Following one of my adhoc screens, I identified a stock that was exhibiting signs of a good setup for the Triple Screen, ALKS. But the trade did not go well.
ALKS Long-Term
The long-term chart gave a bit of a mixed signal. The predominant trend was, undoubtedly, bearish. Over the last several years, as a matter of fact, the stock fluctuated between a weakly bearish to range-bound pattern. The 07-08 sell-off could have been acceptable given the overall market conditions. However, I should have known better than to ignore the continued sell-off over the last 3 months.
So where was the mixed signal? Well, I got so focused on the divergence between the MACD and the price over the last few weeks that I thought I could look for a short-term rally. Now, I was not overly confident, and likely more anxious to get in on some action, than sold on the chance for an up-trend.
ALKS Short-Term
The short-term chart, showed a declining Stochastic that recently crossed below the Oversold line. Therefore, I followed my Triple Screen signals and put forth the following order: BUY STOP ALKS @ 8.38 WITH A SELL-STOP AT 8.04.
If you look at the recent daily chart, you see that the high of the previous day was 8.36 and the low 8.06. Therefore I put my order in 2 cents above and my stop loss at 2 cents below the high and low of the previous day.
I was luck enough to get into the position at the market open as ALKS rocketed out of the gates. Alas, that was all the steam she had. By about 1:00pm, ALKS triggered my stop-loss and I was in and out of the position before I knew it. Now, true to form, ALKS is rebounding.
So what went wrong? Well, a couple of things. First of all, I believe impatience took over. I wanted to get into this market. The market charts were telling me that the period of consolidation that we saw in May was over and that the uptrend was resuming. Secondly, I was too hasty in my decision. I never had real confidence in the probability of the trade. I tried to ignore the failings of the stock and hope that a divergence, minimal as it was, between the indicator and price would be enough to change years of history.
What went right? Well, I followed my rules. I did not get emotional over the trade. I realized before I got in that it was bordering on desperation (so I should have stayed out) but used that to limit my position well below my rules. I only risked about a tenth of what my trading rules allow. So the impact was neglible. As a matter of fact, my non-trading holdings have by far offset any loss.
Lessons Learned. The number one lesson from this trade: do not feel like you need to trade. I knew this lesson before and abided by it quite well, until today.
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I am an amateur trader and investor with over 15 years experience in the stock market. I was bred to be a fundamentalist and followed fundamental analysis until 2009. Following the 2007-2008 bear market, I began to shift from a buy-and-hold strategy to trend-following techniques.