How to Sell and Not Lose Your Hard Earned Earnings

It happened to me before, and now I just can’t believe that history has again repeated itself. It’s probably the most sickening cliche but it just happened again and I just wiped out half my profits for the month on one single stock in one single day.

Blunder 1: Leisure and Resorts World Corporation

A few weeks ago I bought LR at 9.50 because there was still momentum and it was corrected enough. MACD was still great and it just broke out from its recent consolidation. A few days after it was slowly creeping up. Not a great sign but no reason to sell. Then one fine day it shot up 13.4% giving me and instant 30% on the stock. The next day it broke this high again to edge up to 12.18! I keep on saying the excuse that I was sent to a seminar so I wasn’t able to sell but I should have seen the signs.

 1. The stock was up 30% from the price I bought it and it erupted for another 30% gain. This should have  lighted warning bells that I should be ready to sell at any time.

 2. From its recent doji, it had three up days ending with a 13.4% gain. Always be quick to sell if the stock is three days up!  

 3. Any high is the chance to get out at a very good price. The break of the high on the previous day’s surge is just a trap for us to expect more gains and let our greed blind us about the facts.

This was a two day reversal and it went back to its 10 day EMA. Where I did another blunder and sold half my position. Only to have the stock rebound to about 11.70 in the next few days where I sold the rest of my position. One of the few things that I finally did right.

Blunder 2: Lepanto Consolidated Mining Corporation Commit the error the first time shame on the stock but commit it twice and shame on you. I had my eyes on LC way back when it was trading at the 0.40 - 0.50 range. I bought my first positions at 0.445 and 0.490. The stock slowly creeped up after that and in mid-April started surging like there was no tomorrow. Before I knew it I was up 40% on the stock when the day finally came that it did a reversal on me making me lose most of my profits on my first positions and trapping my additions at 0.61 and 0.64. I should have seen it coming. It was sheer complacency on my part and just too much greed. Perhaps the only mechanism ensuring my gains were all the times I sold half. BUT I shouldn’t have bought those halves back.

1. The stock was 40% up from its base of around 0.44 - 0.49 and some institutional buyers even bought this stock way back at 0.30 giving them a quick one bagger already.

2. The stock is again THREE DAYS UP from its pause day. I just can’t believe how I didn’t realize this.

3. Prices are too far above the 10 day EMA and MACD line is way above the signal line. I ended up losing about 10% of my profits on my core positions and I sold all my buybacks today at 0.62 and 0.61.

As they say in Tagalog, “Pera na naging bato pa!” In this case it was a one day reversal. Slightly harder to predict but given the previous clues it should have been shouting SELL.

I am now anticipating another 10 day pullback similar to the one with LR although I think this will challenge the previous high because MACD is still low and ADX is very high. Entry point is at 0.56 - 0.58 and hopefully I’ll be able to make back all the profits I lost. This is a bit risky but I’m going full size on my position in order to regain all the lost profits and then some.

Last thing, I did wrong about this stock was that I was trading it at an inverted pyramid which means that at the base of the movement I invested a minimum of my funds and started adding to the position when it was already making new highs which is a quick way to lose profits. The proper way to do it is to invest 100% of your allotment for one stock at the base of the movement and slowly take profits as the movement is extended.

Disclaimer: This is from a trader’s perspective. Long term this stock has great prospects and is even touted as the next two to three bagger. It’s perfectly okay to hold the stock and just wait for the next surge or until it reaches consolidation. I just want to maximize profits so any surge is a chance to sell and any dip is a buying opportunity.

We had our weekly meeting last Tuesday and I never fail to get some very important things I need for trading. I’m still in paper trading mode and I can’t wait to finally be deployed and trade the wild wild Hong Kong market! Here are some of the things I picked up which I’d like to cement in my head: 

1. DO NOT TRADE STOCKS THAT ARE IN THE BOTTOM. There are a lot of better alternatives in this type of market even if they provide good set ups. This is because there are a lot of people that got stuck with high prices and so a lot of selling pressure is present, every surge is met with this pressure and so this limits the upside of these stocks. If we have to trade these stocks sell everything in the first surge. Spend more time on stronger issues. (i.e. 1072)

2. ALWAYS SELL HALF ON THE SURGE. This is to lock in profits and avoid the jackpot mentality which is a recipe for disaster. And as the boss said surges fail a lot so this measure is to make sure we have gains. This is meant for stocks which are trending and we can always buy back the other half when a set up presents itself. We can hold the kicker until a sign of weakness appears. (i.e. NVDA)

3. ANTICIPATE. We get left behind more often that not and this is a skill that we should learn. Enter in quiet days and as cheap as possible to get a better risk reward ratio. Probe just in case it doesn’t push through with the move.

