I have in common with HNC is that I am a little ruff sometimes...
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Registered User
Joined: 4/18/2005
Posts: 4,090
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Ihaven't read allthe other threads by brighter men than myself yet (diceman, apsll) as I am about to setp out for a bit.
At a glance there was no warning... this is probably news..However there was a bit of BOP showing negative. I tend to shy away from this. Also I use TSV and ROC togeather on a shorter term daily view (24 and 12 respectively) in the middle window. See how they are bouncing off the top of the chart? That would be a sign of caution for me. I like to look for quick shorting oportunities.. however that time is passed.
In the end ther was no real warning.. that is why you spread your purchases out. HOwever cheap stocks are generally cheap for a reason.. they don't lend them selves well to swing trades. If I consider traidng stocks in this price range I also back it up with fundamentals and a longer term plan. but watch YMI form here ... often they will form a new bottom soon after such a gap
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Registered User
Joined: 3/25/2005
Posts: 864
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Apsll --
No, I did not miss your point.
But, I think you are missing mine --
that the bad news that came out on
this stock could have occurred at any
point after you might have taken a position
in the stock. And, that your losses would
have been much more significant(most likely)
because you would have had many more shares
on the table than you would have with a higher
priced stock.
When I said I would stick to the $13 and above
stocks, I meant that I would not critique the
technicals of the low-priced stocks.
I didn't say that I wouldn't continue to warn others
(newbies) of the the dangers of going down that road.
I have the right to do that if I want. There are newbies
signing up for this service everyday (maybe). The new
ones are not going to know about previous discussions
on this topic. So warnings need to be repeated from
time to time about the dangers of penny stocks.
By the same token, you have the right to spout the
positives of exploring this avenue and I am not
knocking you for what you do here. So, what's your problem?
Also, I never said that I didn't believe that these
profits were being made by you or others playing
the pennies. That was someonelse.
Your ability to navigate the pennies is impressive
but my point is that you nor anyonelse is immune to getting hurt when bad news throws you for a loop in the
penny stock you may be in at the time because you don't know when news that devastating is going to occur.
Are you telling me that if this country were to
experience a terrorist attack on a grand scale while
you were in a penny stock position that you would
have seen it coming and gotten out of the stock before
the terrorist attack occurred?
Well let's say that you don't have that crystal ball.
And let's say that you have 10000 shares of a penny
stock in play and I have 1000 shares of a $30 stock
in play when the terrorist attack occurs. Let's also
say that we both have stop losses in place. Who is
probably going to lose much more? Me or You?
In order to make any profits in the pennies worth
trading for, you need to trade many more shares.
Wouldn't you agree? Therefore, you are exposing yourself to much more risk. Am I right? Or is this Just My Opinion?
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Registered User
Joined: 3/21/2006
Posts: 4,308
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You have valid points here, I have taken losses everyone has. I must appologize for over reacting, I like the way you are stating your case here, but your tone in yesterdays post threw me off.
I need to stop reacting to what I percieve as the judging of other peoples trading styles...
I trust candlestick patterns (to much sometimes)so When I see a negitive pattern such as YMI on the 19th and the 22nd I will either bail out or keep a close eye on the stock..
I also assume (maybee incorrectly) that the big players in the market know about bad news before we know it happens, and thus you will see them geting out of a stock slowly at first (That is what I attribute a negative candlestick pattern to).. Then the bottom falls out when everyone knows about the bad news..
Maybee I am wrong in thinking that way. But believe it or not, when I bail out of a stock due to the candle pattern I am right most of the time, and when I am wrong then there is always the option of buying back into the stock (unless it takes off to quick to jump back on)
Not every stock purchase goes my way of course, but I do seem to get out in time to avoid big losses.. And you are right, no one can prepare for a major event like 911 of course..
Hey if Havenocent and I settled our disputes then I can with you also..
I will not react to your opinions any more and I am sorry
Apsll...
