I Did One Trade Yesterday — Here It Is
The epitome of a professional trader was best stated by
Market Wizard, Mark Weinstein, (I am paraphrasing):
"The cheetah chooses not only the weakest gazelle,
he chooses the one that is also sick and perhaps lame, it is then that he
strikes with tremendous conviction, and not until."
With the market presently doing its best to resemble a staring contest at a
wall of wet paint, you may want to file this quote in the back of your head. I
did one trade yesterday morning — yep, just one, and you know what? I think
that was a pretty darn good judgment call, at least from an
HVT basis. Remember, it is summertime, and
the market is usually not at its best at this time. That being said, don’t plan
on sticking around on Friday afternoons unless your keyboard is unplugged.
So what was that one trade that took place yesterday morning? A short in
Citigroup (C).
You see at 7:11 PST, the S&P’s did not confirm that "small" breakdown in the
C. The number one rule is that the futures
lead the stock, not vice versa. (Although at times C does in fact act as a good
leading indicator).
Nonetheless, not until 7:12 PST did the S&P’s confirm the resumption of the
downtrend.
The trigger in the S&P’s triggered my short in C.
At this point, despite C getting a little ahead
of the game and having the stochastic somewhat oversold, I nailed the bid and
went short. The S&P’s were kind enough to quickly move to lower levels, C
meanwhile was languishing. So what do you do? Cut the trade? No, the S&P’s
are still tracking lower, until the S&P’s slow their downward momentum, there is
a very good chance that C (or any highly correlated stock) will eventually
succumb to the pressure of the futures. Ultimately C gave way, and dropped
quickly for a 10 and 11 cent gain on both halfs of my trade.
This is one reason you do not use physical stops for
HVT. What if you had decided you were will to
risk a nickel, and your entry was at 43.85, as was mine? You would have been
stopped out, despite the S&P’s heading lower. A physical stop is a crutch that
says you have no discipline to cut a trade if it is not working. This trade,
while not immediately profitable was always working simply because the S&P’s
were heading in your direction. If you were stopped out at 43.90, guess what
the sequence of trades was after that? 43.85, 43.81, 43.80, 43.75, 43.76,
43.78. Way to go. The uncle point on a trade is the S&P’s.
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As always, feel free to send me your comments and
questions.
Dave