Patience is a virtue

Patience is a virtue, a virtue is a grace, Grace is a little girl who wouldn't wash her face. A nice little rhyme which I could do well keeping closer to my heart. I have done it again. I correctly forecast the top of the channel for gold. Indeed when gold got to the top I sold half of my holding. Then it poked its head above the channel and I promptly bought back. Then it dithered at the top of the channel for a couple of days and plonk, down it dropped to about three quarters of the way towards the bottom of the channel.

Take profits before its too late

My trading error with silver was worse. I actually stocked up with an extra holding when it pulled back to the bottom. Did I take my profits when it rose? I did not. It's greed and it's impatience. These market conditions are brutal because the moves are so violent, even when they are inside a channel, and it is hard to judge the moment when there is going to be a break out.

At least with gold and silver I had the excuse that we were at the bottom of the channel. The stock markets were a fair way from the top and still I could not sit on my hands the way I should.  I have a good friend from Australia staying. He is an econometrician. We used to work together and he has much greater forecasting skills than mine, but he has less knowledge of stock market trading. I have been showing him the techniques I use and have introduced him to the VectorVest service and its various share picking tools. It is great working on something like this with a friend because you can stumble on new ideas. I had a 'conversion on the road to Damascus' moment when we used VV's portfolio backtesting system and applied stop losses over a period where I would not have expected them to make a difference. I was backtesting a bottom fishing strategy over the period 10th August to 12th October - an unpromising period for trading and found that it worked very well and the stop lossing at 10% loss or 20% gain. The stop loss almost doubled returns.

I then explained that I found VVs market timing system unhelpful. Instead I use the methods that readers of this blog will recognise. I try to identify areas of support and resistance based on price action during earlier periods. I also use a very few chart patterns to help nail turning points. Finally I mentioned the  importance of volume spikes.

We were looking at the chart for Lloyds Bank and noticed that the price was approaching a support level and that there had been a volume spike a few days ago. There are two resistance levels - one 14% away and the other 34% away. The support level is just 3% away - a natural point at which one can review the situation and bail out if necessary. Terrific risk reward ration. So I bought Lloyds Bank on a whim.  So now I have the uncomfortable decision to make. Do I just pull out of Lloyds or do I wait for the market, which is now approaching the bottom of the channel much faster than I could have hoped, deliver a new buying opportunity and make Lloyds a part of that stock purchase alongside new bottom fishing candidates that I find.