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Registered User
Joined: 4/3/2005
Posts: 91
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Yesterday and today I took positions in YMI at the 1.72 level as a "value" issue. I probably should just keep quiet, but I like to see success and failure stories from the start. If I lose, I would tell it, if I win, ditto, I learn from my actions and those of others. I bought YMI because after spending an hour or more reading on the pipeline and also noting that they had about 1.40 per share of cash currently, I expect the PPS to increase with a higher probability than a loss, either with a buyout, as the pipeline looks worth about 50Mill, more or less, and the cash should give it a value of about 2.50 within short to midrange of time. Since there is little evidence of wrongdoing, or safety issues, I think the legal problems will just be a few who think the company owes them due to bad breaks, so the floor should be here or a little lower. I wouldn't recommend it for anyone except fundamentalists who can stand the suspense,and possible losses, as there are no real indicators that have enough periods to start from here.But keep it around and watch for indications.
AIMHO, use your own judgment.
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Registered User
Joined: 3/25/2005
Posts: 864
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Ok, Apsll, we're cool. Apology accepted.
and your point about anticipating when it
is appropriate to get out by reading the candles
is valid and can be learned by a newbie.
It is just that, the newbie may know that his
training is telling him it is time to exit but,
he may lack the disipline to follow thru
as you would in that situation. He may say
to himself, 'Oh I know I should get out right
here but if I just hold on a little bit longer
it may not get any worse -- what the heck, I'll
stick it out. That one long red candle is probably
nothin'.
Nextday: 'AAAHHHH', 'AAAHHHHH' 'Why did
I not follow my rules!!! Now what am I going to do?
If I had only followed my training instead of going on
that hunch...".
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Registered User
Joined: 4/3/2005
Posts: 91
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I use candlesticks foremost in my selections, but I have made a rule to wait for confirmation before committing. I may lose a day's gain, but the confirmation sure decreases the risk.
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Registered User
Joined: 3/25/2005
Posts: 864
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QUOTE (ipendley) I bought YMI because after spending an hour or more reading on the pipeline and also noting that they had about 1.40 per share of cash currently.
No ipendley, the book value is 1.40 per share.
Their available cash is -.41 per share.
So if they liquidate the company today and you
have a 1000 shares vested as a preferred share
hold (I think) then they should pay you 1000 * 1.40
for your shares or $1400.00 because the book value
of all of the company's assets is $1.40 per share.
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Registered User
Joined: 4/3/2005
Posts: 91
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Odd, if you go to yahoo finance page for YMI and look on the key statistics page, it says:
"total cash = 79.58 million"
" total cash per share = 1.427"
on the balance sheet and "book value per share =1.323". This is the same on another premium service's sheet, well within a few cents. So where did you get your stat?
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Registered User
Joined: 4/3/2005
Posts: 91
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the way I learned "book value" on a balance sheet, it was
The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.
This might apply in a liquidation, but not in a buyout where the final price can be a multiple of book value.
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Registered User
Joined: 3/25/2005
Posts: 864
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Yes, you are correct on your definition
of book value, ipendley.
For accounting purposes,
Book value is the accounting value of a firm. It has two main uses:
1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated.
2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced.
Interesting, about the Yahoo finance site, I will have to
investigate it. I use the financials snapshot tab for any
stock symbol on the cnnmoney website. I have always considered it to be reliable.
Maybe I am wrong to think this. I wonder now.
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Registered User
Joined: 4/3/2005
Posts: 91
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I do appreciate you bringing it up. It is interesting in some of the book values the large cap stocks have: ( according to yahoo)
GOOG -- $47.32
MRK --- $ 8.88
HPQ --- $13.96
ABB --- $ 2.63 ( one of Jim Cramers favorites :)
J.
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Platinum Customer
Joined: 4/17/2006
Posts: 271
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Thanks so much to everyone who has offered feedback on this issue! This has been an invaluable discussion with a number of points I hadn't considered. The debate back and forth is worth its weight in gold...each issue is one that each new trader has to consider, balance and debate internally to decide what strategies make sense and fit.
