A poor decision to enter.
why?
In an uptrend, resistance is usually provided by the higher moving average envelope (something like a straight Bollinger Band) and a good time to buy is usually at the value zone (the area around the 13 day EMA and 21 day EMA), and in a downtrend, support is provided by the lower moving average envelope and resistance at the value zone.
in other words, in uptrends, buy normalcy and sell mania. in downtrends, buy depression and sell normalcy.
I should have applied the latter to NOL this time.
Since this is a short term trade, what matters is the short term trend, which is down.
Undoubtedly, MACD histogram has a nice bullish divergence. Very nice in fact.
RSI and Stochastics have bullish divergence yet are capped at 50%.
Why I decided to sell:
1.) Volume rises on down days and drops on up days. Affirms that investors/traders are reluctant to push NOL up.
2.) I bought at the value zone. This would be ok were my intentions to keep NOL for long term. But, since my intention is to sell it off soon, and since the value zone acts as the major resistance in a downtrend, I bought at resistance. And that's suicidal.
3.) My original TP @ $2.10 was way over-optimistic.
4.) My cut loss price is very very far away.
5.) Even as the broader market turned green today, NOL went red. with a unencouraging doji.
What I learnt from this trade:
1.) I was not impulsive and worked the trade out, TP, cut loss and entry price.
2.) I did not enter at my targeted price; $1.97, entered at a slightly higher price which made me lose money, yet sometimes bargaining over a few ticks can cost you. As I know, from CapMallsAsia. (I wanted to buy at $1.55 when it was $1.57)
3.) As important as indicators like MACD, RSI, Stochastics are, Support and Resistance are still the most important concepts and I overlooked that I was buying at resistance. (how could I? tsk.)
Should NOL breakout, I will try not to bang my head against the wall.
Should it drop however, I will thank high heavens.
My watch-list of CMA, Sembmarine, NOL, Noble, GAR, Genting SP and Wilmar aren't giving me any signals to buy or sell, yet. There could be a profit taking day tomorrow or friday after three straight days of strong gains. CMA looks interesting should it drop to the $1.60 level.
I am not a full time trader, I trade on a small account, this account is a small part of my portfolio, and this is not investment advice.
Hi Issac,
ReplyDeleteI'm not a very good trader as well and have made mistakes along the way, but one thing I've learnt is that MACD-H Divergence is not as easy as it seemed to be. It took me around 1.5 years for me to realise the divergence that I've been trading is not the "real" divergence that I'm actually suppose to look for.
Again, whatever I've learnt doesn't warrant me not to make any mistakes as no one can beat the market, but what I can do now is to minimize those errors and continue to pick up wherever I'm left along the way.
Good luck. (:
Chong Jun,
ReplyDeleteWhat do you mean by 'real divergence' trading. Can you offer to explain. Thank you
James
The winning formula in making money from the stock market is not how well you can read "divergence" theory. Do this as it is more rewarding.
ReplyDeleteUse one hand to firmly hold your ball and the other hand to buy slowly when the market is panic selling.
Hi Anon,
ReplyDeleteit's very hard to explain this real divergence as a lot of "feel" comes into play. It'll be good if you can compare the charts that I've posted on my trades before the two I did on CMA and the ones after I traded on CMA. On the apparent surface, they all have bullish divergence, but if you were to look closer at the ones I posted after I realise my mistakes on CMA, you can tell the slight differences.
Again, I have to say that I've yet to be perfect and knowing mistakes doesn't totally warrant I won't commit them subconsciously, and this is especially true for trading in the stock market.
In fact, I might still be trading the wrong divergence so I'd definitely have to trade a few more times to really know if I'm doing the right thing.
Hi Uncle,
Very true! At least you have substantial skills and experiences in buying at support and selling at resistance. I'm actually going to grab my chances on KepCorp the next time it goes down after seeing you reaping your rewards on it. haha!
Hi Isaac,
ReplyDeleteIn every trade, you either make a profit or you become a better trader. Looks like this is the latter. No need to berate yourself for it. It'll be good if you review this 2 weeks or 1 mth later to see how this divergence pans out.
As I've mentioned in the cbox, you're in the right trade but at the wrong price. Ok wat, next time don't chase loh.
Actually LP's the one who've been teaching me so a lot of credit goes to him. haha!
ReplyDeleteHi CJ,
ReplyDeletethanks for the heads up about divergences. It doesn't always mean that a divergence will play out. LP also told me that. Look at Sembmarine's weekly MACD - Histo.
Uncle8888,
I respect you for you've been in the market for so long. I agree, it's very difficult to buy when it's red...like last weeks -90 day. But experienced people like you just carry your ball with your left hand and press BUY with your right. I will definitely keep that in mind.
LP,
thanks. Well, I've already known what mistakes I made in this trade and hopefully I'll learn from it. I'll take your (and Dr. Elder's) advice and review this trade again in 2-3weeks time. as of now, NOL is at my buy price...sigh...haha.
Sorry to hear of your loss. Preservation of capital is key to building up your investment war chest so as to let compounding work its magic. As you build up your experience and skills in analysis, I am very sure you can get better returns on your investment.
ReplyDeleteAll the best!