I am new to trading, and after missing several strong moves by the stocks that I have been following and trading (DECK, AVY) I began to feel pretty frustrated, like so many others, and didn’t know how to handle the situation. Didier and Stephen M have articulated this very well. I felt though that there had to be a way to do this – and it would have to involve not only careful entry technique but also a somewhat different attitude toward the quality of the fill.
In the course of trying to get in on Monday and missing that move, and then getting whip-sawed on Wednesday, I noticed some possibly interesting things on the intraday charts and decided to look into it further.
Below is a 25-min chart for AVY covering Mon 3-23 through Wed 3-25 [CHART 1]. It shows a series of short-term areas of support and resistance that you don’t have to squint too hard to see. (But the chart is a little busy, so it will take a little scrutiny.) There are two points of support at 22.10; one point of resistance and one or two of support at 22.50; and solid resistance on Tue 3/24 (and possibly the close on Wed 3-25) at 23.00.
I noticed these zones during the day on Wed. Since I did not have any idea which way the market would go, I decided to try a buy limit/buy stop (OCO) order that used these zones. Around mid-day I placed a buy limit order at 22.60 (just above the 22.50 area) with a stop at 22.10 (a rookie round stop!). I also placed a buy stop order at 23.00 with a stop at 22.60. As price dropped, the limit order was filled (no slippage), and as price dropped further the stop was triggered. Price touched the 22.10 support level and bounded back up to near the 23.00 resistance level! If I hadn’t used such a dumb stop I might have survived the trade. I thought, “Well, that was quick,” but then I thought that maybe there was something to this support/resistance business. I decided to try the same thing the next day
Today, Thu Mar 26, I placed another buy limit/buy stop (OCO) order before the open: buy limit 22.60, stop 22.07 (a few ticks below the 22.10 line); and buy stop 23.00, stop 22.43 (below the 23.50 line). I was filled at 23.28 – that’s 28 ticks slippage, but I did get in and have a little ride (see CHART 2)! Yesterday’s support/resistance lines weren’t really tested today, but price went up to 23.60 in the first half hour, hovered between 23.00 and 23.60-23.70 for half the day, then oscillated around 23.70 (23.70 zone not marked on chart) before breaking out to close near 24.00.
Looking back on all of this, I think that the lines of support and resistance may have been useful guides. I also may just have been unlucky (first trade) and then lucky (second trade). Time and more trades and experience will tell.
In fast markets, slippage and gaps are inevitable. I think that when things are squirrelly, as they have been lately, if a decision is made to trade, bad fills should be anticipated and controlled with very careful money management (stops and position size). It is likely in such conditions that entries will be missed, winning trades may not be as good as usual, and losing trades may increase. I am guessing with this, but it stands to reason that when uncertainty goes up, the results have to suffer somewhat.
One other point: Besides the issue of thinly traded stocks usually exhibiting more slippage than very liquid stocks, I noticed that of the two stocks that I have traded so far, DECK seems to have a much higher bid-ask spread than AVY, even though they trade with similar volumes (1/2 to 1 million shares/day). This is something that I will watch out for in subsequent stock picks.