Bandaids required

Ouch, that looks like it could hurt. You may see me make a comment from time to time on twitter about using Welding Gloves. I use this as a simple analogy in that I am just trying to highlight a key element in my trading: Be prepared. Some trades simply require more attention and caution, and some require a realization that there is enhanced difficulty in finding an entry in the first place.

This past week I embarked on several Knife Catch trades, including one that had been simmering for just over a week (FFIV, F5 Networks). The other KC trades that I focused on were BRCM, F & WHR. I have been getting some good feedback throughout the week regarding these trades (I am open to feedback no matter what kind, including criticism). I received great questions with several on something quite simple: WHY !!

In answering that question of "why do you do this trade", I would like to walk you through my thought process on trade setup - soup to nuts. First and foremost, my trade preparation involves running stock screens (as well as getting trade ideas from StockTwits). Because I like a variety of trade opportunities (long and short), I run all my scans each night and during the weekend. These scans will produce KC trade opportunities daily. However, some of these KC trades don't allow for much preparation (sudden gap down for example), so at times I pass on the opportunity for this reason.

After looking at all the scan results, I try to pare the list to under 50 before I start my "real" filtering process. This part of trading preparation will be harder to define easily as I have a lot of nuances that I am looking for. For the purpose of this post though, I will stick to Knife Catch trades. Since I often run several different Stalk Lists, including one just for KC trades, I have to be good at one aspect of trade setup once I build all of my Stalk Lists: price alerts. It does little good to do all the preparation, if you fail to set price alerts on stocks that you want to monitor. You will see me tweet about this from time to time, it is no fun when I fail to set my price alerts and then later realize that I have missed an expected move entirely. A trade "whiff" if you will.

In the case of the 4 trades mentioned above, I had running 5 minute charts as well as other time frames. My rationale for choosing the 4 is this: all 4 stocks had a key element in common as they were all 4 what I deem to be well known or followed stocks. I do take this into account in my filtering process. I do use Fibonacci in these trade setups as I want to have a solid idea of where I think price will revert to. I can not stress enough on just how important this is in my target identification.


Updated. Holding abv supp (42.7). Knife Catch play in progress from A/H.
Feb. 2 at 10:06AM | Bullish > Bullish Unassigned

I predominatly scale out of my trades and so I will define a range of return on the trade overall. This will not always work well, and this past week was no exception. In reviewing my BRCM trade this weekend in more detail, I simply did a poor job of assessing where I was in the trade - after each time I scaled out a portion. I was focused on a return, but ignored other factors in the stock price and volume that were big clues to further upside. Although I re-entered long in the trade on a pullback, I clearly lost some additional return on the trade due to this mistake.

I remain long a full position of BRCM and 1/2 of F and FFIV from the trades mentioned here. I closed out the WHR long position, and although it has run to the upside further, I am more than satisified with the trade performance.

So in summary: Be Prepared, have a plan, execute the plan. Repeat.