Know When To Sit On Your Hands

  • July 3, 2001
  • Dave Floyd

Don
Miller’s column yesterday made reference to how traders who may be
in a slump should focus their energies on one skill and build from there.
Well, here is one skill that every daytrader needs to master, slump or no
slump:
If there is one thing I have seen over the years that eats away at
returns, it is overtrading. I believe
traders fall into three distinctive types:

  1. The
    novice trader who is easily lured into traps.The
    compulsive trader who can’t bear to think they may miss “the big move.”
    This syndrome is a bit more difficult to overcome.

  2. The
    unfocused trader. This trader is
    always searching for the “new” thing, when all along, the “real
    thing” is right under their nose. It is just not the time to be
    trading.

I personally made no
“scalp” trades yesterday afternoon. I just did not see the risk/reward in my
favor.If you do not already have a
Trading Plan, I suggest you do so now. The
traders in my office are required to write out in detail their trading plan
based on the following before their mentoring continues:

  1. What
    types of trade setups will they be looking for throughout the day?

  2. What
    is their catalyst to go forward and initiate the trade?

  3. How
    are stop-losses determined?

  4. What
    percentage of their trades followed the plan during the day?

  5. Go
    back over each trade on the charts and see why the trade did or didn’t
    work.

  6. Write
    down your observations in your Trading Journal.

As tempting as it was yesterday
to play the breakout or breakdown from the 1238-40 that took place in the first
hour in the spooz, the patient trader was rewarded by waiting.
Take a look at the one-minute chart below, a two-point range.
Those of you who read my column daily will know that you need at least
three points, preferably five, to get good follow through in the underlying
stocks you are trading.
Many traders will fall for that trick time and time again, only to be
worn out mentally and financially when the setup actually does appear.
I don’t need to be the first one in; I just want to be right.

This week will be a perfect
environment to test your skills at trading effectively.
Today is an early session, and Thursday and Friday will be slow as most
traders opt for a long holiday. However,
there are plenty of economic numbers due out, which may offer some good trading
in the morning session. 

Looking ahead to today’s
session, we had a few earnings warnings (imagine that), so the futures are under
a bit of pressure early on. Volume will
be extremely light, so expect “choppy” price action.
If today’s session were not ahead of a holiday, I would expect that the
market may actually give up some of its recent gains.
Frankly, this market seems very “heavy” to me, and I would not
be surprised to see a failure up at these current resistance levels.
The spooz are currently hovering just above their intraday pivot of
1241.8 with 1248 looming large as overhead resistance.
Remember, a close above 1251 is needed in order to secure some sort of
upward momentum. Look for 1217 to be
significant support.Trade very selectively today. Remember,
if there are no favorable setups, “sit on your hands.” The market will
back in force next Monday. Have a great
Fourth!

Dave