1. It's good to re-hear cautions about penny-stocks, drug ventures, news.
2. Bollinger Bands (haven't really used these...will look more closely at them).
3.New candlestick “Meat Clever to the Forehead” MCTTF....very descriptive...like the name better than “Bearish Engulfing”which is almost a euphemism for what really happened on 1/22.
4. I missed identifying the “reverse hammer” on 1/19.
5.I also failed to look at what I think is a “gravestone doji” on 1/23 which paints an even gloomier picture than the MCTTFF alone (as if that weren't enough by itself!) when combined with it.
6. I have recommited myself to a general rule-of-thumb: I've read not to trade the first 15-30 mins or so of trading...in part to avoid getting dollar bills sucked out of your pockets by a monster down-gap. As was suggested in the discussion, one might even have entertained the idea of shorting.
7. And Tobydad, what signs are you seeing that would make a buy signal on 12/29? I'd love learn to be able to get into a move that early.
Again, thanks so much everyone for each and every point. This kind of back-and-forth is all MOST helpful!
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Registered User
Joined: 3/21/2006
Posts: 4,308
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Sharkattak: Sorry that the debate between myself and Memorableproducts got a little to heated.. But I would like to make up for that by attempting to give some input concerning your quession of Tobydad.
Let me start by saying that in no way am I trying to speak for, nor contradict him...
I use candle stick patterns for my entry and exit signals. (and as others have mentioned) I use indicators to back up these signals..
Lets look at YMI in early January (zoom 5)
Let me state again, not to contradict Tobydad, but my buy signal would have come on 1/09/07 I call that type of candlestick a spring board ( wich means that there was a signifacant rise in price that exceeded the highs for at least the last four or five trading days) see how it sticks out like a sore thumb..
Also (as far as indicators) see how TSV on the 8th and 9th just jumped right out of its seat, and volume on these two days (along with money stream) was increasing higher and higher. These are all very possitive signals and it would have triggered a good entry point.
There were many other good reasons to buy on that day that would take to long to go into, but I hope that you grasp the basic idea of how I would have entered IMY...
Anyway good luck in your trading..
Apsll..
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Platinum Customer
Joined: 4/17/2006
Posts: 271
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Thanks, Apsll. Helpful insight on how you determine when to buy. I've been noticing those little springboards, and have gotten to like them quite a bit. Zooming in more than I usually do accentuates them. And this makes me think that when I have a potential buy or sell, I should really zoom in much closer to help me decide which seem to be the strongest candidates. Thanks again, and no need to apologize. I find that kind of debate helpful...makes you think about all angles.
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Registered User
Joined: 10/7/2004
Posts: 2,181
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OK, against my better judgment I'm going to give the recipe for my secret sauce. This is just between us so you have to promise not to tell anyone.
re: YMI: Why would I have entered a conditional buy order for a penny above the hod (high-of-the-day) at the close on 12/29? I use 6 primary signals. When they all match up, it's rarely wrong. I can't always tell what to expect as far as profits but it's rarely less than 3-5% within a week and often a lot more if I'm willing to wait 1-3 months.
The indicators are: 1st, 20-day bollinger bands on price, 2nd, LR30 on price, 3rd, the candlestick pattern (don't know the correct names, have my own system for remembering them ie. Skyrocket ("fuse" on the bottom), bomb ("fuse" on the top), then there's everyone's favorite, MCTTF), 4th, jump in volume, 5th, a confirmed supporting trendline; and, 6th, my (up til now) proprietary blend of TSV26 with a 13-day bollinger band.
Don't want to take forever talking about it but when the candlestick looks bullish, is running along the lower band of narrowing bollinger bands, is supported by the LR30 (the closer the better...like a seesaw and it's the candlestick's turn to go up); and the volume increases and TSV26 has passed up through the 13 day moving average or even better the TSV26 rises above the upper 13-day bollinger band or even better still the TSV26 shoots above the 0 line with an uptrending bollinger band then that's usually a pretty good confirmation that you've found the reversal point and we're heading up from there.
As always, the big disclaimer: many other factors like market trends, bulls or bears in control, strength of a particular sector (or lack thereof), price of eggs in China (just kidding) need to be considered.
