An experienced trader never designs or alters a trading plan based on what he/she “thinks” is going to happen. Experienced traders confirm and place trades using top down analysis, market internals, risk/reward ratios, and proper position sizing.
Key is to initially get into those positions strategically and then let the market play out accordingly. Paraphrasing of Ray Dalio of Bridgewater-Always fear being wrong, no matter how confident you are that you’re right.
Here’s the rub. One never really knows what will happen in spite of what the “experts” who think that they are smarter than the market tell you. For example, in our Premium Portfolio, we have positons that have gotten 3-12 times their average true range (ATR) even after the big sell off last Friday. We had others that lost money using our risk parameters, which we stuck to withiron-clad commitment, never allowing more than 1.5 to max 2 times the ATR of risk.
You know the toughest battle traders have with themselves? Getting stopped out, sticking to their original plan, then either moving on to the next trade (possessing a short memory also key) or kicking themselves because they see that the instrument might have dropped a bit lower than the stop (often the same day) then rallies back either that day or the next. However, ultimately, the percentages are most likely in favor that the original stop was correct and the instrument will fall further.
I see this all the time. For example, total transparency here-I will highlight oneamazing winner and one loser using the above discipline adding the inner talk that followed.
Yummy foods (YUM), we bought at $74.46 on February 16th. We took ½ off with a great profit when it hit 3 times its average range. We had a resting order at 5 times its ATR. We then trailed up the stop to exit pretty much at our first target or again, 3 times the average range. I could have said on the first red close February 23rd at 77.44 let’s get out; I think the move is over-but that is breaking the plan. Good we stuck to it regardless of my “thoughts.”
GDX a gold miner ETF, we bought after it cleared the 50 DMA and risked 2 times its ATR, which placed our stop at 20.13. Last Wednesday we got stopped out. On Thursday, GDX closed at 20.08 and during the session traded as highs as 20.38 making the voices in my head scream at me. “Did I get out too soon? Should I have waited another day?” Blah, blah, blah.
Lo and behold, last Friday, GDX gapped lower trading all the way down to18.51. That’s more than 7.5% under the stop! Now, I look pretty smart! Oh yes, we lost money-but controlled, no disaster. Then compare that to YUM and well, that’s the life of a swing trader.
With all of that said, Friday was a sad day, particularly if you lost on several trades. A final IMPORTANT word though-all in, one should NEVER lose more than 5% of their entire portfolio in one day-if your losses still managed to outperform the loss of the S&P 500, congratulations-you will have a lifetime as a profitable trader!
S&P 500 (SPY) The 50 DMA is 206.13 and a good spot to anticipate seeing unless this gets back over 209 Subscribers: Negative Pivots in all
Russell 2000 (IWM) 50 DMA 119.48 and the January Calendar Range high is 120.56-so that is where I would look to see prices settle for the market to hold
Dow (DIA) Here’s why the 50 DMA is important-this landed on it at 177.87
Nasdaq (QQQ) Broke 108 now resistance and could see 105-106 next
XLF (Financials) Great start on Friday, not great finish. 24.15 the 50 DMA with support at 24.00
KRE (Regional Banks) 40.00 pivotal now with 41.06 the January Calendar Range High to clear and close above if good
SMH (Semiconductors) This kept us sober on Friday since it never cleared the resistance and weakened all day. Support at 55.00
IYT (Transportation) Unconfirmed warning phase
IBB (Biotechnology) Possible topping candle if confirms
XRT (Retail) I guess that topping candle last week was just that-
IYR (Real Estate) And the Fed hasn’t even raised rates yet-remember that precursor long after the fact I wrote about last week?
GLD (Gold Trust) Goodbye 115 hello 111
USO (US Oil Fund) Held 18 so with all the noise, still in a range-yet volume remains light
UNG (US NatGas Fund) Good basing action support at 13.00 with the 50 DMA the area to clear now for 2 days with volume in order to see more upside
TAN (Guggenheim Solar Energy) Possible topping candle now-Premium portfolio took the money
TBT (Ultrashort Lehman 20+ Year Treasuries) The culprit-firming rates with a gap up that didn’t look back
UUP (Dollar Bull) Wow!
Longs: On categories: Gap higher days we go to all categories and choose ones with lowest risk that break the opening range. On weaker days, we look at Category 3, especially if the picks hold S1, previous day lows or a major moving average and have a good risk on the reversal. The difference between Category 1 and 2 is the stock condition-a Condition 1 is strongest stock and more likely to make a parabolic move.
Note: Anything that is on this list is a candidate for a swing trade-(of course market condition is a factor) -use the max risk mentioned along with an opening range stop using fudge factor and time confirms. I suggest you decide on 1 or 2 that have a risk you like and then position size accordingly
Category 1: (Aloha) Positive Phase, Condition 1, 2 days under the FTPs, Risk to Previous Day low, Can buy ½ over FTP and ½ over R1, Target- Day to at least 3 ATRs from entry:
IGT If holds 17.73, like to add to this one for the long run
Category 2: N/A
Category 3: (Double Up) Positive Phase, Condition 1 through 4, Positive Pivots which means can either buy an opening range breakout or candidate for Opening Range Reversal, with Risk S1 or previous day low, whichever is lower unless noted differently, Target- Day to at least 3 ATRs from entry: (Opening range reversals are good on anything above S1)
CIEN Inside day so now 21.21 the point to clear with risk to 20.60
MRVL 16.50 pivotal so if holds good if not, see maybe 16.25 next
WFM If holds 55.50 firm then like it over Friday’s highs for a swing or mini
TXT 44.50 max risk now with possibilities to around 46 for a miniswing
OC If holds 40.00 max risk, then can see a move over 41.00 brings this to 45.00 area
Category 4: N/A
Phase Change:
*NOTE: FAST Even better than JOY, b/c has an a confirmed brick wall bottom, inside day and if gaps up, an island bottom possible
NOTE: Watch JOY to see if turns to an island bottom
SFM Inside day just under the 50 DMA which means if clears Friday’s high and really, 36.00 then good tight risk to the low of the day
GLPI Golden cross and price sitting on MAs. That means has to clear 32.88 and risk is to under 31.51 the 100 DMA
Shorts: NBL
Category 5: Titanic-Bear Phase, Negative pivots, not oversold, Risk R1 or previous day high. Target: Day to swing
TIF Looks heavy with last big support at 85.15
SINA Inside day under the 50 DMA risk 37.25 level
Category 6: N/A
Best Best wishes for your trading,
Michele Schneider
