Chart Review Of My Mistakes

Becoming a slave to the trend

I write not because I have this trading game figured out, but because I am reflecting on what I need to do better.

Last week’s post on No Man’s Land has got me thinking more and more about trends. There is no bigger cliché than “the trend is your friend” BUT it is probably the maxim that stands up best to scrutiny. Going over my trades since the last newsletter, I was blown away by how my biggest losses this quarter have all come from fighting the trend. When I ignore the price action because of a bias, I am straying from the edge that serves me so well.

I have realized that I need to be a slave to the trend. As my mentor says, spend every moment in every trade with the trend.

A solid trade idea and edge are one thing, but you need the market to confirm that idea to get paid. Every playbook has its nuances, but most can be structured properly to follow the trend.

This may seem like simple stuff but how many of you have fully systemised trends into your trading?

In this week’s newsletter, I expand on trends using some of my past trades. I tone down the narrative and instead offer more pictures to illustrate my points. Visual learners rejoice.

When Do Trends Start And End?

In the interest of simplicity, trends start under certain conditions:

• Breakouts from consolidations

• A fundamental catalyst or breaking news event

• The exhaustion of prior trends

These criteria are playing out on all different timeframes. I believe that the technical patterns are improved (read become relevant) when aligned with a strong underlying catalyst.

Converse to this, trends tend to end due to:

• Price extension and volume

• Multiple large legs

• A fundamental catalyst or breaking news counter to the trend¹.

Knowing this simple framework, you can better optimise strategies to always be with the trend. The key is how you define a trend on your timeframe and whether a stock is trending or rangebound.

Examples

Breakout from consolidation:

• GMD post the quarterly with Gold at $AU4000

Fundamental breaking catalyst:

• FMG on China stimulus

Exhaustion of prior trends:

• DRO price and volume exhaustion

These are all recent examples on the Daily chart. Similar patterns also appear on an intraday level.

The strongest trades are when the Daily and Intra all align.

Trades where I failed to follow the intraday trend

My biggest losses have come about when a stock has been stuck sideways in a daily consolidation range and I have pre-empted the breakout. More often than not, I was holding a position in the belief that the catalyst was strong enough to start a new uptrend. If this was the case, the intraday price action on Day 1 should signify strength and a new uptrend in that timeframe.

However, in many of my examples, this just wasn’t the case.

Here are some examples to better illustrate.

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PLS 7/10/24

• The context for this trade was RIO announcing a takeover offer for ATLM/LTM. My thesis was that this was a major endorsement for the sector despite Lithium price headwinds.

• PLS put in a short-term exhaustion high on 2/10/24 and then had a insider block selldown at 3.20. This was an inflection point for the stock and major overhang. Any new trend change was conditional on the stock holding back above this 3.20 level as a sign the market had worked off this placement.

PLS intraday chart 7/10/24

• I bought PLS through 3.20 in a morning drive trade. The stock goes my way initially but then immediately sells back through the open. Any new uptrend in this timeframe is dependent on that open holding- otherwise we now have lower lows. Instead, the stock busts straight through.

• I cut some of my position but I held in a bias we “would” recover. However, the price action is screaming weak. We are holding below open, below vwap, making lower lows, and all the volume is into the bid. This is NOT an uptrend. Dusted.

The best trades should go from the start. This one failed straight away! It is a loud message we are not ready yet.

A mantra I love: Thesis + Setup + See It Moment. Here I developed a thesis but the morning drive setup failed and there was no see-it moment.