Being Persistent

As I have discussed in previous posts the current market environment has not been offering many consistent opportunities.  Sometimes there is easy money to be made for about an hour or two each day.  Another characteristic of this market has been the increase in program trading, also known as algorithms.  These “algos” seem to take traders out of the best risk/reward setups.

Basically I have found that there are two ways in which we as traders can adapt to these programs.  The first one is to let trades breathe a little bit more than usual.  This can be a problem sometimes as we take a much bigger loss than we wanted because the stock blows through the price we wanted to get out at.  Then we wait to see if the stock is going to stay there and instead the price goes against us even more.  The other way I have found to combat these programs is staying on top of good scenarios and reentering them when opportunity presents itself.  I found two trades this morning that I think illustrate this idea of being persistent perfectly. 

The first trade was in JP Morgan Chase (JPM).  The scenario this morning was that JPM was opening strong basically right around the 2-day highs of 43.00.  I wasnt going to take the inital break of the number but was looking for a pullback to find a good area to manage risk.  This happened around 9:55 as JPM pulled back to test the 43 number.  My first entry was at 43.03 which was the 2-day high, with a stop under the figure.  As you can see from the chart we couldn’t trade out of the range from 43.15 to 42.94.  Now I didn’t want to give up on this trade but my job as a trader first and foremost is to manage risk.  So I kept trading around a core position and probably reentered this trade about five times.  The key to this trade was having small size when the stock was heading down below the figure but because I was confident in the setup I wanted to have the most size when we finally broke out.  The stock finally did break out for a nice .50 profit in about 20 minutes.

The next setup that occurred where I needed to reenter many times was in Las Vegas Sands (LVS) this morning.  LVS had been trending higher on the hourly chart and what I was looking for was to first open above the 19 level then hopefully trade above yesterdays high of 19.30.  Once LVS got above this range The next level of resistance I saw was 19.80.  LVS opened above 19 then traded above 19.30 almost immediately.  Basically LVS chopped around in a range between 19.40 and 19.20 for about an hour.  The key to this trade was the pullbacks were on lower volume then the up moves so I kept taking small profits and losses until we broke the 19.50 level then sold my long position at the next level of resistance which was 19.80.   I didn’t care if LVS went higher from here because I could have always reentered if we broke out from here. 

Hopefully this post will be helpful in your trading and as usual best of luck.

Kyle

My favorite day trading set up

One of our favorite plays is a weak stock closing strong. Tomorrow’s play is to sell short a failed test of the previous days high. This is a trade with terrific risk/reward. The existing order flow is selling pressure and the play is for it to resume.

The ability to put in a tight stop at a significant reference point with the potential resumption of the larger time frame move makes this a great addition to your playbook.

What to do when markets are in a range??

One of the benefits of working on a trading floor is being able to gauge the type of environment we are in on a day-to-day basis just by opening up my ears.  You can almost feel the energy when the market or even just a stock is giving away money.  And on the flip side you can feel the boredom and frustration when the market is providing nothing.  More and more lately I have been feeling this frustration by the traders on the floor.  But during these difficult times is when traders need to step up and make adjustments in their trading and grind out a living.  You need to grind out a living and basically keep your head above water so when the markets pick a direction you are still around to capitalize on this opportunity.  Here are a few adjustments that I have been making in my trading lately. 

• Be Prepared.  Far too many days lately have been slow grinds with small periods of activity.  If you don’t have a plan for the market at all times you may miss this activity.  And if you are an undisciplined trader you may chase this opportunity and compound the mistake by not only missing the high probability trade but also taking a low probability scenario. 
• Lower your expectations.  When the markets are not trending you are basically momentum trading.  The key to momentum trading is taking what the market is willing to give.  Take your profits and reevaluate the trade.  Most trading is grinding out small profits and losses, the bigger money will present itself but don’t try to hit a home run every trade. 
• Respect support and resistance levels.  One thing I have been noticing in my own trading is that stocks are not only pausing at area support/resistance they are reversing off of these levels.  And if you have not at least taken some of your position off you end up turning a good trade into a flat or a small loss.  They key is to get out at areas you believe will be support/resistance and if we do break through get back in. 
• Hourly trends are most important lately.  Most of the stocks I have been watching the only trend I have been able to take advantage of has been on the hourly timeframe.  Stocks that are trending are basically doing so on a 3-5 day timeframe.  If you are paying attention to the hourly charts you may be able to take advantage of good setups by trading in this direction.  A good example of this last week was WDC as it traded from 44 to 38. 
• Your first loss is your best loss.  With lower expectations and less opportunity must come tighter stops.  When markets are trending and the direction is obvious you may be able to let trades breathe a bit.  The environment we are in calls for watching order flow and when the tape doesn’t feel right you need to get out of the trade and reevaluate.

Hopefully these suggestions help you in your trading.  If you have any adjustments that are working for you either post them in the comments section or email me at kylemkramer@gmail.com and I will post them for us to discuss.  As usual best of luck in your trading. 

Kyle

stock trading mentoring video

Day trading is a terrific business to earn a great living if you know what to do. Each month Keystone Trading Group holds online webinars that proivide continuing education for both new and experienced traders.

These webinars are designed to take your trading to the next level sooner than later. To watch a 90 minute video from our most popular meeting simply click here.

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Looking forward to a huge 2010, let’s make it happen together.

Pete

Why do you exit good trades too soon?

There are many reasons for this but the number one reason is trading your P&L instead of trading the trade. The only way to hold on to good trades longer is believing in your idea (but being flexible to change if it is not following through).

The only way to take it to the next level in your career and not focus on the small fluctuations is to do a better job of building and “argument” for a good trade just like a lawyer builds a case in court.

 

The better the argument for your idea the more confidence you will have in the position.

 

BTW this is also how you will keep yourself from over trading, the weaker the argument the less you will trade.

 

**This of course assumes you know what a good trade looks like!