Lacking Panic
I had a great e-mail from a reader yesterday that
caught my attention. Whenever I write these columns, I try to be
cognizant of writing as clearly as possible. However, it is very easy to make
assumptions that the reader may not be aware of. This is why feedback is so
important. It allows me to focus in on exactly what readers want.
The questions this reader had were in reference to
yesterday’s column. His questions were as follows:
It would be very useful for me, and probably many
others, if you could offer a couple of lessons or expand on the following statements:
- Trade very assertively on the opening.
- Be incredibly selective after the first 45 minutes.
In fact, I am not even looking for quick scalps after that. I am immediately
looking for setups on longer time frames.
- Eliminate completely any marginal setups. Many
traders often go for marginal setups, and while that is certainly a viable
approach and works for many traders, this is not the environment for it.
Specifically, what is the technique of assertive
trading? My understanding is: wait the first five minutes, just observe, on the
sixth
minute scan the market for most up/downs, bring charts, if technical setup is
there, go for it.
Regarding marginal setups: that’s probably part of
your proprietary methods, but if you decide to disclose: Could you show some
kind of diary, i.e., here was the chart I considered marginal; here is what I
saw as a solid one?
I trust there may be a few readers out there with the
same questions, so let me address them.
Trading assertively, in terms of the way I define it,
would be as follows: If you have tremendous conviction on a trade, step
up to the plate and go for the throat. In recent weeks I have doubled
and in some cases quadrupled my share size on a per-trade basis. This
has been especially true in the recent rangebound market. The only good
moves were in the first 20 minutes. As a result, if I did not capture
the moves then, and in a big way, there would be little hope of putting
anything worthwhile together for the rest of the day.
Naturally, the beginning trader may not want to do
this if they have not demonstrated a long period of consistency. But for
intermediate to advanced traders, it is a path you need to seriously consider.
If you can get comfortable with larger share size in this market, you will be
an animal when the market loosens up.
Questions 2 & 3 essentially address the same
issue, good setups vs. marginal/bad setups. What is a good setup?
For me, a good setup would be depicted by the chart below. The stock is
in an uptrend as depicted by the upwardly sloping moving average. I base all
my trading decisions on the trend of the one-minute chart. For this
scenario, I want to be a buyer of pullbacks, not shorting the tops. Rarely, if ever, will I be selling short the tops.
On the second chart, rarely will I be buying the
dips. Given that the trend is down, I will be looking to sell short the
rallies.
Every time you buck the trend you immediately put the
odds that much further out of your favor. This is a game of
probabilities. Why would you want to trade when the odds of success are
against you?
Marginal setups are not proprietary as the reader
indicates. Marginal setups are the ones that buck the trend, as well as
trading when there is absolutely nothing going on, typically between 11:30 –
2:00 EST.
For me trading is not as regimented as the reader
indicates:
“wait out the first five minutes, just observe, on
the sixth minute scan the market for most up/downs, bring up charts, if
technical setup is there, go for it”.
If I see a setup, I am going for it, regardless of
what time it is relative to the opening. Secondly, I am not the least
bit interested in scanning for stocks. I have my three to four that I have been trading
day in and day out, and until they stop trading well, why abandon them?
Yes, I will occasionally trade a story stock which offers above-average
potential, but for the most part, I stick with my plan. Over the years I
have seen many traders wrestle with this whole notion of finding the
“holy grail” list of stocks to trade. And while it may be true
that some traders can trade this way, I have yet to be able to do it with any
consistency. Remember, repetition and specialization are the keys to
success in any chosen field.
I trust that this explanation has been helpful.
If there are ever any questions you have, please e-mail me. Not only
will I respond, but if it warrants a blanket explanation, I will share it in
the column.
Looking at yesterday’s action, it was certainly a lot
better than previous sessions. The range was good as well. The
sell-off was quite orderly, lacking any panic. This can certainly be
construed as a positive. However, the run-up in the S&Ps and Nasdaq
futures after 4:00 p.m. was rather interesting, with the close above 1126, a
critical technical level. Will it hold going into today’s session? As of
5:30 a.m. PST, it appears not.
The action yesterday, as well as the warning
from Bristol-Myers Squibb
(
BMY |
Quote |
Chart |
News |
PowerRating) will hopefully throw us a bit more volatility for today’s session.
I will be looking for opening reversal trades in BMY
this morning.
Given the precarious technical position of IBM
(
IBM |
Quote |
Chart |
News |
PowerRating), as
well as the accounting stories swirling about, let me offer you a couple of
key levels that may offer some turning points. Also, given that the
(
$SOX.X |
Quote |
Chart |
News |
PowerRating) is now flirting with some key levels and is in danger of breaking down
technically, these levels may be key.
| IBM | SOX |
| 98.71-75 | 576 |
| 97.62 | 563 |
| 96.80 | 553 |
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 1152.35 | 1460 |
| 1146 (confluence) | 1445 (confluence) |
| 1139 | 1435 (key resistance) |
| 1136.51 | 1428 |
| 1126.53 | 1408-10 (resistance) |
| 1115.96 (critical support) | 1386-87 |
| 1112 | 1364-66 |
| 1100 | 1336-40 |
| 1074.81 |
As always, feel free to send me your comments and
questions. See you in TradersWire.