Thursday, December 6, 2012

Seattle Chipmunk at the Space Needle Party

Alvin partying in Seattle
Last night, well it was actually very early this morning ... just after midnight when it became legal in Seattle to hold up to an ounce of your favorite wacky terbacky, Alvin was hittin' the pipe. 

Dude, that's some righteous weed.   Jeff Spicoli

Averaging down


Otherwise known as the Lenny Dykstra School of Trading.  He learned it from Cramer.  ‘Nuff said.

Raise your hand if you’ve ever done this.

Good, I see that everybody has at least one hand up, including me.  Been there, done that, got the scars to prove it.

One of the best rules of trading is “never add to a losing position”.  The best thing to do when you find yourself in a hole is quit digging.

However, (there’s always a “however” in trading) .. there is a right way to go about averaging down.  The right way starts with a plan.  The plan starts with a maximum allowed loss amount.

Let’s say that you want to buy XYZ at 20, with a maximum loss of $200.  You could

Buy 200 shr with a stop at 19 ($200 risk)
or
Buy 100 shr with a stop at 18 ($200 risk again)

Assume you take 100 at 20, stop at 18.  Stock goes against you to 19.  You still like XYZ.  You could take another 100 at 19.

But your stop now has to be raised to 18.50 to maintain your original $200 max risk amount.

100 at 20 + 100 at 19 = 19.50 average cost

$200 risk / 200 shr = $1 stop loss = (19.50 - 1.00) = 18.50

That is the only disciplined way to average down.  You have to have an “uncle” point and you must respect it.  You really don’t want to be a Lenny do you ?

Thursday Morning - It's still sunny

Gator's Chart of the Day (again): FSLR
I've posted this chart on Monday and Wednesday this week and I'm showing one more time today.  The trade is still working.  The price is still above the upper Bollinger band and volume is still well above average but it is a little lower than Tuesday and the stock did not close at the high of the day.  What does that mean?  Well, the stock may be tiring and for good reason.  It's up 31% since it bounced from 50 day simple moving average.

If we call the red candles printed on 11/29-30 a bull flag (I think that's reasonable) then the measured move would be up to 31.74.  The low on 11/16 was 22.62 and the high on 11/28 was 27.75 so we add 5.13 to the low on 11/30 (26.74) and we get 31.87.  That leaves nearly 2 points of upside from today's close.  That's well over 6% so I still want to be involved on the long side.

I took all of my Jan28 calls off the table on Wednesday and bought a half position in Jan32 calls.  I'll add to them if the stock moves back above 30 and holds through the opening rotation.  I'll use Wednesday's low for my stop.