Anatomy Of A Trade

I’ve been asked by my investment group to present an anatomy of a trade I made last month.  It was a trade based on a company with a good business model but trading on what I can only say is a lot of hype.  A dangerous combination but the plan and the rules I followed can apply to any trade or investment.

The key to any successful trade is having a plan and following your rules.

For this example, depending on how one looks at it, I broke at least one rule and followed many others.

Wednesday November 8th:

ROKU closed at $18.84 per share.  They were due to report their first quarterly report since going public and most everybody was pessimistic.  The company had yet to make money and were set to continue their losing streak.

I considered them a popular, trendy streaming, cord cutting alternative product that had a good business model.  I have been exploring cutting the cable cord and have purchased a long range HD antennae as well as one of ROKU’s streaming sticks.  The tech is not what impresses me.  In fact, they are practically giving it away.  That is not where they plan on making their money.  Roku intends to make their money on programming and selling advertising.  In order to do that successfully, you need market penetration.  Roku is making their hardware cheap to get it into people’s homes and build up market share.  But Roku is also teaming with HDTV makers and having their streaming service imbedded in today’s popular smart TV’s.

If you think about Microsoft in the early years of the PC, they basically gave away the OS so that they could gain market share and sell software and ultimately services.  ROKU is attempting to gain market share with the adoption of HD 4K smart TV and imbedding their platform (the OS) in each TV sold.  From there, they focus on selling content and advertising.

So I was really torn.  On the one hand I really liked the company.  On the other, they were still young and had yet to prove that they could succeed in this highly competitive online content streaming world.  So I held off on buying until I saw which direction the stock moved based on their report and outlook.

Well, it turns out that ROKU is still not profitable but they lost a lot less than expected and absolutely killed it on user activations and loyalty.  So much so that ROKU even tossed out the possibility of becoming profitable as soon as next year.

What happened next was Simply Amazing.

Thursday November 9th:

ROKU opened at $24.75.  A 31% increase over the previous day’s close.

I bought 100 shares.

Here are the rules I broke.

  1. Chased the money
  2. Bought after the stock had already passed profit taking zone. (see notes below)

Here are the rules I followed or (at least) did not break.

  1. I bought on volume.  Institutional confirmation
  2. I bought at an early entry point below the buy point.  IBD had the buy point at $30 per share based on previous highpoint shortly after initial IPO.  But this early entry is OK based on institutional buying.

Yes, these rules are a little fuzzy and subject to interpretation.  Here is my point of view.

Depending on how one looks at this, from an IBD perspective, I may have broken 3 rules…. or not.  Technically the profit taking zone (20% – 25%) is after a breakout past a buy point.  Sometimes it is OK to buy a small position before a buy point if institutional buying is there.

As soon as I bought my shares and saw that they did not stage a reversal, I placed a trailing stop.

Rules I followed:

  1. Protect capital and gains.  At this point I was protected from taking a loss.  –  Unless the stock happened to gap down at the next open….

Friday November 10th:

I canceled my trailing stop and sold 50 shares shortly before close at $35.16 for a 41% profit.

Note: The stock closed at 33.21 which would have been below my trailing stop, but because I had cancelled it to sell half my gains, I still had 50 shares invested.

Rules that I broke:

  1. Changed my rule of setting and keeping my trailing stop to protect profits.

Rules that I followed:

  1. But this was done to protect my profit from the downside risk of a gap down.

I reset my trailing stop right before close.  I fully realized this would not protect my remaining shares from a gap down on Monday’s open but I truly believed that the “hype” was not over.  After all, we still had all the weekend traders (those who only follow the market and their stocks on the weekend).  Sure enough, there were many articles hyping the breakout stock.  Even IBD got in on the action and published a “hype” article.

Monday November 13th:

No gap down at open!  Hype and irrational exuberance was still in full force!

But even hype has it’s limits and …

Sometime during the lunch hour my trailing stop got activated for $45 a share.

And… I was out with a 81% profit on those remaining 50 shares.

And an overall profit of 61%.


Lessons Learned:

Rule #1 to investing is not to lose money.  Or at least minimize your losses.

  • I utilize trailing stops on almost all my trades.

