Sep

10

Analysis of a Trade (WB): Volume Bars

September 10, 2007 |

(This article contains the analysis of a trade. Just my thoughts after a day of trading. No trading theorems, laws, or concrete advice. My views may change in the future. Just think of it as a journal page, just what a blog is.)

Today I have learned important lessons in my day-trading experience: pay a very close look at the volume bars (those bars at the bottom of my chart that indicate the volume of the trade that was plotted on the line above: red is someone selling and pushing the stock down, and red is someone buying and pushing the stock up).

Wachovia Trades - September 10, 2007

See, today I made a fool of myself on my day-trading. Early in the morning, shortly after the opening bell I saw the Wachovia Bank (WB) stock falling down even when other stocks (DOW/S&P500) where climbing. It was down because of a few heavy trades that pushed it lower. The good part is that I purchased it when it had been punished already, down at 47.52 (about 1.5% down). The bad is that I didn’t waited for the beating to be over before I jumped back in. I should have given it a few more minutes of all of those red bars (sells) to complete before entering into the position; I should have waited until I could see a green of reasonable height.

Then I had to wait for almost the whole day until people started realizing the value in this stock at a more than 5% dividend, and less than 10 of Price to Earnings ratio. People started buying the stock and pushing it in small increments: all of those consistently green bars from 14:20 to 15:20. Up until some big guy (or a big institution) purchased a few hundred thousand shares all at once and pushed the stock up. I was lucky to sell at 47.99 (a pretty profit of almost a full percentage point of what I initially invested — good thing!). That was at about 15:20. I should have packed my bags at that time and gone home (except that I was already home — I mean, in my home office).

Then came my second (and certainly painful) mistake of the day. I got addicted to success and wanted just a few bucks more. The hope of grabbing a few more dollars before the end of the trading day blinded me. I did not looked at the bars when I should have just gone to the bar! I bought back in at 15:30 at 47.80. That huge climb that helped me gain that 1% was unsustainable. It was based on just a big trade. Soon, people smarter than me started taking their profits before the end of the day (those who bought at the real bottom of the day, kind of at noon). My gain dissolved before my eyes, and now I am trapped in my 5,000 WB shares, hoping (maybe blind again) to see some gains tomorrow: on September 11th, 2007 (six years after a terrible disaster). Not a good thing.

Lessons learned:

  • When prices fall, wait until the bleeding slows down (the big red bars).
  • When prices are up, make sure they are sustainable. If it is just a crazy run up caused by a single trade: wait.
  • If a stock has been down for a long time, and it recently climbed a lot: sell and go home (or go to the bar). Those profit takers who had been waiting all day to get into the stock will start selling: and will sell badly. Don’t get into the position again.

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