Tips of the Trade
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!
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
Doing what it takes
Do you ever wonder what separates the truly successful traders from the rest? It’s an obsessive commitment to hard work. It’s a type of dedication unfamiliar to most, because of the unique challenges the world of professional trading presents us with. These obstacles can only be conquered one way and one way only – Through a merciless dedication to being the best that you can be.
Trading IS a performance based business! We get paid by beating our competition, by making sure somebody else loses. We get paid by out-thinking and out-smarting some of the deepest pockets and some of the brightest minds on Wall Street. But, probably the most challenging of all these feats is, we get paid when we learn to overcome our deep-rooted belief’s about how we view ourselves and how we view the markets.
If you are new or somewhat experienced to the world of trading – Just know there are no shortcuts. Nothing can or will ever replace your dedication to hard work and “dynamic screen time”, which requires years of experience. For the record, this applies to mostly everyone venturing into the world of professional trading. Naturally, you have the select few who reach a certain level of success quicker than most, but they are the minority – they are the exception!
So you might be asking where is he going with all this. If you are a seasoned trader reading this post, you might be saying I know trading requires hard work. But sometimes we need a different perspective from other highly successful individuals. It’s refreshing to me when I see the hard work and dedication other professional athletes who are at the Top of there game put in. It reminds me I can never remain dormant. I must always work on my craft.
Here is a perfect example of what an MVP (Kobe Bryant) does to stay on top of his game. His dedication to his craft is unmatched as far as I’m concerned. He does whatever it takes to win. Here are some excerpts from an article I read today from last nights game against the Heat.
“MIAMI – Kobe Bryant(notes) had come back into the empty arena, his gray Lakers T-shirt soaked with sweat as the shots kept arcing into the night. The clock lurched toward midnight, the clean-up crew stuffed popcorn boxes and wrappers into trash bags and the NBA’s most maniacal talent wouldn’t leave the gym. He had returned to shoot for an hour and a half on the Heat’s floor, to go back to work, launching hundreds of jumpers and inspiring a spectacle born of obsession and manipulation. This was for him. This was for them. This was because Bryant can still see LeBron James(notes) and Dwyane Wade(notes) in June, that the Miami Heat are still championship contenders.”
“This was a complete mind game from Bryant, but also a concession of respect that he hasn’t counted out the fledgling Heat in the Eastern Conference the way some have gone and buried them. This is the way he sends messages, the way he shows respect. The Lakers have lost twice to the Heat now, and part of Bryant understands he won’t win his sixth title unless these Lakers can beat them four times this spring.”
“He was beating himself up on the floor late Thursday, stealing the stage and sending a bleep-you to James and Wade: Enjoy your night out after a big March victory, because I’m staying back to turn out the lights in your gymnasium.”
“Bryant wanted the workout, wanted the chance to cleanse himself of missed shots and missed opportunities in the final minutes. Mostly, he wanted James and Wade to understand the lengths they’ll need to go to take his title away.”
“This is my job,” Bryant would say 2½ hours after the game, slumped in a chair courtside. “This is what you’re supposed to do … ”
“All those Heat stars breathed a sigh, packed up and left American Airlines Arena. Bryant marched back onto the floor at 10:45 p.m. and started sweating again. Three Heat ball boys fed him passes, and Bryant marched to every corner of the floor and lofted his shots. Security staff and other Heat officials stood befuddled, unsure what to do. One security worker insisted he had never witnessed this in his eight years on the job. The Lakers were gone and Bryant was still dripping sweat on the Heat logo.”
“Sometimes, players will do this in their own arena, but never on the road. This was a spectacle and no accident. Bryant’s still the player they’re chasing because he’s the MVP of the back-to-back NBA champions. Bryant knows these Heat will get it together and become a problem for everyone in the Eastern Conference. Wherever James and Wade had gone late Thursday, Bryant clearly wanted word to reach them: He won’t accept losing to the Heat. Not on Christmas, not on Thursday night and not in June.”
“Hours later, when asked about his motivation in a text message, Bryant responded with the words of Achilles: “I want what all men want. I just want it more.”
