Are You Already A Profitable Trader? Here’s How To Make Even More Money
Stock index futures opened Tuesday’s FOMC-focused
session with slight gaps to the upside and quickly settled into a
tight range before taking a quiet 2-hour dip ahead of the news. The Fed held
rates steady, but did omit its promise to be patient from its policy statement,
while indicating that any move on rates would be at a “measured” pace (I’m not
sure if Greenspan knows how to do anything at a measured pace). The reaction to
the news gave the 1st move up, and the 2nd counter move back down, but the 3rd
resumption move had some trouble getting started, but once it did, the shorts
scrambled to cover. The euphoria was short-lived though, as equities took their
cue from the bond market and took a sharp right turn back down. When the smoke
cleared, an accumulation day had been scratched out with Chip, Networking, and
Telecom shares leading the way.
The June SP
500 futures closed Tuesday’s session with a loss of -0.50 point, and finished in
the lower 1/2 of the daily range. Volume in the ES was estimated at 817,000
contracts, lighter than Thursday’s record-setting pace, but still above the
daily average. Open interest also contracted on Monday’s up move, which is not
real indicative of any buying conviction. Looking at the daily chart, the ES
tagged its 100-day MA and 50-day MA resistance on the Fed news, but pretty much
finished with a nothing day.. On an intraday basis, the 60-min and 30-min have
been posting higher highs and lows from Friday’s low, and needs to hold 1112 to
continue the pattern.
June bonds
(ZB) posted a bearish engulfing line after a volatile session, but are still
holding last week’s low. The U.S. Dollar posted a weekly market structure high
and settled right on its broken weekly downtrend line support. The Banking
Index (BKX) tested its 20-day MA resistance, but was still able to settle above
its 10-day MA. The Semiconductor Index (SOX) posted a market structure low off
its lower channel line.
Wednesday
morning gives us the ISM Services report at 10 am ET, with an estimate for a
slight decrease to 65.0. The PREM closed ugly at (4.01), so I’ll be looking for
some early weakness and then a reversion back to a holding pattern ahead of
Friday’s Employment numbers.
The
Reality of Big Losing Trades….Don’t Say You’ve Never Had One!
Realistically, every trader has made a stubborn,
big losing trade. What do you do if
you’re really “stuck” in a doozy? First, there’s no such thing as “stuck.” No
supreme being is preventing you from pushing the buttons. The first thing you
can do is offer a sacrifice to the trading gods. In other words, immediately
get rid of 1/2 or so. Whatever the case, cut down the size. Right off the bat,
you’re taking action instead of freezing up. You’re reducing your risk, and you
have shifted the psychological balance to a win-win situation. If the market
turns around, you still have part of the trade on. If it continues against you,
the loss will be more manageable. I’ve found that I usually would have been
better off if I had exited the whole position on the first order, but not
everyone can do this. A famous trader was speaking and somebody asked him what
he did when he had a terrible losing trade. He replied that his stomach would
begin to hurt and he’d “puke them at the lows along with everyone else.”Â
The point is, everyone makes mistakes but
sooner or later, you’re gonna have to exit that nasty losing trade. “Feel good”
trades help one get back in the game. It’s nice to start the day with a winning
scalp. It tends to give you more breathing room on the next trade. The day’s
psychology is shifted in your favor right away. This is also why it’s so
important to get rid of losing trades the day before, so you don’t have to deal
with them the next morning. A small profitable scalp is the easiest trade to
make. The whole secret is to get in and out of the market as quickly as
possible. Of course, this strategy isn’t substantial enough to make a living,
but remember that the object is to start the day out on the right foot.
If you’re following a method consistently (consistently
being the key word) and making money, how do you make more money? You must
build up the number of units traded without increasing the leverage. In other
words, don’t try swinging for the fences on every trade, and instead, add more
trading units. Proper understanding and use of leverage can be the key to your
success and longevity in this business. Most traders who run into trouble have
too big of a trade on. Size influences your objectivity, and most people react
differently when they’re under pressure from being overleveraged. They tend to
be more emotional or reactive. They tense up and their judgment becomes
impaired.Â
Many talented athletes can’t cut it simply because they
choke when the pressure’s on. You could be a brilliant analyst but a lousy
trader. Consistency is by far more important than brilliance. If you admit to
yourself that you truly don’t have the will to win at this game, then it’s very
simple. Don’t try to trade. There are easier ways to throw away money. Many
people think they’ll enjoy trading when they really don’t. It’s boring at
times, it can get lonely, it can get mentally trying, and it offers little
structure or security. The markets are not a logical or fair playing ground,
BUT there are numerous inefficiencies and patterns ready to be exploited, and
there always will be.
Please feel free to email me with any questions
you might have and have a great trading day tomorrow!