Saturday P.M. Post

I’ve spent most of the week in decompression.  Part of decompressing was returning to my study of charts.  I found that return to familiar territory to be a pleasant diversion.  I’ve been spending some time over on Tim Knight’s blog. I used to post there very regularly. 

Being over there last week was also a return to roots, so to speak.  The tone on the blog was tough, largely because the recent stock market rise has been met with incredulity—and for that the market was shorted.  The results were damaging to performance.

On another blog, a blogger noted that on Seeking Alpha, it was noted that shorting Bidu was as easy as shooting fish in a barrel.  Right.

 

If I’ve learned a thing (and I’ve learned it the expensive way), it is that it really doesn’t pay to be too early.  And my friend (friend by way of the book, as I don’t know him) Stan Weinstein preaches, you do not short stocks that are not below their 30 week moving average. The above is a daily chart—the weekly looks all the worse in terms of over performance.

SNEN—I ended up selling this because the gain was too much in too little time. I would like to re-enter this name at a more favorable price.

You’ll remember that my ‘new’ strategy for this year has been to buy low volatility and sell high volatility.  WH is another name that I own(ed) in this fashion:

I sold at $7.  I re-entered at $5.06, for much fewer shares when the volatility came down.  You will also remember that I had this baby as a featured post of “Acapulco cliff diver” on the March 9 swan dive.

Adding volatility measures to my screening has improved my results greatly.  You can learn about volatility quite easily by going to Stockcharts.com.  There is lots of free stuff there, and you can print out all of these high quality articles and place them in a notebook and have the nicest TA book in the world. This is from their website: 

 

Bollinger Bands measure volatility by placing trading bands around a moving average. These bands are charted usually two standard deviations away from the average, so as the average changes, the value of two standard deviations also changes. This value is the Bollinger Band Width, which represents the expanding and contracting of the bands based on recent volatility.

During a period of rising price volatility, the distance between the two bands will widen (BB Width will increase). Conversely, during a period of low market volatility, the distance between the two bands will contract (BB Width will decrease).

There is a tendency for bands to alternate between expansion and contraction. When the bands are unusually far apart, that is often a sign that the current trend may be ending. When the distance between the two bands has narrowed too far, that is often a sign that a market may be about to initiate a new trend.

 

MGIC is another name that I am in.  I DID NOT sell this one. Though, I should have.  I’m not always very disciplined.

 

My point to share is that I believe that adding a volatility filter will help reduce your risks of entry.  And while you may chose to hold, as I did, you may want to reconsider buying when volatility is high—that’s high risk. We want to IMPROVE our odds of making successful buys/sells…and low risk entries help us do that.