Here is the link to the entire article if you are interested in reading it all…
http://sports.yahoo.com/nba/news?slug=aw-lakersheat031111
Good trading
David Guerrero
Trading Journal for Jan 25, 2011
A very important skill for an intra-day trader, especially if you are a momentum trader is the ability to re-act quickly and ask questions later. Perfecting this skill for most will take countless hours if not years of experience to develop. But, it’s an essential developmental skill that you will need to hone upon.
Here are two of the challenges I had to overcome to improve on this skill:
- You will need to “Trade in the now”. This requires trading in the “moment” and being fully aware of your own best interest. Letting go of any biases, potential profit targets or any other distractions that might prevent you from pulling the trigger if the stock does not do what you expect it to do.
- Managing your expecations…
- You must be able to accept that NOT all trades regardless of how perfect the pattern/setup might be are going to work out. This is a game of probabilities. We play the odds when they are in our favor and we manage RISK! The rest is out-of-our-hand. We can’t force trades to do what we want or expect them to do.
This morning I came in with a long bias in TRV. It was a pretty bullish gap as it cleared 56.00 (an important level) and was holding above 57.00 at the open, another important level. If it cleared 57.50 which it did, there was not much resistance holding it back.
My plan for TRV was to get long above a 2 min high or wait for a pullback with confirmation of a Bullish tape. As I saw the Bids hold there price I began to accumulate some shares in the mid 57.40’s. I added some more above 57.50 and was targeting the whole number for T1. My plan was to give this stock plenty of wiggle room and not adjust my stop, unless T1 was hit at which point I would have moved to a BRB trail on 1/4 of my position. My “Expectation” for this trade was huge! Unfortunately, I got stopped out for a 1 R loss when TRV dropped pretty violently below 57.50. When I saw this happen, I “reacted” immediately and closed this position. I didn’t think or allow myself to justify holding this trade as the reason for holding was no longer valid for me.
I moved on and took a few other trades, which resulted in small losses. I accepted this was not panning out to be a good day, but I needed to remain focused and wait for the next opportunity. With one of my 5 min charts still pulled up of TRV, I noticed the 5 min was triggering a Buy setup above 56.75. So, I picked up a few shares and averaged up to 57.00. I continued to build into this position and when 57.04 got taken out, I added quite a bit, brining my average cost to 56.96. My plan was to Sell half my position in the mid 57.20’s and hold the rest for a re-test of the highs. I was feeling pretty good as 57.11’s were printing and the upside was even greater now. Then all of a sudden a flush of sell orders must have come in and the Bid was suddenly at 57.00. It happened so fast, I was actually caught off guard with the reaction. They held for a bit and I held onto my long. But, this was not the type of price action that made me comfortable. So, I gave myself to B/E and as you can see from the chart I had to stop out.
These are two examples of a few trades I took in TRV that had a lot of upside. I was very bullish on this stock today and was expecting some nice trading to take place. But, as you can see the stock fell apart after the strong initial drive up.
Living to trade another day
~David Guerrero
Levels in SPY to keep an eye on…
SPY
The SPY is in a Stage 4 downtrend on the 30 min timeframe. The break of the 121.00 level could produce further downside pressure possibly to the 118.75 level, which is where the 200 ma sits on the hourly chart.
Levels: 120.65 Resistance | 119.25 Support
Trade of the Day
Today’s trade of the day was a short in GILD. It was a stock that was not on my watch list because I never trade GILD. I prefer to exclude it from my list of stocks to trade. However, I was not finding much in my basket of stocks as I was scanning through my list – when GILD popped up. In looking at the 30-min chart below – It was time to give this stock a chance to make me some money. At the time I saw this stock trading, it was printing below the 37.50 level which would confirm the transition to a Stage 4 downtrend. It still needed to close below the level to officially call it a successful transition, but with the market as weak as it was and the lower high in GILD within the Stage 3 Phase, I was willing to take a stab once the lower time frame confirmed the weakness. For this trade I used the 2-min chart on the break of 37.40, which would resume the downtrend (stage 4) on the smaller time frame.
