A successful trading strategy in a way is similar to a chess game like GO. The difference is that one is you and the other side is the market. Good chess player should be able to handle different moves by your opponent. A good trader should also be able to deal with different market movements as well. In the case of GO, the goal is to capture the bigger territory than your opponent. Very often, you have to sacrifice a few stones to achieve the goal as long as the potential territory (gain) is greater than the lost stones (loss). The concept of margin of the victory or loss is also important. In Go, if you can minimize your margin of losses (a few points), and maximize your winning (10+ pts). You can still win even if your winning percentage is below 50%. This is exactly what a successful trader does. When he loses, he manages to lose small. However, when he wins, he wins big.
A professional GO player can think of many potential moves by his opponent. This is because some players are very good in capturing territory through attacking techniques, while others are better in defending their territories by employing efficient formations of stones. Some players prefer territories around the corners and edges of the board. Others prefer the middle. Based on the understanding of his opponent, he needs to guess what moves his opponent would make. Then, he would picture how several scenarios would play out. Then, he would pick the best play. His opponent often places the stone at a point to his surprise. He has to think of a new move to counter that. A trading process should be very similar. You should always have a plan to deal with different market movements. Strategies of dealing with different stocks (opponents) should differ under different market conditions (bullish or bearish). But, there should be a common thread in discipline, loss cutting, etc. An amateur often assumes that a stock will go to his plan (up). When the stock does not, he will be at a loss of what to do next. If you are surprised, it means usually that you are not well prepared. It may even indicate a hole in your strategy.
Long Secular Growth Companies: AAPL, GOOG, BIDU,
using 15d-80d cross-over points.
?Short Secular Declining Companies: bby, spls, ea, hpq, dell, pbi, amd,
Long stocks, which are options: C, BAC, MTG, HLS at extremely depressed levels. The stocks themselves have become call options.
Long ZIV/Short VXX, UVXY
Key Strategy: 15d-80d crossovers
It is only supposed to work for hyper-growth companies. For others, it has been treated as a test-trade, where trend is prone to reverse.
Big Negative surprise announcement.
Other related patterns:
- Head-shoulder formation
- Heavy volume, on a high point, with little price movement.
- Break-out Pattern
- Cup and handle
- Big-Up Day or follow-through day
- Bid-Down Day and day 2
- Intra-day hedging
- Intra-Day postive surprise announcement
- Intra-Day Square-Root pattern (plateur shaped upward sloping chart).
- Intra-Day buying a stock whose competitor announced bad earnings, using intra-day 10-15 min chart patterns.
There appears to be a greater negative drift for companies, which missed earnings, on a bid down-day.
Today, 1/24/14, was such a day. IGT, GDII, ISRG, RMD all underperformed the Russell 2000. It may make sense to short these stocks between 10-11am when it is clear SPX will be down for good (low advance/decline ratio, high VIX move).
looking for N
After a company pre-announced on the down side, buy its competitors' stock for a trade. It requires a thorough understanding of the intra-day trading dynamics.
Intra-day surprise announcement.
There seemed to be a way of going for the initial trend (positive or negative) following a surprise news. A surprise event during a trading day does not give participants time to figure out what to do. They are forced to follow the initial trend, which should continue until the middle of the next day because there are always participants who did not learn about the event until the end of the day and they would be participating the same trend the following day. The stock should settle down quickly to a new compromised price (within next couple of days) between buyers and sellers. The opportunity lies in the transitional chaos.
Selling Calls on companies with really disappointing earnings
BBY, AAPL, LULU are recent examples, where the stock prices never got a chance to recover. The market and sector bearish sentiment contributed as well. Some studies are needed.
It seems that VXX has a low delta with VIX when VIX is under 18. As soon as VIX crosses 18 towards 20, VXX's delta picks up. More data is needed. One idea is to switch VXX short into puts.