Monday, May 9, 2011

Entry Rules Revision

I've made a change to the rules for entering a position, adding this condition:

"... is the intra-day direction congruent with the breakout direction?"

One common pattern I see in my daily chart work is a stock that opens the day beyond the 55-day price channel, and then drops back to within the channel.

Under the former rules, the breakthrough beyond the channel allowed a postion to be opened, no matter the nature of the subsequent price move.

This change handles that case. If a price breaks above the price channel and then falls back, then no deal. Likewise, if a price breaks below the channel and then rises. Bull plays must be rising intraday on breakout day, and bear plays must be falling.

In practice, if a trade is disallowed by the intra-day move, I shall wait a day and see what happens. If the price again breaks beyond the channel, with an intraday price swing in the same direction as the breakout, then I'll again consider it for entry.

The full set of my trading rules may be found here.

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