Again, this is not a great system for the newer traders; but those more experienced may want to use some or all of these components or just experiment around with this mix and see if it gives you any new ideas. Newer traders, if interested, should definitely paper trade this extensively because you are down below the conventional strength areas and that's a great way to get burned.
I really hope I didn't just waste a lot of time and space for anyone here but I'll tell you this is how I found MOVI (and why I was pretty confident even when several suggested it was a bad move); also found GNBT at less than $1 last year...didn't have the foggiest notion it would do what it did; GV, EGHT and numerous other good movers.
Blessings.
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Registered User
Joined: 10/7/2004
Posts: 2,181
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Meant to mention one other thing; the LR30 is a remarkably reliable indicator of whether or not to be in a stock (if you follow probabilities). If the LR30 is supporting the price's movement, I feel quite confident. When the low of the day pierces the LR30 after a few days good movement, I know it's time to move my stop loss to right below that low.
When the price patterns are all congested and running below the LR30, I move to very tight stop losses and FORCE the stock to PROVE to me that I should not sell it!
I follow this up with the penny above consecutively lower hod's conditional buy orders to know where to get back in.
This technique has been very good to me. I can't say it will never happen but, following these techniques, I have never been caught in one of those nasty gaps down (missed a very mean one in CUTR a year or so ago this way).
I hope this helps someone.
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Registered User
Joined: 10/7/2004
Posts: 2,181
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SBSA is a dandy example: Sept of last year then again in Nov for a quick 2 day trade then again right now.
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Registered User
Joined: 10/7/2004
Posts: 2,181
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Sorry, just realized the last post was confusing. SBSA is a good example of the buying strategy, not of a nasty gap down.
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Platinum Customer
Joined: 4/17/2006
Posts: 271
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Tobydad, You HOPE this helps someone?! Wow! Going to study your strategy and examples provided over the weekend. It looks very interesting. I can't thank you enough for your sharing what works for you. I'm going to fiddle around with some pcf's &/or scans that might help identify potential candidates. Will be glad to send along what, if anything promising, I come up with. And you've also reminded me that I need to go read a little about conditional orders; I know of them but have only used the standard buy/sell/stop/limit type orders. Thanks again, Tobydad. Folks around here are amazingly generous in sharing their knowledge and experience, and I hope one day to be in a position to carry on that tradition.
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Registered User
Joined: 1/28/2005
Posts: 6,049
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apsll
Quote:"One more point, Diceman you know that I respect your experience, but you say that "there was no technical analysis that would have predicted this" Well I beg to differ.."
To use your phrase " If trading were this simple we would
all be millionaires."
Realize that "showing" how you could get out of this one
means very little. As a practical matter there are not definitive
agreements on candle patterns, volume, TSV, stochastics,
moving averages. Its possible that something you use
could have "worked" but for many that even use the
same indicators it may not have.
I have seen in my testing many "systems" look good
(for even years) then fail miserably.
You would literally need hundreds of examples of this
to "prove" your exit can be accomplished.
If out of 100 times you missed 80 and got caught in 20.
Would you feel good?
How about missing 90 and getting caught in 10?
--------------------------------------------------------------------------------
One other point Id like to make.
Lets say you follow your indicators as described. You
sell before the bad day. Except now we are in the real
world (not in a trade where we know the results) This
time the news that set this stock plummeting is now
positive. The stock goes through the roof to the upside.
This is the type of real world situation which makes a
trader lose their resolve. Next signal they think twice.
They hesitate. then bang your caught in a down draft.
The market has an annoying way of even turning
success into failure. This is what always makes trading
so difficult.
If you are "correct" or not it is simply more dangerous
to trade in stocks where their news is more important
than anything else.
Thanks
diceman
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Registered User
Joined: 1/7/2007
Posts: 45
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Another great thread for us newbies
Thanks to all I learned alot from this thread.
