Sunday, December 03, 2006

Trade Review: TUES

I am starting a new feature. Inspired by Bill, Trader X, Tapeworm, Ugly, and others I have decided to discuss trades I have made. These early trades were made as an educational endeavor to understand buying and selling of stocks using minimal amounts of capital. For the most part I bought and sold these shares as I developed my investing and trading process.

Selection:

I had followed TUES for several months as it slid from $23.00 in the spring to the low teens by mid-summer as can be seen from this chart.

http://stockcharts.com/h-sc/ui?s=TUES&p=D&st=2006-01-01&id=p23970090786

After reading the annual reports, looking at the numbers of the last several years, and visiting the local store, I felt that the company would be a good investment. Looking at the above chart I had noticed that it hit $12.11 in early July, bounced back and found support in the high $12 low $13 area in late August-early September. By mid-September I felt (based on fundamental research and price action) that it would be a good time to buy. So I bought. And then I sold. Let’s look at the results.

Results:

On September 12, 2006, I bought Tuesday Morning (TUES) at $13.23. I can’t really say that there was any particular “signal” that stood out, so I would not disagree describing it as a random entry as discussed in Trade Your Way to Financial Freedom.

On September 28, 2006, I sold Tuesday Morning (TUES) at $14.20.

I had a gain of $0.97 cents a share or just about 7% in 16 days. Why did I sell so soon? I am a FNG that’s why. When you are JAFO as I am at this point and make 7% in sixteen days, I say “thank you very much I will take my money and go home now, please.”

At the time I did not understand the Average True Range or how to use it. In hindsight the ATR (using a 15 day period) was .0373 on the day I bought. Applying Bill Rempel’s “Super Size” formula my downside risk would be $1.12. Obviously in hindsight I sold way to soon and missed the big part of the move, but it could have turned out just as easily that I bought too soon and bounced off the 20 or 50 MA instead of waiting to see it cross-over, as it did several days later.

Getting back to the R (or Z as Tapeworm calls it) now that I have read Trader Mike’s blog (and Van Tharp’s book) I know that I should have measured R and trailed the stop. Using the closing prices as a marker, TUES hit $18.04 on November 16 and $16.89 in the big sell-off on November 27th. So using a trailing stop of $1.12 my actual gain would have been about $3.66 and not the $0.97 I actually received. So while I made .86 R, if I had used a trailing stop I would have been out with about 3.26 R. For the anti-R group the difference was the 7% made against the unrealized potential of 21%.


Bottom Line

I would like to believe that my selection was based on some skill on my part. Or it could have been luck. Or it might have been that oil took a dump in September and pulled up the whole retail sector. What I do know for sure is 1) I made some money, but could have easily lost some as well; and 2) I need to use a trailing stop.

8 comments:

john said...

nice trade...7% in 16 days is great...glad to see you in the R camp

Anonymous said...

You TRADE? hehehehe

Steven said...

T'goddess: Not very well..and never against you.

Anonymous said...

Steven,

Looks like you aren't doing too bad! Congrats! :)

Anonymous said...

I don't understand this kind of analysis either, but, the way I look at it, there is always other opportunity if you sold too soon.

I think taking a profit like that is always a good approach. And sure, with some you sell too soon, look at other that you sold and calculate their downside into it, and I think it averages out.

Steven said...

Deborah: Yo make a good point.

The point for me is not that taking a profit is bad; it is the taking a profit for no reason.

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Excellent review on trading.