As many of you know trading can be a very frustrating occupation. The market gives itself many opportunities to try our patience with our ideas. I know from experience that the most frustrating thing is ending your day knowing you had good ideas but you didn’t make what you were supposed too. Solving this problem is one of the most important aspects of becoming a consistently profitable trader. The first thing to look at is are you executing your ideas? I have known problem executing my ideas so the thing I have been working on is the management of these ideas.
As I went over my trades and ideas and talked to some veteran traders about what I was finding and came across a big flaw in my trading. The flaw was that I was confusing my time frames and not letting some of the longer term ideas sufficient time to play out. What I mean by confusing my time frames is that I was taking some trades based on the daily and hourly charts, but I was managing them on the lower time frames. Basically I was asking the stock to move in my direction in the first 15 minutes I was in the trade. This is the definition of forcing my will on the market.
Now trading on the lower time frames is not a bad thing. Many traders make a very good living by scalping and taking .15-.30 out of the market at will. But this kind of trading is not what I am good at. My best trades are trades that I have researched on the daily and hourly time frames. The most important thing about these trades is that they make sense to me and this is where my conviction can come from.
The problem I have been having with my trades is that I was exiting too soon. The idea was still valid but I was exiting because of a quick move against me. I realized that I need to have more patience with these higher time frame trades and also take more time in evaluating them during the day and the subsequent days to see if the idea remains valid. Best of luck next week and happy trading.
Kyle
Going into today preparation was the key. Talking with most of the traders on our desk, last week was a very frustrating week. I know for myself the important thing was to not get frustrated, review the week, and come into today with an objective view of the market and what stocks I would be trading. Last week the market had been flat and trading was very stock specific.
In our morning meeting we were expecting a trend day from the market. Whether that move was above the 113.20 area or below 112 was insignificant. What was important was knowing how you were going to trade that scenario if it happened. Our overall bias was to the long side so if we broke 113.20 we were going to trade that scenario with higher expectations. The important thing was to have your list of strong stocks and levels that you wanted to get involved at so if the market broke there would be no hesitation. Once the level in the SPY broke and held the long side was the only trade it was just a matter of getting involved with the proper share size.
Our desk made most of our money in Best Buy(BBY), Caterpillar (CAT), and American Express(AXP). This was the type of day to make your week or if properly sized your month. Last week was a grind while today the market did what it was supposed to do.
Remember preparation and setting up your day is the key. Identify strong and weak stocks. Identify and set alerts for the important levels. Write down what you are going to do at these levels. Spend your day executing not coming up with trading ideas. Have a good night and best of luck tomorrow.
Kyle
Just a quick post before the open today. Commodity stocks were in play yesterday and look to be continuing with their strength on the open today. I am specifically looking at US Steel (X), Freeport-McMoran (FCX) and Mosaic(MOS) today on the open. All three are up in the pre-market and approaching important intraday breakout levels.
X was very strong all day yesterday and is up about .50 in the pre-market and currently trading around 48.70 which happens to be yesterdays high. If we clear that level the next resistance I see is the 200ma on the daily at 50.85 and then 51.40. If we clear those levels 58 is the next reistance I see.
FCX is currently trading around yesterdays high of 78.80 in the pre-market. The level to watch is 79 which is basically the 2-day highs. The next level to watch for resistance after that is 81.66 and then 82.20. Longer term profit target above these levels is 88.30.
MOS has basically been in a consolidation box for the past 15-days. The levels to watch are 60 and 55. Currently we are trading around 59 so I don’t think we are going to get to 60 today but I may put a piece on if I see some strength on the open with the intension of adding on above 60 for a profit target of 65.00.
Best of luck today.
Kyle
Everyday the market offers us an array of ideas. It is up to us as traders to organize these ideas, make them our own, and turn them into trades we can understand. Now just because you have an idea doesn’t mean you automatically get paid. You must trade around this idea, find scenarios where you can manage risk, and take profits when you think the trade is finished. As I mentioned on twitter this morning (follow us here) my best idea this morning was shorting RIMM below 53.
In the pre-market this morning RIMM was trading below the 53 level. We were going to gap down so I quickly formulated a few scenarios. We could trade up on the open where I would look to get involved if I noticed some selling below the 53 level. We could trade flat on the open where I would look for volume and selling on the tape so I could find a level to manage risk. Or we could immediately trade down to the next support level of 52. Because we had support levels so close to where the stock was going to open I told myself the only trades I would put size on were the first 2 scenarios. If the third scenario happened I would get involved with smaller share sizes because I was chasing the move a bit.