Thanks again
Cowgirl
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Registered User
Joined: 4/5/2005
Posts: 45
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Quote:"For example, you may have had 3000 shares on the table with a $3 stock as opposed to, let's say, 300 shares with a $30 stock. Let's say the stock then declines a $1 in value. This means that you would have lost $3000.00 as opposed to $300.00 (and that's with a stop-loss in place)."
There is a good money management rule introduced by Dr. Elder in his books.
If you want to risk no more than $300 on one trade and your stop loss is $1 away from your buy point, with the stock price $30 you would buy 300 shares(total $9000).
If the stock price is $3.00, you would buy 300 shares (total $900). (Usually the stop loss is much smaller on cheaper stock and you can buy more shares)
The idea is not to risk more per trade than you allow for your account and to calculate it using the stop loss point BEFORE the transaction.
If you use the same amount on all trades, I think it is wise to have different purchase amounts for penny stocks and more expensive ones.
Also, I got burned myself on biotechnology and drug related stocks a couple of years ago and since then try to avoid them because of their very strong reaction to good or bad news. If I do like any, I would buy options instead.
Thanks,
Mike
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Registered User
Joined: 1/23/2007
Posts: 13
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QUOTE (mmlmedv)
If the stock price is $3.00, you would buy 300 shares (total $900). (Usually the stop loss is much smaller on cheaper stock and you can buy more shares)
The idea is not to risk more per trade than you allow for your account and to calculate it using the stop loss point BEFORE the transaction.
If you use the same amount on all trades, I think it is wise to have different purchase amounts for penny stocks and more expensive ones.
From what I understand, it's call position sizing. For example, if you start with 50,000.00 account, and your risk tolerance is 2% per trade. That equals to $1000.00 loss per bad trade. Let support you buy stock XYZ at 20.00 right above support and your stop loss order is under the support at 19.50. This trading plan will allow you to buy 2000 shares of XYZ. If you get stop out at 19.50 with 2000 shares, you'll loss exactly 2% of your account value.
Let's say if you buy stock ABC at $3.00 per share and your stop is at $2.85. With the same $50,000.00 account size and the 2% risk management rule, you'll be allow to buy 6666 shares. ( 50000 x 2% / 0.15 )
This is fine money and risk management under normal trading circumstances. But even then you will still get hurt very bad if the stock you buy is highly speculative and news dependent. And if that stock gapped down 20% in value before you get stopped out, it will still be very ugly.
P.S: interestingly if you look at my example, a 20% gapped down in ABC actually hurt you a lot less than a 20% gapped down in XYZ even thou you bought 6666 shares of ABC comparing to only 2000 shares of XYZ. In fact, a 4,000 dollar loss comparing to a 12,000 dollar loss. An 8% loss comparing to a 24% loss. Just to show how important it is to understand risk management.
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Registered User
Joined: 1/23/2007
Posts: 13
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QUOTE (nyquil)
P.S: interestingly if you look at my example, a 20% gapped down in ABC actually hurt you a lot less than a 20% gapped down in XYZ even thou you bought 6666 shares of ABC comparing to only 2000 shares of XYZ. In fact, a 4,000 dollar loss comparing to a 12,000 dollar loss. An 8% loss comparing to a 24% loss. Just to show how important it is to understand risk management.
My bad, my caculation was off. $4000.00 comparing to $8000.00 loss. 8% compared to 16%.
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Registered User
Joined: 4/5/2005
Posts: 45
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My money management rule for options: If I would normally buy 500 shares and decided to go with options instead, I would purchase 5 contracts. If Delta is low I can go with 10 contracts of cheaper options to construct Delta closer to 1. It is tempting to buy more in options, but money management should be applied with options as well.
When stock gaps down 20% the call position loss is much smaller comparing to stock position if money management was in place.
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Registered User
Joined: 4/3/2005
Posts: 91
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For any that may have followed YMI, you might take notice that their earnings
report Friday was very good, exceeding estimates and was very encouraging. The cash per share still is 1.42/share with the afterhour price 1.80. I still maintain the position I bought after the above mentioned "crash". Not for everyone I know, but you might start watching the chart if you can ignore the previous level before the disaster. Good trading.
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