Rule #2, see #1  😉

  • But seriously, I also use trailing stops to protect my profits.
  • Yes, I sometimes get stopped out of a stock on a sudden drop or as those who think of conspiracy theory, on a sudden drop by MM to flush out weak hands.  But, hey I usually make a profit and if I still like the stock, I can always get back in.

Rule #3 I base a lot of my buy and sell points on percentages and not dollar values.

  • For me this is a pure psychological rule.  I learned early on that I could get hung up on “making money”.  Sometimes people start seeing all the $$$ signs and let their emotions rule their investment and trading decisions.  I am no different.  So I try and base all my buy and sell decisions on percentages.
  • Do I ever sell too early and miss out on future gains?  Yes, but if my goal is 20% profit, then I am happy.  Would you be happy with a 20% gain on your investments?  The percentages are there to manage risk and avoid letting my emotions (such as greed) take over.
  • Do I ever sell too early and get stopped out of a loss before the stock recovers?  Yes, but not all stocks immediately recover and the stop loss is there to minimize my losses and protect my capital.

Rule #4 is you need money to make money.

  • Don’t lose all your hard earned money to the stock market, irrational exuberance, or emotional trading decisions.
  • Follow rules # 1 and # 2.




I recently started working on a new project with my company. It is, in many ways, much like my previous assignment – except one. It is a remote role. The job is based out corporate headquarters in Chicago, working for the office of the CIO, and I live in Virginia. Fortunately I do not have to travel on a regular basis. I can do 90% of my work from home. This means no commuting. No rush-hour traffic jams. No parking or transit fees. Zero, Zilch, Nada.

Rush Hour Traffic Tolls

But this leaves me with a dilemma. I’ve never really had a truly remote, virtual, job before. Yes, I have had work from home days, but they have always been limited to just one day per week. Never all five.

I started wondering about all sorts of things, like what to wear?


Part of me is still “old school”. By that I mean, if you go to work, you actually get up, get ready (shave and dress appropriately) and “go to” work. As in leave the house.

But another part of me is tempted to just sleep late, roll out of bed whenever I feel like it, keep my PJ’s on, and live and work my daily life in slovenly, yet comfortable, luxury.


Sorry, I really can’t do that.

After all, I do have virtual meetings and video conferencing to do, but mostly because I am a creature of habit and believe in routines

Routines are good. 

They help build and foster discipline.  Not only in daily life but also in many other things such as investing.

This past week, we had our monthly investment club meeting.  It was a little different than usual because nearly a third of the people there were new members.  So we spent much of our time discussing things like what they, the new members were looking to get out of the meetup and investment experience and styles.

This led into a discussing about what goes into developing an investment routine?

Investment Routines start with:

         Setting goals and at least parameters for risk, and types of investments.

         Picking stocks which match these parameters and adding them to watch lists.

         How much time (daily, weekly) we spend watching the market.

         When to buy.

         When to sell.

Obviously we did not cover everything in its complete and varied entirety.  After all, volumes of books have been written on these very topics for decades.  But we did cover many of the common basics which help define routines.

So, What does my Investment Routine Look like?

For me this is what I look at and act upon with my investment routine:

  1. What is the overall market direction and direction of my investments and watch lists?
  2. Noteworthy news and events, and yes – certain chart patterns, that relate to #1 above or perhaps will generate new candidates to add to my watch list.
  3. Research new investment ideas.
  4. Review buy/sell triggers and alerts.
    1. For me sell triggers/alerts are usually set at 8% loss and about 20% gain.  Sometimes less depending on #1 above.
  5. For buys or adding to a position, that can be based on 1, 2 or 4.
    1. Yes I sometimes have alerts set on watched stocks if they go above or below a price point.
  6. The key to 4 and 5 is automation. 
    1. I automate buy/sell triggers and alerts.  It takes a lot of the emotion out of the decision making process.  After all who would feel good about taking more than a 10% loss on an investment or feel bad about gaining 20%?

How much time does all this take?

On a daily basis, I usually do not focus on research but rather overall direction and alerts.  This takes about 10 – 20 minutes.  Usually less.

On weekends, I spend more time on the 3 R’s of investing: Reviewing, Reading, and Research.  This usually occupies at least an hour or two or more of my time.