On the open we basically traded to the support level of 52 then popped up to the 52.50 level and paused for a bit. I noticed selling being done at 52.60 so I put the trade on there, knowing I would be getting out above the high of the day which was 52.80. I got stopped out of this trade as we broke the .60 level and traded up very quickly. Obviously looking back on it I should have let the stock breathe as we quickly traded down to my original entry but I formulated a plan so it is my job to follow it. I should have scaled out of my trade immediately above .60 and held the rest to the figure, which I knew was a strong level. Oh well now it was time to plan my reentry.
RIMM traded down to the support level of 52 very quickly so my next plan was to look for selling below this level. We traded below 52 but kept popping above it. Finally a little after 10 I got involved when we held the offer at 52. RIMM traded quickly down below 51.68 and I took some profits around .50. I was given the opportunity to add back in when we consolidated around this level and I took the entire position off when we traded through 51 then popped back above it.
I think overall I did a good job planning this trade and sticking to what I had planned. Going over this trade I should have been more patient with my original entry and I should have put more size on when we consolidated around the 51.70 level. But I think I did a job reentering after being stopped out and of holding this trade for the bigger move. After closing weak today I will be looking for more follow through as the next level of support is 47.50. Best of luck tomorrow.
Kyle
Just sitting here running through some of my trades from the past week and thought I would share my thought process on one particular trade I was involved in from this past Friday.
The stock I was involved in was Research in Motion(RIMM). My thought process going into the day was this stock was a long only. There was fresh news from the previous day about the upcoming release of a new touch screen blackberry that would be a direct competitor to the Apple(AAPL) iPhone. Also RIMM on the previous day had shown very good relative strength to the market by not selling off, then when the market turned around RIMM rallied over 2 points. The levels I was watching Friday was 54 which was very strong support and the 56 level as resistance which it had failed to close above. I wanted to get long around the 54 level or find an intraday level where the buying was strong. If RIMM got above the 56 level early in the day I could easily see it filling the gap to the 58 level.
On the open I got exactly what I wanted as RIMM started to selloff and approach the 54 level. I put a bid out there waiting for the price I wanted. Buyers stepped in early, around 54.30, and RIMM started to consolidate at 54.50. When the 9:55am number hit RIMM took off. I didn’t hit the offer as I was patient knowing that RIMM would give me an entry. I got that entry at 55.25 knowing that I would be out before 55 was broken. I added into the trade once I got confirmation that there was real buying in this stock and bids were being supported. I scaled out some at 55.90 as RIMM started to consolidate around the important 56 level I had identified coming into the day.
One mistake I made was not taking this opportunity to put on some serious size. I knew what the level was and the stock kept testing it. At 11am when the range got to a very manageable .20 I should have loaded the boat and even mentioned it to my deskmate Chad. I ended up adding some shares on the break but it was irresponsible not to load the boat as this was the opportunity I was waiting all day for. I had planned for this early break of 56 and made a mistake not putting enough size on this trade. In all honesty I didn’t follow my plan. I ended up riding the rest of this trade till RIMM got above 57 and took the last piece off at 57.15. This was another mistake on my part as my profit target was 58 and I shouldn’t have been so quick to give up on the last part of this move.
Now don’t get me wrong getting 2 points on a trade, especially before the weekend, was very nice. I planned this trade out well going into the day, and found some very nice entries by reading the order flow on Level 2. But I still made mistakes on this trade. I believe one of the most important things we can do as traders is to eliminate as many mistakes as we can. This was a nice trade but I could have done so many things differently to make this trade better. This was a trade that made sense to me, with patterns that made sense to me. Now I can’t go back in time so what I am going to do is keep replaying this trade so when a situation like this trade presents itself again I will take better advantage of it. I will go through my journal and take note of what I wrote going into the day. I will write down details of the trade as it was unfolding. I will also write down what I did right and wrong. I will also watch the trade again using tick replay and take note of how I could have capitalized better on the price action.
As traders it is very easy to beat ourselves up on our bad days. What we need to do is reinforce our good days. The good trades are the ones that need to be studied. These are the trades where things came together and made sense. These are the trades that you want to repeat. Hope you all have a good weekend.
Kyle
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