The trade-off between catching the move and being stopped-out. $study

-Very interesting blog note from Mike Bellafiore at SMB Capital. http://www.smbtraining.com/blog/the-direction-and-the-pattern . Basically , for an intra-day trader you must not only know the direction but also how the stock gets there, (basically will the pullbacks be shallow or deep) or else you run the risk of being right but being stopped out.

- What I take from it is: be patient...wait for the pullback or consolidation to determine your stops/breakout levels. The fundamental question is there is a trade-off between catching all of the move and being stopped out, and one has to decide how and where on that tradeoff line one wants to trade. Waiting for a pullback will give you a sounder stop, but the wait will mean you will miss some of the move. Conversely if you go in early you might be handsomely rewarded, but the risk of being stopped out increases.

-Not sure how clearly I am explaining this, but I think it is very crucial for an intra-day trader to be aware of  this tradeoff...I will try to follow with examples/charts in a post over the weekend....

Patience! Wait for it! Mel Gibson "HOLD!" "HOLD!" $bbd $spy $study

-I made an excellent trade...but I lost money in it! I went short $BBD against $SPY as shown in the chart...but it was too early...literally. I established the position between 11.45 and 14.45 . Now I know these type of trades and Brazilian ADRs in particular work best if established late in the day or early next morning...or put another way, the outperfomance usually lasts for at least a day . I had had some good trades and was too confident and anxious to "get some more".

- I was forced to cover the next morning (dollar limit stop loss) as shown in the chart. Had I been more patient when entering the position I would have been able to exit later in the day at a nice profit.

- The lesson , which I should know by now, is best illustrated by Mel Gibson in Braveheart. As the English cavalry attacks he shouts "Hold ! Hold!" (as shown in the video at 1 minute 23 seconds) right until the last moment .



If you like to link trading lessond to films, here is another I did a while ago :on stop losses and Peter Sellers in the film "The Party" .http://jpotrading.blogspot.com/2010/09/link-between-not-using-stop-losses-and.html

A Tale of Two Pullbacks: $LO $INTU $study

-Both $LO and $INTU gapped up today. A common trade is to buy the pullback that inevitably occurs. This worked for $LO but clearly not for $INTU as shown in the charts. Both made clear pullback bases from which one can put a low risk stop, but one worked and the other failed.

-In fact $INTU made it back to the opening price which is very suspicious and probably indicates it has further to fall today.

When in Doubt, Pair Trade. $JPM $WFC $COF $CAT

These volatile last couple of days I have been mostly pair trading. The saying "you have to trade in accordance with your personality" applies here. I do not feel strongly about being long or short here...I cannot predict earthquakes or nuclear developments.

-Above is a chart of my long $jpm short $wfc trades. Other pairs I have been trading are short $wfc against $spy; short $cat against $spy;short $cof  against $jpm ; short $bbby against $spy .

Relative Strength by Joe Fahmy

Interesting lecture on Relative strength by Joe Fahmy.

Short Weak Stocks; Part 2 - Absolute and Relative Weakness $study $akam $klac $spy

In the last post I mentioned the need to short weak stocks rather than strong ones. However maybe I should have said that the really important point is to short relative weakness. Let me clarify with two trades I took yesterday.

-AKAM was basically a weak stock yesterday. It underperformed the SP500 in absolute terms.  However what really made me short it was its behaviour around 14:40 where it began to exhibit pronounced RELATIVE WEAKNESS....the SP500 was making new highs and AKAM was popping up in my daily low screen. So here we have a stock that through its ABSOLUTE WEAKNESS indicated it would be a good intraday short, and that through its RELATIVE WEAKNESS confirmed and triggered my trade.

                                         

-KLAC on the other hand was a very strong stock yesterday...it exhibited clear ABSOLUTE STRENGTH. I was tempted to short it but waited for RELATIVE WEAKNESS to manifest itself, which it did from around 14:00 onwards.

Basically paying attetion to the relative perfomance will give you a hint that its ok to put on a short by showing that a weak stock is not simply establishing the low of a range, and that a strong stock is not simply making a pullback before going higher again.