4. KNOW WHAT BASE THE STOCK IS AT. Stocks surge smaller and smaller as the move gets extended and it’s important to know where it’s at. In addition, the probability of failure increases as more and more selling pressure comes into play from people who want to take profits.

5. RANGEBOUND SUCKS. Rangebound stocks are stuck in a rut and people are always looking for reasons to sell off when the stocks get into resistance.

6. TRACKER FUNDS. Look at these tracker funds to assess the direction of the broad markets and regions. Examples of these are EEM and HK:2823.

7. THIS MIGHT BE IT. The HSI corrected back to its range but the retracement seems to be getting smaller and smaller as the coil becomes tighter. This might be the prelude to its breakout and the transition to the bull market. A good sign is that even if the index is correcting the underlying issues are strong suggesting that something is really brewing. The second and third quarter is the pivotal point. Do not be afraid of the market.

8. DIVERSIFY. Our new rule says that we cannot put more than 30% of our portfolio in one stock. This is to safeguard the house just in case things go sour.

The Battle of the Pullbacks

Pullbacks are one of the best trades to pull off in trending weak to strong bull stocks which have ADX above 30. They give the best risk reward ratio given their small cuts (in the event that it gets very quiet). I’ve been coming through a lot of them in the past few days and I’m writing this entry because I’ve entered into a sub par pullback that’s taking too long when there was a great alternative that I shouldn’t have missed!

The charts are above. The first one is of MIE Holding Corp. (HK:1555) and the one below is of China Metals Recycling (Hldg.) Corp. From a quick glance we can see that 1555 is taking too long and 773 just surged 10 % in a classic 1-2-3-4 pullback - a great set up. 

1555 - This was a stock that was forming a boomer but in the day that it supposedly broke out it experienced a one day reversal that spooked people and led to the gap down the day after. It’s been coiling since in the 10 day EMA and so we thought that this would be a candidate for a pullback since ADX is still very high. We haven’t been proven wrong but thinking about it now gap downs are there for a reason and I should have been looking for a better pullback which is 773. 

773 - This is a lot better with classic Cooper set-ups along the entire breakout. MACD is still very good and ADX is way above 30. It did a slingshot in base 2 and proceeded to a boomer in the third base. In the past few days, it’s been forming a 1-2-3-4 pullback and ended with a hanging man which is a bullish reversal signal. Perfect, but I missed it because I already put my virtual money in 1555 and I’m also invested in other stocks. Little did I know that it would surge almost 10% by the end of the day.

Lesson learned: Check your prep sheet for the strongest formations and execute those! Don’t settle for mediocre set-ups. It will save you the stress.

Aboitiz Power Equity (AP)

AP has been on my watch list for a while now. I like this stock because its a pure play into the power generation business which is going to be a very important development area for the future of the Philippines. It focuses on thermal and hydroelectric energy (renewable energy). The company has great fundamentals and I’d bet my treasure chest on this that it won’t go bankrupt for a very long time. 

The photo on top shows the 1 year chart of AP and some lines along with it. The largest line is the primary trend line still very intact and in the right side. Starting October 2010 AP broke out from its consolidation pattern buoyed by a strong market and started a secondary trend line where AP gained around 80% in two months. Amazing by any standard!

Since the peak in December AP has started a massive correction. If we use the Fibonacci retracement pattern AP has retraced by approximately 61.8% which is very healthy for a stock and shows that it hasn’t lost its primary uptrend.

Moving on to the photo below. Since January until present AP has been consolidating into a box and the MACD even hovered below 0 for some time. However, if you look closely at the pattern from early January to early March AP has been forming a downward channel.

A buy point is triggered upon the breakout on February 28 and one should be selling at the previous high of around 31 which on hindsight proved to be the resistance. In terms of risk and reward this move has a risk to reward ratio of about 7.5 if you place the cut at the low of the breakout day. I haven’t been watching this stock closely since that so I wasn’t able to trade it but I did manage to attempt to profit from this two times since then.

