Trade of the Day
I’m a momentum trader. I look for plays that are going to follow through instantly, or else I don’t bother. Most importantly, I look for plays that are going to offer me a minimum 3 times my initial risk. That’s not to say I won’t take trades that offer less, but I focus most of my attention on waiting for the plays that are going to offer me the highest reward.
Today I took one trade at the open that made my day. It was a long in FAZ which yielded me over 6 times my initial risk amount. For this particular trade I had a dollar stop and / or a break below 44.00, which ever came first and a wide open target. I was only focused on managing my risk and adding to the position as it moved in my favor. I knew I had to be real careful with the “adds” to keep my average cost low enough to compensate for the volatile nature of the way FAZ trades. IMO, I was too conservative and should have been more aggressive near the whole at 44.00 where I only picked up one lot.
Obviously, not all trades work out quite this way. That’s why it’s important to follow your strategy for picking and managing your trades consistently. Because over time, you are going to get the handful of trades that are going to run and reward you for your efforts!
Good Trading
David
Will the market hold?
Here is my observation of the market from a pure technical standpoint using the VIX to measure the Fear in the market as of this writing. Given that my objective is to get an idea of the current state of the market, but more importantly where we have the potential to go from here, I am looking at a much longer term picture with weekly charts – A time frame I very seldom use due to my short term style of trading.
As we can see from the weekly chart of the VIX below, it has approached a level that on two previous occasions confirmed a market that was in very high Demand. On these two prior occasions, we had the completion of not one, but two Inverted H & S patterns which produced a significant advancement in the market.
So the question now is, have we put in a bottom? Can we rely on the Big money to begin to flow into the market to begin a bottoming process as they have in the past? Or is this just a pause before the next leg down? This will only be known over time. I believe it’s to early to call this a bottom because the market hasn’t showed any signs of a bottom yet. However, we are at a place where Demand for a piece of this market was so strong, the result was a 100% retracement of the mid 2008 highs and then some.
As of this writing we are currently sitting on top of the prior Demand level, which is currently around SPY 110. I believe we will drop further into the 110-100 level, which was where the Inverted H & S pattern formed. And if that happens, I can almost assure you CNBC and all the various financial media outlets will be going nuts reporting how the world is coming to an end and the VIX is soaring to extreme levels, which it probably will.
So if I was an investor or managing someone else’s money, I would be putting on small positions in stocks that have shown Relative Strength to the market with a stop below SPY 100. However, if we don’t hold SPY 100 and we don’t form any Bullish reversal candles on a weekly basis – Hold on to your SHORTS folks, it’s going to be a wild ride.
I will re-visit this topic next week after we get a close of next weeks trading to see where we are.
Good trading and keep those stops tight!
SPY Levels to watch
Here is a quick chart of the SPY highlighting some KEY levels to focus on tomorrow…
Why did LeBron struggle in crunch time?
This article below is a post I found on Yahoo today. I found it to be quite insightful and very relevant to all traders. I re-posted the entire article, but added my personal interpretation and thoughts.
Can LeBron Transform From Choker To Champ? A Sport Psychologist Has A Game Plan Monday, June 13, 2011 4:54 pm Written by: Eric Adelson
The Decision has led to The Derision, and many are now calling 
LeBron James a choker.
Let’s stay away from that label. But let’s also ask: Why do great athletes some- times fail to show up in important situations? Why did James, so dominant in fourth quarters leading up to the NBA Finals — don’t forget his incredible finish against the Pistons in the ’07 playoffs — start making high school mistakes when it counted most?
Me -Why are good traders held back from ever achieving the results they REALLY want? -Why does one trader fail to maximize profits, while another will obtain enormous returns on the same exact play?And is there a way he can confront this problem and overcome it?
Me -Is there a way we can make adjustments to overcome these mental road blocks?There are answers, and they go all the way back to the 1989 Stanley Cup Finals. One of the Calgary Flames, coming back to the dressing room right before the opening faceoff in Game 1, turned to the team’s sport psychologist and made a confession:
“I’m scared.”
Me -I’m afraid to take a loss -I’m afraid if I take two or three consecutive losses, I won’t be able to dig myself out of the whole today -I know if I take a loss on my long so close to strong support, it’s going to bounceThe psychologist was named Hap Davis, and he has spent more than a generation examining why athletes succumb to pressure. He thinks he’s found an answer, and it sheds light on both LeBron James’ poor play in and Dirk Nowitzki’s emotional response to winning in a whole new way.
Me -LeBron: Raw athletic talent -Nowitzki: The mindset of a winnerIn moments of fear, the human body produces cortisol, which helps its fight-or-flight mechanism. When you hear a story about a mother lifting a stalled car off her child to save his life, that’s cortisol at work. But cortisol is not what a great athlete needs in a defining moment. In fact, cortisol may get in the way of an essential ingredient for athletic performance: Testosterone.
Me -Fear is one of the major contributing factors that immobilizes trader performance/advancement -Fear of failure -Fear of loss“That’s what comes with ability to stay in the moment — frontal cortex activation, motor cortex activation and elevation in testosterone,” Davis says.
