Jesse’s Corner – feature format & trade set-up patterns

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 FEATURE FORMAT
Jesse’s Corner is a feature that tracks my trading activity  with a portion of my capital that is separate from REAP allocation portfolio. 

It’s a different dynamic altogether from REAP (see the REAP links in the blogroll under “My Portfolio”), and the Jesse’s corner updates (within the ”Trading updates” posts) track trade setups, entries, exit setups and closes – using some entry setups of my own but generally trying to follow legendary trader Jesse Livermore’s (ergo “Jesse’s Corner”) trading and money management principles.   The book about him by Edwin Lefevre “Reminiscences of a Stock Operator” is considered a classic, and a trader’s bible for professionals and amateurs alike.  (Link kindly provided by my trader friend Jeff Watson over at his blog masteroftheuniverse.)

JESSE LIVERMORE’S BASIC PRINCIPLES
The essential principles are:

• focus on strong active stocks in strong industries (if you are long) – the corollary is “don’t by cheap stocks”
• don’t have your capital tied up in stocks going nowhere (to avoid the “opportunity cost”)
• only scale up once you are showing a profit
• take a 10% or less stop-loss if the stock goes against you or is not acting as you expected it to.
• also have a “time” stop – if the stock is not acting as you expect within the reasonable expected time frame, sell and move on

Remember, this is a trading, not investing methodology.  (In REAP, by definition I’m constantly committing trader’s heresy by averaging down with every buy.  But that’s part of the compounding mathematics and an essential feature of that specific method.)

TRADE SET-UP PATTERNS
The following are the patterns being used to enter and exit trades for the trading portion of the portfolio. 

• PRC+ Power reversal on close to buy (includes Key Reversal pattern)
  • Day 1 – stock intra-day (I/D) low is new low for reaction (or equal to prior low)
  • Inside days – all following days within Day 1 range ignored; there must be no breach of Day 1 I/D high or I/D low
  • Day 2 – Stock must close above Day 1 I/D high.
  • Day 3 - Buy at the open (wait for first trade to avoid major gaps)
• PRC- Power reversal on close to sell (includes Key Reversal pattern)
  • Day 1 – stock intra-day (I/D) high is new hig for rally(or equal to prior high)
  • Inside days – all following days within Day 1 range ignored; there must be no breach of Day 1 I/D high or I/D low
  • Day 2 – Stock must close below Day 1 I/D low.
  • Day 3 - Sell at the open no matter what.
• TLB+ – Trailing -Low Breakout (NOTE: use this to scale trade)
  • Day 1 – I/D low is higher than or equal previous day’s I/D low
  • Day 2 – Buy if price touches Day 1 I/D high + 50% of Day 1 range
• LPB+ – Launch-pad breakout (slightly more complex but solid alternative entry)
  • Day 1 – new intra-day low of reaction
  • Day 2 – I/D high that holds for at least 3 subsequent days; with no breach of Day 1 I/D low. (There can be a number of trading days between Days 1 & 2)
  • Day 3 – first I/D low after Day 2 that hold for 3 days, without breaching Day 2 I/D high or Day 1 I/D low
  • Day 4 – Buy the breakout above Day 2 I/D high

 NOTE:  a Key Reversal is where a stock or commodity opens at a brand new low on a reaction, but then reverses and closes above the previous days high.  This is a powerful, widely-followed trend-reversal signal to buy.  The mirror opposite at the end of a run-up is used as a sell signal.

 Cheers,
Allocator

a.k.a George Parkanyi
gparkanyi@hotmail.com

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