Attempt 1: After reversing from the top it formed early March a platform formed from mid-March to April where the stock grew increasingly less volatile and this signaled that its ripe for entry and a potential move may be on the way. In addition the platform was resting on the primary trend as seen by the line below it. March 31, the stock gaps up and MACD shows a bullish crossover, all signs point to go and I go long at 29.2. I place my stop at the day’s low of 29.1 and peg my target at the previous high of 31.76. This is a good trade with a risk reward ratio of 25.

The stock surpasses my expectations and I sell when the stock is appearing to coil at the resistance as shown by the line an the roof of the box. I sold this stock at 32.05 for a gross return of 9.57%, great for about 10 days of exposure.     

Attempt 2: The stock was hovering very close to the roof of the box and AP is once again rated Very High on my watch list. April 14 the stock breaks the previous high on the beginning of the box of 32.5 and I am long at a price of 32.69 I place my stop at 31.75 and the target is 36 for a RRR of about 3.7. MACD is still good and the stock is gaining momentum so I thought it was a good trade. Later that day the stock proves to be a one day reversal as it goes back inside the box and I sell at 32.00. I just got burned for a loss of 3% including taxes.

On hindsight, I shouldn’t have sold it yet because it didn’t even reach my cut and the stock was just coiling at that level. I should have waited a day or two for it to surge and then sold it off as the index was approaching the resistance of 4250 and it was prudent to do so as it was taking too long.

Lessons learned from AP trades

1. If the stock is in your watch list, draw the trend lines and area patterns! I could have gotten a freebie on March 21 when it hit resistance and broke out from the downward channel.

2. Pullbacks are very good trades especially if supported by major trend lines and low volatility. In addition, they have a small cut giving a large risk to reward ratio.

3. Check the volume and the degree of the breakout to confirm if it is real! You can probe half size just in case it is. Probe because breakouts fail more often that not. If it does breakout a substantial percentage sell half at 5% surge because according to our boss these things fail 85% more or less depending on how much the stock has surged already. By selling half we still profit and it serves as insurance when the stock falls below our cut. Another reason why breakouts are harder, there is selling pressure present from the buyers who got trapped when it reached its peak back in December.

We have this meetings at work every Monday where we discuss market updates all around the world and in particular the Hong Market. We then discuss relevant trading strategies and specific issues to tackle given the prevailing market environment. I thought I’d start taking note of them for future reference. 

Today we watched this market update report from Charles Schwab & Co. aside from other discussions. Here are the points I picked up:

1. The unemployment rate is a very lagging indicator and should not be used to gauge the performance of the stock market. In fact, the presentation showed that when the unemployment rate is at its peak the stock market is just begging to enter the bull phase and conversely, when the unemployment rate is bottoming out the bear market is about to begin. 

2. Throughout history, bond yields and the stock market show inverse correlation. This is because the two are alternative investment vehicles. Although, in the US the exception seems to be the case as bond yields are rising along with the stock market. 

3. The SP500 is still very cheap according to historical forward PE ratios. Its currently trading at around 18x I think while the historical peak is about 30x PE.

4. We can expect a reallocation of funds to the US and other developed markets but emerging markets will still perform strongly as seen by the emerging market ETF with the code EEM in Bigcharts.com.

5. A constant reminder to us traders - only trade issues which are similar or stronger than the index. So in the present performance of the HSI (which is surging to the upper parts of its range) we should be trading surging stocks showing Cooper formation such as Slingshots, Boomers, Jack in the boxes, and 180s. Don’t find pullbacks in a surging market.

6. As long as you sell half when holdings surge you will be okay. If the issue is strong then hold the balance as long as you can or weakness creeps up.

7. If you’re expecting a stock to rebound or surge then it should surge. If it is divergent with your expectations then something is wrong - lighten your position right away or just get out!

8. No set up, no trade. Quality trades only.  

Xinyi Glass Holdings Ltd. (868) has been trading in a box from October 2010 to March 2011. March proved to be the decisive point as the stock broke out and is again on strong bull mode. 

Currently, the movement has momentum as shown by the ADX indicator of around 36 and it just performed a pullback to its 10 day EMA. Usually, you wait for a break of the previous days high to have confirmation of the rebound - not true for pullbacks.