So once you have a routine, that’s it right?  

No.  Routines should be monitored just like stocks and the stock market.  Ask many of the same question you would about an investment.

         How well is it working? 

         Does it help you meet your goals? 

         Does it need “tweaking”? 

         Or does it need to change because of changes in your life, finances or even within the market?

The most important thing is to have a routine that you are comfortable with and meets your goals.  Routines go a long way towards keeping you focused.  Routines also allow you to be more efficient with your time and energy.  This will allow you to have more time and energy to spend on other important things, such as friends and family.

And writing blog posts . . .



My, or rather, our investment club has done quite well since our previous leader mysteriously disappeared and we were forced to “elect” a new leader.  In our case, co-leaders.

We have attracted new members, diversified our topics of discussion, and now have a monthly newsletter which recaps meeting agendas and topics of interest.  The club has a really good mix of growth investors, chartists, value investors and option players.  An interesting thing about this added diversity is that it has really expanded our “Stocks of Interest” section or our meetings and newsletters. 

Previously, any stock list provided was strictly a select list of IBD stocks Don, our previous group leader, picked himself.  In and of itself, IBD is not a bad investment strategy, but it is not the only one.  We now have a good mix of investment ideas and styles which really has added value to the group.

Prior to each monthly meeting, everyone sends in a hand full of stock suggestions as well as any topics of interest that they wish to discuss.  These get added to the newsletter which is distributed prior to each monthly meeting. 

Obviously, these stocks of interest are our monthly watch list but lately it has also turned into a bit of a competition to see who does best.  I call it the WSSG watch list which gets displayed right along with my own BWTB watch list on the side bar.

Last month we had a pretty good discussion comparing different stock screeners and how each of us use them to find potential investment opportunities.  Funny thing about that and our stocks of interest for this month is that it spawned some creative screens. 

For instance, looking for something different to do both my son and I looked for potential setups that we normally may not specifically look for.  He used FINVIZ to pick stocks setting up with potential bullish breakout patterns such as ascending triangles or inverse head and shoulders.  I, wanting to keep with an IBD flavor, looked for IBD momentum stocks with high sales and EPS that are reporting this month. 

All this has me wondering . . .

What other ideas and strategies do people use in investment groups as learning opportunities?

If SPY Were An IBD Stock

If SPY were an IBD Stock there would be many interesting things to say about the chart.

First of all, most any investor and prognosticator today would say we are at the end of a long running bull market. Since it is such a long running bull market, lets start with the 10yr view of SPY to see what the chart pattern looks like.


By IBD standards, the last, best breakout and buy point would have been 154.64 which was the previous high point of the last uptrend back in October 2007.

IBD also says that once a stock hits the 20% – 22% range above the last buy point, then that is a good time to consider taking profits. Most stocks begin to show signs of consolidation after 25% profit.


Interestingly, 20% is 185.58 which happens to be right about the area of today’s current support range. I say this because a horizontal consolidation range is actually a healthy indicator for a stock and, coincidentally, a 15% range from 185.58 is 213.41.

Guess where the top level resistance point is for the current SPY chart. Yup, you guessed it. Almost exactly on the money.


This means, for the past year or two, the SPY indicator has stayed within a consolidation range of 15%. Neither a bull or bear market.

Hmmm . . . I think I brought this point up as a possibility a while back . . .

A funny thing about consolidation bases is that the can break to the upside (a breakout above 213) or they can fail support (a breakdown below 185).

And it is anybody’s guess when either will happen. However, I would say that the odds of a breakout to the upside are not looking good. Not only has the SPY failed to break resistance more than once, one could technically say that it has also formed lower highs (213, 211, 210) at each top. But, even more ominous than that is what could be the formation of a head and shoulders pattern indicated in the larger circle below.

spy1year-other patterns

A head and shoulders pattern is considered a reversal signal.

So what should an investor do?

An IBD investor would, or at least should, wait for a better buy point or confirmed uptrend to resume.
While he or she is waiting, a good thing to do is look for stocks that are holding up well in a downward moving market. They don’t necessarily have to be gaining but at least bucking the trend and forming a good support base.

These stocks, in theory, will be the first ones to breakout in new uptrends once the overall market conditions improve.

