The following are notebook entries that I make for each trade. They describe why I bought a stock and, more
importantly, serve as a checklist of things to examine before I buy. Completing a notebook entry takes less than an
hour. It includes reading several research reports, checking the intraday price action and looking at other stocks
in the industry.
I place the following (red highlight) in my trading notebook before each trade and use it as a
checklist to make sure I haven't forgotten anything. Some of the items are
self-explanatory. For a notepad version of the template, click
Order details: Market, limit, stop, number of shares, price, and so on.
Stop, % loss: This is the stop price and
how far below the purchase price it is. It includes a volatility stop: how volatile is the stock and
how far away should the stop
be, based on volatility? See Stop
Placement for more information on vol stops.
Upside target: The expected target price based on overhead resistance, the measure rule, or other techniques. This is different than the price target created by the scoring system (see 'Score and price target' below)
SAR: Locate support and resistance zones in terms of price.
Next earnings: This makes sure I'm
not buying within 3 weeks of an earnings announcement.
Weekly scale (industry, too): What does the
intermediate-term picture look
like? Is the daily trend in the same direction as the weekly scale? Any interesting
chart patterns? How is the industry doing?
Indicators: relative strength index, commodity
channel index, and Bollinger
bands. I look for overbought/oversold, divergence, and price bouncing off the Bollinger bands, respectively.
Score and price target: Score the pattern
according to my book, Trading Classic Chart Patterns
and get a price target based upon the median price rise after the breakout. This is different than the above 'Upside target'.
Here's the sell side. These are all self-explanatory.
The following is an example for ASF. Here is the buy.
Today's date: 11/8/06
Order details: Market order for 500 shares at market open. Filled 200 at 40.64, 300 at 40.58
Date Bought: 11/8/06
Stop, % loss: 36.33, just at the top end
of the gap on 11/1/06. That's 10.3% lower. Volatility, stop: $34.43
-12.6%. 2x volatility: $1.98 Minor low stop: 33.08 -16.0% on 10/20/2006
Upside target: 53
SAR: 41 is the first congestion region
Next earnings: 3 months. Up today (11/1/06)
big time on earnings.
Weekly scale (industry, too): Many are either
recovering from a swift decline months ago or are making new highs. Six are near
the yearly high, 5 in the middle and 1 near the yearly low.
Indicators: RSI: oversold with today's
spike. CCI: off scale high, nearly. BB: top of band.
Score and price target: Sym tri Score:
1. Target: 44.19.
Buy reason: Sym triangle breakout with
good earnings. Big W breakout.
Here is the sale.
Date sold: 1/22/07
Shares sold: 500
Sold at: 40 and 40.01
Sell reason: Hit stop. I thought price would
plunge when it fell through support, so I put in a stop. The "flag" was getting to
be too loose and too long to believe that price would breakout out upward. With the
Dow down today 100+ points, the down draft has sucked this stock lower to 38.95, so
I saved myself a ton of bucks.
Looking back on the trade, I can't believe that I bought when I did. This
was well beyond the symmetrical triangle breakout price. That was a lousy
justification to get in at a lousy price. Yuck.