As one of our mentors said, pullback follows after a sell off and so you have no selling pressure to fear. Buy at the cheapest possible price, tighten your stops just in case the stock breaks down and wait for it to rebound to your target price. As for sizing probe half price then if your up end of day add the other half.

I’m not yet live on HK equities but as we speak the stock is at 8.33 looks like the pullback is working. 

Note: Wait for confirmation on set-ups other than pullbacks because selling pressure is present. 

Dr. Che-woo Lui, Chairman of Galaxy Entertainment Group said: ”These strong fourth quarter financial results mark the successful conclusion of an outstanding year for the Group. All of our businesses performed well and are positioned to leverage the region’s growth potential.

StarWorld has consistently outperformed the market during this and previous years, and today we report its tenth straight quarter of EBITDA growth. The property is fully capitalising on the surging demand in Macau and delivering one of the strongest returns of any major casino in the world. StarWorld has again been granted a number of industry awards in 2010, including the highly prestigious 5 Star Diamond Award for the fourth consecutive year.

During 2010, the Group successfully undertook a number of initiatives in order to enhance financial efficiency, including the launch of a highly innovative Hong Kong listed RMB bond in December. The bond was the first of its kind from a non-financial institution to be listed on the Hong Kong Stock Exchange and was more than 13 times oversubscribed.

Looking ahead, 2011 will be a milestone year for the Group. We believe that Galaxy Macau- will be the only major new property to open in Macau in 2011, in what continues to be surging market conditions. Galaxy Macau- will set new standards as the first Asian centric destination resort in Macau and further support Macau Government’s sustainable growth target through diversification. This game-changing property officially opens on Sunday May 15^th, and we are now preparing for an extraordinary grand opening ceremony.”

This was one my first profitable trades. I barely knew anything about technicals at this point. I was just attracted because I noticed a big drop in its price. I knew the fundamentals and the target price was about P110 so it was automatic for me. I bought at P73 a share on Feb. 25 and got out when the surge was slowing down at P79 March 1 for a 7% gain. 

On hindsight, I could have earned so much more. There was a sell of before the line I drew at the P72 mark which sent the stock plunging below its 260 day MA. This is a strong stock which was just affected by market sentiment so no fear here about a trend reversal. A base formed and my entry was correct as shown by the circle I drew. 

Even though MACD was below 0 there was a bullish crossover as indicated by the fast line crossing the slow line. I should have held on until the MACD showed signs of weakness. The prudent thing to do was to lock in profits and sell at P83. As seen by the chart forming a resistance at that point for several days now. 

The stock surged today and closed at P85.3 signaling a break from the past few days of low volatility. MACD has just turned positive as well which puts this stock on my watch list for now until a clear entry point emerges. 

China is not going to be a bubble as doomsayers preach. Why? Because its a communist country and is highly regulated. The invisible hand of market forces can get blinded at times and that’s what causes bubbles. 

This blog shall have no face associated with it. I am Trader 104 and I work in a brokerage company as an equity trader specializing in trading the Hong Kong market. During the morning I also trade my own money in the Philippine market which makes things pretty crazy at times. 

I have a degree in Business Management and a minor degree in Financial Management. Last June, I decided to take the Chartered Financial Analyst (CFA) exam to earn my edge in the industry. 

Prior to entering this job of mine (I got employed March 1, 2011) my view of the market was dominated by fundamental analysis since that’s all I’ve ever learned so far with my degree and with my CFA studies. However, when I entered my present job last month I learned a whole lot about this “technical analysis” tool that they use to trade the market. 

Oh. How things have changed. Fundamental analysis has its merits but stock prices can be misaligned with fundamentals for a few months to even years. In these times, other forces make prices move namely mass psychology of market participants. This is where technical analysis comes in.

The foundation of my evolving trading style is still rooted on fundamental analysis. That’s how I pick good companies from bad companies. Then I trade these stocks using technical analysis to take maximum advantage of those unruly price swings and market irrationality.

I’m only starting on my journey. All the theory inside my head are just beginning to be practiced and it’s going to be one heck of a journey. As they say 85% of traders fail. I’m not daunted. I love a good challenge and I want to see myself on the winning 15%.

This blog will be used to document good trades and bad trades. It will be used to remember the details of amazing wins I’d like to replicate and disastrous failures I’d like to avoid the next time around. I’m also going to post stories about companies I follow and important local and global macroeconomic tidbits. 

The journey has begun!