Being Patient $$

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

Rally Continues

Stocks continued to rally on Monday, sending the Dow Jones Industrial Average 100 points higher to 10,525. This is the third session in a row in which the Dow has registered triple digit gains.

The SPDR S&P 500 ETF (NYSE: SPY) gained 1.06% to $111.58. Volume was noticeably light today, with only 176.8 million SPY shares trading hands compared to a 3-month daily average of almost 286 million shares. The S&P 500 closed above its 200-day moving average at 1,115.

The PowerShares QQQ Trust ETF (NASDAQ: QQQQ), which tracks the performance of the Nasdaq 100, jumped 0.83% to $46.44. Year-to-date, the quad Q’s have gained 1.51%.

Gold continued its recent slide on Monday. COMEX gold futures are currently trading at $1,186.10. The SPDR Gold Trust ETF (NYSEL:GLD) fell 0.51% to $115.50. Over the last month, the GLD has fallen almost 6%.

Oil was flat on Monday with NYMEX crude futures unchanged on the session. The United States Oil Fund ETF (NYSE: USO) fell 0.11% to $35.35. Volume was light.

Treasury prices fell today, as investors continued to rush back into risk assets. The iShares Barclays 20+ Year Treasury Bond ETF (NYSE: TLT) lost 0.17% to $99.61. The yield on the 10-year Treasury note is currently at 2.99%.

The U.S. Dollar continued its pullback on Monday, which likely helped boost the equity markets. The PowerShares DB US Dollar Index Bullish ETF (NYSE: UUP) lost 0.54% to $23.86. The closely watched EUR/USD pair is trading at $1.2995.

Benzinga

Confused Yet??

So like most traders I went home Monday night and did my homework.  I ripped through charts, watched some of the price action after the earnings in IBM and Texas Instruments(TXN), and how the markets were digesting this news.  I wrote down some preliminary plays for the next day and went to bed with a pretty bearish bias to the market.  I knew the Goldman Sachs(GS) earnings would be important but the way the market had been digesting earnings releases I was pretty confident the market was in line for a down day. 

As the pre-market unfolded Tuesday it seemed like the day I had envisioned and planned for was unfolding.  Goldman disappointed and the market looked like we were going to open down around 120 points.  My first play was to wait for a bounce, find an area of resistance, and get short as the sellers pounded the market into submission.  Well as anyone who trades this market knows that didn’t quite work out that way today. 

Many traders I know went home today wondering “What Happened.”  Trading is what happened.  That is the frustrating thing about this business.  You may do all the work, have the best plan in the world, and still not have a great day.  But what you take out of todays trading is what is going to make you as a trader.  Did your opening plan not working out cause you to curse the market and lose focus?  Or did you plan for a bounce and get long a strong stock like Monsanto(MON)?  Did you keep shorting the market trying to force your opinion on the market, or did you stop yourself from trading because things didn’t make sense to you?  If you had a bad day did you manage your downside like a professional trader, or are you going to spend the next three days just making up your losses.  Did you just run home at 4pm or did you right every detail of today into your journal? 

Trading is not easy.  That is part of what draws us to this career.  I for one love the challenge that trading provides each and everyday.  But everyday isn’t going to be perfect.  You must adapt to what the market is providing and try to make sense of what is unfolding.  If what is unfolding matches your plan you can trade with conviction.  But you must plan for the unexpected.  Yes I got short Research in Motion(RIMM) and Suntrust(STI) this morning.  Yes I was expecting 2 points out of RIMM if the market traded in my favor.  Yes I lost my focus and gave back too much of my profits when the market bounced and traded above the level of resistance I identified in the SPY at 106.40.  What is important is that I took the trades I had planned for.  The way the market was setting up, the higher probability trades were shorts.  If I take the same trades 100 times out of 100 I will get paid. 

This market has been a challenge.  We have been in basically a 20 point range in the SPY for almost a year.  This makes it hard to trade with any conviction day in day out.  The important part is to manage yourself.  Trade setups that make sense to you.  Trade when you know you have an edge.  Trade to bring home a check don’t trade just to be involved.  This market pays off the traders who are persistent and disciplined, not just the traders who happened to sit down today. 

Best of luck tomorrow. 

Kyle

Earnings Season has started

Light volume up day at the start of the earnings season (SPY didn’t  even trade 150mm shares).Technically plenty of stocks are starting to test the next level of resistance, either the 50day or the 200 day MA — most of which are still sloping down. Could the failed Head and Shoulder be the bottom for now of these markets? that is what we are testing out for the next few weeks, earnings will play a big part in answering that question. For the most part analysts and companies have lowered expectations for the 2Q, as can be seen by the beat in AA and CSX last night. My expectation is that companies might beat 2Q earnings expectations but will remain caution about the 3Q – seems like the right thing to do with the unemployment levels still very high – any upbeat 3Q guidance will be taken as a positive surprise by the markets..

Portugal was downgraded this morning, yet the impact doesn’t seem to be as negative as other downgrades, for one S&P kept a stable outlook for the next 12months. Also Greece was able to issue some 6month bonds at below the 5% level, a decent reentry into the funding markets.

Recent upgrades for the semiconductors is helping the Nasdaq gain some relative strength ($BRCM breaking out nicely), what we need now are the financials to start kicking in some positive sentiments – $JPM, $BAC and $C all report later this week. These two sectors will be the focus of my attention today ($SMH and $XLF).

Going long a weak stock in a strong sector

Goldman Sach’s upgrade of South Western Energy ($SWN) pushed the energy sector up on Monday. On Friday I had been shorting Conoco Phillips ($COP,) but today I was looking to go long. It was by the far the weakest of the energy stocks I watch.
$XLE, $SLB and $HAL were all close to being up 2% and $CHK was up 4%. COP however was the laggard of the group and I anticipated that the rising tide in energy would lift all boats.

I first wanted to wait for COP to test and hold Friday lows at $50.81. On its second 15 minute candle it made it as low as $50.86. I then waited for the next 15 minute candle of buying to finish. It pushed up to $51.16 and then came back in.

I placed a bid at $50.99 and got filled passively on EDGX. My first profit target was the day’s high at $51.54 and the second target being the previous day high at $51.81. My out was a break of the previous day low, so I set my stop at $50.79. So it was just over a 2:1 risk/reward, which is not great but not bad for today’s market.

After some chopping around COP finally pushed to $51.17.  I was moving my stop up to the bottom of each completed 5 minute candle. So after I was in the money and it began hitting resistance at $51.17, I moved my stop up to $51.08. Next candle had me move my stop to $51.18 and then to $51.27.

Cop made it as high $51.38 and then came in. I had an offer up near $51.50 and thought it would make it up there, but wanted to lock in my profits on this choppy day of trading. COP came in and triggered my stop and I was out for a 28 cent gain.