A glimmer of hope

Note: I’m not suggesting anyone do the following. It ‘kinda’ worked out but a test group of ‘1 trade’ is not statistically significant in any way 😉 so I need to find some more opportunities to do this.

This last week, following my sojourn in a field in the Welsh hills, I’ve been trying to appreciate the small things in life more than usual and to just bloody well relax.

We all run around like freaking lunatics half the time worrying about all sorts of things that are frankly a complete waste of energy. I’m not going to make any attempt to link anything metaphysical to trading 😉 but it’s been great to take some of the mental pressure off myself and just re-examine what I’ve been doing. Looking at a couple of things with fresh eyes and a more chilled perspective…

Now, I’ve not had any significant ‘lightbulb’ moments but I have come to a new respect for RSI divergence. No, it’s not happening all day/every day for everything however when it happens (and you spot it) then it’s worth paying attention to…

On this basis I was looking at a bunch of stocks (yes, you read that correctly) because IG Index Advanced Charts has a module in it called ‘Pro Real Trend Detection’ that will filter instruments against mechanically generated support, resistance and other pattern criteria. This is still supposed to be a business and manually wading through hundreds of charts isn’t a good use of anyone’s time.

I’d seen a number of interesting results from RSI divergence. In truth I’ve probably read at least three books that highlight this as useful or at least something of significance and I’ve probably ignored them all 😉

However, with my slightly more relaxed mind I’ve been spotting these more and more often… So girding my loins, grabbing my 1 hour chart and a suitable candidate I plucked up the courage to go long on Wolseley (WOS) somewhere mid-Tuesday afternoon. There’s a 4pt spread off 1800 points so not bad at all plus the down-trend seemed to have halted forming a pretty solid ‘base’ under which to plant my stop.

If anyone’s under the impression I know what I’m doing go to my results page then keep reading. Just thought I better point this out before I continue… clear? Good.

Now in the trade but relaxed about the whole thing. Committed. Number of other factors in my favour…

  1. Price has got down to 6+month low from previous resistance in Nov 2010 – should provide some support now
  2. Price fall has not dropped below 1812 all day on the hourly chart
So on this basis I’m in long at 1834 and the following morning WOS gaps up >10 points and end the day with me +46 which is sweet. Now I, more than most, appreciate examples after the fact are completely sod all use to anyone so the rest of this post will not bang on about RSI divergence and how it’s the answer to my trading woes so far 😉

There are probably a stack of other technical and possibly non-technical reasons why this entry worked that I’ve not looked at yet. Maybe the 200 EMA got hit, maybe there was some news release or some other reason I don’t know about.

What I will say though is I’ll be looking for more opportunities like this to check which criteria (levels/price action/others) result in creating similar successes. Watson! The games afoot!

The bit I got wrong (again) was my stop management.

Having seen a +40point gain at the end of the day I moved my stop to something like +18 above my entry. Retrospectively this was due to lack of emotional management and wanting to bank something. I didn’t consider the context of what I was doing.

All prices retrace and I’m going long at the bottom of a six month low. So I’d assume that there are people desperate to get out of their positions but looking to claw back at least something before getting out. Had I personally not been greedy or anxious I could have put my stop just a point above my entry, been in ‘profit’ (psychologically), survived the retracement drop and been >60 points up the following day rather than getting stopped out about +18 as well as still being in the trade with a good ‘buffer’.

Hindsight is awesome. However the main point being is that even with my new found appreciation for green hills, rolling countryside and inner calm I still managed to get too ‘graspy’

Slight detour back to the RSI divergence point on Gold in the last few days…

Ok, so you could also make the point that 1580 is the new support but this is also backed up by RSI divergence too… Hence, a glimmer of hope 😉

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