My first target was at 37.00 and I stacked my orders beginning at 37.07 with most of my lots at 37.01. The balance was covered on a BRB trail off the 2-min.
As you can see from my trade manager I also took a short in COST, which stopped out for a 2 cent loss. With a nice gain in GILD, I was not willing to give back my profits so I killed the trade early.
Staging the Market
Hello fellow traders,
It’s been a while since I’ve updated my Blog and I thought I’d post an educational piece on Stage alignment. This has been a topic of discussion in prior posts and I would like to rehash this simple, yet powerful concept I use for trading the markets.
First, what is Stage alignment? Stage alignment is taking the market on any timeframe and categorizing it into one of four phases. Accumulation (Stage 1), The Uptrend (Stage 2), The Distribution phase (Stage 3) and the Downtrend (Stage 4). How a trader goes about categorizing the market can be somewhat subjective, but with a basic understanding of Supply and Demand and Candlestick analysis – One can get a firm belief on what the market will likely do next and make a objective decision to establish a position.
So, how do we determine what stage the market is in and how do we use this information to gain an edge in the market? The first step is to understand what each Stage represents.
Stage 1 – Is referred to as the Accumulation Phase. It’s usually an extended period of a tight consolidation. The Moving Averages are sideways and volume is normally light until the end of this Phase. Volume usually increases as the MA’s begin to curl up and the transition to Stage 2 is complete – I refer to this period as Stage 1-3. It’s only when the market breaks out of Stage 1 to make a new high – Pullbacks to make a higher low and resumes the uptrend to take out the most recent high that Stage 2 is officially in place. Than other market participants begin to take notice and help fuel the stock / market higher.
Note: Stage 1 always comes at the end of a Stage 4
Stage 2 – Is referred to as the Uptrend or the Mark up. It’s a period of higher highs and higher lows. The Moving Averages are rising in an orderly fashion and containing price as the market reverts back to the mean.
Note: Stage 2 always comes after a Stage 1 and sometimes resumes the trend after a Stage 3 consolidation
Stage 3 – Is referred to as the Distribution Phase. This phase can be a bit tricky because if one gets to anxious and jumps the gun prematurely, they can be stepping into a secondary accumulation phase. But for the sake of its true definition – It’s a period of choppiness. The market usually trades in a wide range with relatively equal highs and equal lows. The Moving Averages begin to go flat and curl over. Confirmation of a Stage 3 Distribution Phase comes when the stock or market breaks the low end of the range and closes below the range.
Note: If the market consolidates through time in a Stage 3 and fails to break to the downside. Be extra cautious as this might be a momentary pause as the buyers accumulate more stock and get ready to push the stock to higher ground. I like to refer to this a subset of a Stage 3 and I call it a Stage 3-1
Stage 4 – Is referred to as the Downtrend. It’s a period of lower lows and lower highs. The Moving Averages are declining in an orderly fashion and containing the market with each retracement to the averages.
Note: Stage 4 always comes after a Stage 3 Distribution Phase
Now that we have a basic understanding of what each Phase represents and what it looks like on the charts. It’s time to apply this information to formulate a plan. The first thing I like to do is look at a longer term intra-day chart and my trading time frame chart (5 min). I use three moving averages – an 8, 20 and 200 ma. I like to look at several days of prior price action so I can bracket the market like I did in the example below. This is a 15 min chart of X and we can see that X found quite a bit of demand as it dropped to the 200 ma, evident by the uptrend that followed. As you can see when X broke the up trendline – It began to trade in a sideways range. In this example we can clearly see this was indeed a Stage 3. Now, you might make the argument that we are looking at past information and I am using a trade example from a hindsight perspective. And you would be correct, but that is exactly what we are doing when we trade off longer term timeframes. We are waiting for the completion of a 15, 30 or 60 min bar to print and using the close of those bars to interpret their messages and using that information to enter our trades once the shorter term timeframes confirm our long term bias.
