Setting Up Your Plays

Trading is all about preparation and adjusting to the market day in and day out.  During the trading day you should be executing your trading plan not trying to come up with trades.  If you are coming into the trading day basically saying to yourself, ” I will see what stocks are strong or weak and trade those.” You are trading the shorter term momentum and missing the meat of the move.  If you have a plan to buy or sell a stock and only trade that stock if you get a signal that confirms your plan, then you will get in before the trade is over. 

The trading play that has been working for us at Keystone lately has been buying strong stocks after they close weak.  We are classifying the stock as a strong stock because of the trend on the daily chart.  The best risk/reward setup is when the stock closes weak then tests the previous days low.  If the stock opens strong and doesn’t test the previous days low then you are waiting for an opening range break in the direction of the higher timeframes direction, which in this case would be to the long side.  Your first profit target on this play would be the previous days high.  Because you have the higher timeframes confirming your idea, the probabilities are in your favor so a little more size then usual is appropriate. 

There were a few stocks that set up for this play on Friday.  The three stocks that set up perfectly that were on my list were JP Morgan Chase(JPM), Hartford Financial Group(HIG) and Las Vegas Sands(LVS).  The main thing for this play is just because we sold off the day before only look to go long these stocks.  You will get chopped up trading short-term momentum in this market.  We are in a bull market until told otherwise and buying strong stocks on dips is the higher probability play and the easier money. 

With JPM going into the day I was a little hesitant.  The stock had been strong but the selloff on Thursday was pretty aggressive.  But you have to know what the play for the day is.  Look to buy weak stocks and have a list of them going into the day.  When a play presents itself do what you are supposed to do without question.  Trust your preparation and you will be rewarded. 

The trade in HIG was probably the best setup of the morning.  There is no question that HIG has been strong and the stock tested the previous days low to the penny.  Basically the risk/ reward on this trade was around 9 to 1. 

The stock that has been on my radar the past few weeks has been LVS.  The stock has plenty of volume so getting out where you want isn’t a problem.  Plus the buying in this stock has been pretty aggressive and the moves are very clean.  I tend not to get whipped out of very many trades in this stock because of the high volume.  And looking at my PnL for the last few weeks doesn’t lie it is my most profitable stock by a mile. 

As traders you don’t have to trade every setup.  Find a setup you know works and are familiar with.  When that setup presents itself you need to crush it and get paid in a big way.  Hope you have a good weekend and best of luck in your trading. 


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