Me -Famous words of Mark Douglas: “Trading in the moment” -Letting go of past failures -Not looking too far into the future setting expectations to high. Just trading day-by-day!Translation: Athletes who “stay focused” (to use a cliché) keep producing testosterone, which stimulates the part of the brain wired for motor skills such as shooting or dribbling.
Me -My translation: Traders who stay focused on executing there plan, which entails trading there own strategies and have a primary focus on capital preservation, stimulate the necessary elements of the brain to keep them focused
“What we’ve seen in winners is huge testosterone-to-cortisol balance,” Davis says. “When they’re on their game, we see evidence that there may be an elevation of testosterone. When people are losing, they are overwhelmed with emotion. That’s cortisol.”
Now here’s the twist: Davis has found that when top athletes have a traumatic experience in a game or event, and then return to a similar moment (such as the fourth quarter of the NBA Finals), they often start producing cortisol. Davis has worked for years with the Canadian Olympic team, and he’s seen swimmers do perfectly well for years, in every competition, and then fall apart when they get to a scenario reminiscent of one where they struggled four or eight years earlier. It’s the exact same stroke or race, but it’s a completely different moment. The athlete responds not to the event, but to the moment.
Me -When we encounter a huge loss on any given day, stock, or individual trade – we subconsciously create a mental road block (fear) which causes us to loose focus on our plan, rules and / or routine -We begin to trade with larger size -We don’t take our stops, which then magnifies the losses due to the increase in size and does such powerful psychological damage that we begin to second guess everything we did in our trading and in life!**“Trade in the moment”**
In fact, whenever athletes start thinking about the pride or pain of winning or losing, they can become overwhelmed with emotion and unable to perform the basic duties of playing in the present.
Me -When traders let there pride and ego interfere with there trading plan, they begin to focus on Winning and Loosing, instead of the process of trading. In essence, they let there emotions dictate there trading and remove themselves from trading in the moment!“The moment someone thinks about the reward,” Davis says, “they are in a whole different space.”
Me -The moment a trader starts to think about the P&L, he/she falls back to making the same mistakes novice traders make and begin to trade with there emotions in mindSo you see the brilliance of what Dirk Nowitzki did in Game 6. He held his emotions back until the second the game ended and the title was won. Then he hustled to the locker room to cry. He was completely unemotional and then he was completely emotional. It was the opposite of what so-called “chokers” do.
So what’s the best way to overcome this? How can LeBron James turn back into the fourth-quarter beast he used to be? Move on and forget the 2011 NBA Finals ever happened?
Nope. Davis says the best way to erase the past is to dwell on it. Watch the failure again and again and again on tape until it evokes zero emotional response. Watch the disaster until you’re so numb to it that it feels like someone else is doing the failing.
Me -Keep a journal entry of all your trades – Good and Bad and make sure you keep detailed notes -Review what you could have done differently to possibly change the result and replay the scenario in your head various times -Replay the bad trade in your head and try to replay the thoughts you had at the time -Best of all: Use a program like Camtasia to record your trades and replay your bad trades over and over. Primarily, the ones that caused you some form of emotional discomfort“I’ve worked with too many athletes who say, ‘Screw it, it’s a bad game,’ ” Davis says. “Some people will get away with ‘Forget about it.’ But most athletes will find that’s a bad idea. They haven’t got past the emotional experience.”
Davis assisted on an experiment in which athletes were asked to watch a video of themselves in a game, and then perform squat jumps. Athletes who watched themselves doing well jumped significantly higher than those who watched themselves do poorly.
Me -See yourself taking trades that only meet your plan -See yourself making good decisions with your own self interest in mind -See yourself hitting out of a trade for a loss the moment something changes that is not in alignment with the trade expecationSo according to this theory, LeBron should spend the summer watching the fourth quarter of every Finals game. At some point, he’ll be able to break down that wretched film just like a coach would. Then, when he returns to the waning minutes of a Finals game, he’ll be driven more by the desire to correct the mistakes than the fear of reliving them.
And what happens if an athlete finds himself coming undone in a game? Well, that’s what happened to the unnamed Calgary Flames player in 1989. Davis pulled him off the bench and told him to get on the exercise bike and race like mad for a couple of minutes. That got the testosterone flowing and stimulated the motor cortex. The player took the ice and did fine. The Flames won the Cup.
LeBron James will probably get back to the Finals, maybe within a year. The sports world will be watching to see how he reacts at crunch time. But how he reacts this summer might make the difference between “choker” and “champion.”
As traders we need to work on being better everyday. We need to find “The balance of Risk” that keeps us focused and not afraid of taking a loss, or two or three. By doing this, we avoid trading on tilt and succumbing to the actions of “the novice” and we open ourselves to opportunity. We need to devote quality time to trading outside of market hours to prepare for the market and its various moods when it’s open. Most importantly, we need to work on our mindset. We need to hone the skills that successful traders already have in there possession and make them our own.
Sometimes “Talent” is overrated and “Hard work” goes un-noticed. The market might give you a couple free lunches, but you’ll end up paying handsomely in the long run if you are not mentally prepared. There are no shortcuts!
Here is the link of where the original article can be found
http://www.thepostgame.com/features/201106/can-lebron-transform-choker-champ-sport-psychologist-has-game-plan
Hope this helps
David
Active Trader 2011 – July Issue
Click the image below for my December 2009 Interview