Let’s look at the example of X below and break the trade down as if we were trading live. At point A just as X was coming off new highs for the day we were still in a Stage 2 uptrend. At this point you can either stand aside and wait for a buy setup on this timeframe, if you only use one timeframe to trade, or you can take a long on a shorter term time frame at a) Stage 1-3 transition or b) In a Stage 2 uptrend. The latter is my preference as the odds are increased by combining multiple timeframes. Looking back at our example chart we see that a buy setup formed at area B. This would be the perfect time to initiate a new position or add to your existing position as you are still in a Stage 2 uptrend and there is no reason to think otherwise. Your expectation is for X to take out the most recent high and resume its trend. However, at C we get a lower high, which to me signals a red flag. At this point it is wise to take profits or scale your exiting position back to minimize risk. At this point X begins Stage 3 and trading during this phase should be halted or minimized with very specific actions.
In this example the lower high tells me that Supply is greater than Demand and I can make this assessment because the lack of demand failed to push prices higher. So, it’s at that point that my bias begins to favor the short side and I begin to look for Stage 3 Breakdowns and or / Stage 4 downtrends on the smaller time frame.
Further confirmation came when X broke the Pivot low at B and closed below the range. Half the time you will probably miss the market / stock as it’s transitioning, unless you only watch one stock the entire day. But, that’s not to say you have missed the move completely. If you focus on the longer term time frames there is plenty of potential up or down. In this example, you could have waited till the next day after the breakdown occurred to make a really nice trade.
You can see X gapped down on the day of the 14th. X continues to sell off from the prior day, but I am not looking to get short just yet. I need a valid reason to enter. Either a 5 min sell setup at or near the declining moving averages while still in a Stage 4 downtrend on the 5 min chart, or a Stage 3 breakdown on the 5 min chart. As you can see the opportunity comes with the 5 min Sell setup. Textbook management is to exit the trade once the Stage 4 downtrend is broken which comes at point A.
I hope you found this example helpful and you can take something from it to add to your trading plan.
Have a good trading week!
David Guerrero
Pacing = Patience
I hope you all enjoyed your Fourth of July weekend and got to enjoy a Fireworks show where ever that might be. I celebrated my Fourth of July as I have been doing for the past three years, which is by running a 10K race in my neighborhood community, hanging out with friends and family and topping it off with a great Fireworks show. The only difference is that this year, I ran pushing my 2 kids on the jogger. Total combined weight was around 150 pounds, so it was challenging to say the least. Ever since I started running the race I have had ONE goal in mind – To beat the prior year’s time, which I have successfully done since I started. This year was no different. I knew if I stayed within 10 minutes of last years time, it would be fair to say I could have beaten last year’s time if I wasn’t pushing the extra weight, especially on the hills that were part of the course.
My training consisted of several trial runs of the course with and without my kids. On the days I ran without my kids, I focused on doing Hill intervals on the one hill I knew was going to be challenge come race day. I also did some longer slower paced runs so my mind and body can sustain a shorter distance with a much heavier load.
However, with all my training I did leading up to the race I had one problem. I only completed one lap of the two lap course. During my practice runs, I felt completely spent after the one lap. So how was I going to run two laps on the 4th of July? That was the million dollar question…
*Pacing myself*
As the event got closer upon me, I visualized the race more and more. I visualized pacing myself on the first lap and not letting the competitive energy of the event get to me. I focused on feeling and running a strong race, but most of my attention was on making sure I paced myself. It was really the only thing I could control that would hopefully work to my benefit.
So what does this all have to do with trading?
I think it has a lot to do with the very nature of trading. IMO, professional athletes and traders have very similar characteristics. First, is Discipline – You must have the discipline to follow your trading plan, just as you must have the discipline to follow a training program for whatever sport that might be. And, you just can’t get discouraged if the results aren’t immediate. Believe me there were times that I could have easily said “screw it”, I’ll just run by myself. I don’t need to push my kids. That thought did cross my head, but I kept on thinking “pacing”. Which leads me to the second characteristic? Pacing – In sports that require a high level of endurance, such as cycling, running, basketball, soccer, boxing and etc. The top athletes know how to pace themselves. You’ll see many of them start out slow and gradually pick up the tempo as the event goes on. That’s when and why you see a lot of them destroy there competition apart as they pick up the pace while there competition looses the momentum they started with.