I know some investors who look for more dividend paying stocks or safe havens such as some commodities and utility companies that tend to do better in bear markets; while others cash out their profits and stay mostly in cash until conditions improve.

As for me, I do tend to keep more cash on hand and look for opportunity to buy a stock that is set up to breakout or perhaps buy a few puts on one that is set up to fail support or disappoint in earnings. In either case, I tend to not stay in that stock position very long. Preferring to limit my loses or take my profits as I get them.  My personal profit taking zone lately has started around 8 – 10% and the ones I do keep I tend to keep with a tight trailing 3% – 4% trailing stop leash.

As I tell the members of our investment club, I just don’t trust this market enough to hold anything for very long.

How about some you?
What do you trade a volatile market that seems to lack conviction in either direction?
Do you change your investment style?

A New Leader Has Been Elected

Donald Trump and Hillary Clinton

No, not a presidential one as in The Donald or Hillary, but as in an Investment Club type.

Poor guy, I’d hate to be him . . .

Oh, wait . . . Take one guess who it is . . .

Yup you guessed it.

But it’s all good. I have help. A vice president of sorts, a co-leader who is really good at communications, and even a marketing manager.

I’m still wondering what he (the marketing manager) does other than run our twitter account but he is married to the co-leader so it’s a package deal.

After our previous leader suddenly, and unexpectedly left, our group has transformed quite a bit.
If anybody is thinking of joining or even starting up a group, I’ve got some real life experience and tips for you.

1) A Plan

You need a mission statement, a goal, and a format for the group. This is the part we actually tried to come up with the first meeting after Don left. We discovered that there was a common theme among members. We wanted to discuss various investing ideas, stocks, and strategies beyond the “IBD” methodology.

So, we changed the name of the group from IBD Stocks for Profit to Warrenton Stock Study Group and created a Facebook Group Page of the same name. This, as it turned out, was a blessing and a curse which I believe lead to our first real headache of our transformation.

2) Communication

Communication is a two way street. One has to be heard and receive back a reply or confirmation that the message was received and interpreted correctly.
Our first problem with the new group format was many of our members avoid social media sites like Facebook. They all have their reasons ranging from personal choice to job related. But the fact remained that our only real way of “communicating” was through an adhoc email list. Previously Don was the “organizer” of the IBD Stocks for Profit group on and all of us were members of that meetup group. All communication was done via that sites group page.

Our second problem was this. We did not have a high profile location to attract new members and “communicate” our groups interest to the world. I will add here that when Don left IBD took over control of the group which left the rest of us only able to start new discussion threads, respond to previous discussions and meeting events.
It turns out that Meetup is a very popular site where people go looking for specific topics of interest and groups. Facebook on the other hand tends to be more nebulous.

So our first real executive decision was whether or not to create a new Meetup group. Meetup is free to join but not free to run a group and be group organizer. And if there is one thing that I and my coleaders hate, it is fees. We researched alternative “free” sites ranging from similar meetup style sites to even using WordPress. In the end we decided meetup offered the most targeted exposure at a reasonable price and was a platform everyone was familiar and comfortable using.

And yes we collect a small fee from members to cover the price of the meetup group.  So far that does not seem to bother folks.  And the good thing is the more people we get, the less the individual fees will be!

3) Location Location Location

So we created a new meetup group called Warrenton Stock Study and Investing Group on The added part was meetup’s suggestion based on SEO, key words and what other folks would be searching for. So we went with that. It seems to be working very well. We not only got all the active members from the old IBD group to sign up and RSVP to our last meeting but we also go three new members! And they all showed up!

Note: We kind of highjacked the old meetup format by keeping the exact same monthly meeting schedule at the exact some place “Denny’s”. So if somebody sees the IBD meetup and decides to show up they will get us.

4) Agenda

Every meeting needs an agenda. So we have a presentation / agenda that goes out to all members and group pages in advance of the upcoming meeting. We solicit for stock and topic of discussion to include in the presentation. This serves a very useful purpose of engaging our members to participate and organizing ideas and the flow of each meeting.

This is where I play a role as leader. I help organize and bring together everyone’s ideas and interests into one, hopefully, coherent format that is easy to follow and fosters communication, and interest.

You can view our very first presentation from last week here.