In trading we use “patience” as our form of “pacing”. Patience when we are scaling in to positions making sure we don’t add too much too soon. Patience when the trade begins to work for us by allowing it trade to our targets. Patience when waiting for our set-ups, making sure we are only taking the set-ups that meet our criteria and Patience in not abandoning our plan when we have a losing day or two.
So, if you have been trading for a while and have acquired a certain level of skill, try working on your patience. Visualize yourself sitting on your hands waiting for the trade to come to you. It’s time to let your knowledge/skill pay you dividends by being patient and striking when the trade sets-up.
I completed my run in 53:00 minutes. Six minutes less than what my goal was. My first lap was completed in 27:00 mins and my second lap was done in 26:00 mins, 1 min faster. I even surprised myself. My ultimate goal is to be complete this race in the 30 min time frame – Less my kids of course!
Good Trading
David Guerrero
Trading Journal for: June 14
Just Making Markets
Once you’ve reached a certain level of experience trading the markets, there comes a point where playing quick counter-trend moves can be quite a lucrative strategy. However, you must remain cognizant of the fact that you’re playing against the Tape and set flexible profit expectations unless the Tape begins to confirm your short-term bias while in the trade. This is precisely what happened in a short I executed in RIMM this morning.
RIMM was one of the stocks I had on my watch list. My plan was to short it based on the Gap into Supply (resistance) as labeled by the 60 min chart. I primarily look at the 15-min chart, but for illustration purposes I am demonstrating this trade on the Hourly. I identified the 60.50-ish area as the high end of the resistance zone and was looking for a trigger on the smaller time frame to get me short. I was willing to scale into this trade with multiple lots all the way up to 60.50.
As you see from the 1-min chart below my entry trigger was hit and I shorted 3 lots at 60.29. My first target was the 8 ma, which was right around the “fig” at 60.00. RIMM actually traded down to 60.00 and bounced very quickly off the level. When RIMM made a second attempt down to 60.00, I covered half my position in the low 60.00’s. Then RIMM bounced again and I exited the rest of my position at 60.08.
I was through with RIMM for the moment and proceeded to trade some of the other stocks on my watch list. I took a long in QCOM around the 35.50 level and sold in the mid 35.70’s, for about a .25-cent gain. I was also nibbling on JPM around the 37.50 level, anticipating the Demand level to hold. I bought some shares in the low 37.40’s, but clearly was a little early in the play. I ended up exiting this trade for about a .04-cent gain as my focus was back on RIMM.
I noticed RIMM was back at 60.30 and ticking up to 60.40, staying in a .10-cent range. This was also the level from where I shorted the stock at the open. So, my thinking was “Trap”! If RIMM could break out of the early morning range, it could be poised for a move higher. So I watched the Tape closely. When I saw the amount of volume done on the Bid at 60.30, I hit the offer to get long at 60.38 for 3 lots. My entry was not the greatest, but nonetheless I was long some RIMM. I then watched the highs get taken out and it was “GO Time”, as RIMM pulled in some. When 60.40 held the Bid, I hammered the Offer at 60.48, as I had more confirmation for a greater up-move. From that point forward, it was off to the races. I took profits on the way up with the last few lots at 61.20 based off the 50% wipeout as seen on the 1-min chart below.
As you can see from the 15-min chart below — RIMM had been in a multi-day uptrend with the Higher Lows more prominent then the Higher Highs. For some traders, this is not a viable strategy because you are going against the trend – And that’s ok. Your odds for success and longevity in this business are trading with the trend. But, as I said before once you have acquired some trading experience and have a solid plan, taking counter-trend moves with reasonable expectations is just part of making markets.
I hope you have enjoyed this lesson/journal of my trading from this morning…
Best
David Guerrero
Active Trader 2011 – July Issue
Click the image below for my December 2009 Interview
