Immediate/Delayed gratification

"What do these three actions have in common? 1) booking profits prematurely, 2) doubling down on a loser, and 3) chasing or impulsively entering a trade.

The commonality is these three actions illustrate the difficulty of choosing between immediate gratification versus delayed gratification. "

Andrew Menaker

Using Volume Spikes in Intraday Trading. $SLV $FXE $BBBY $CL $study

-If you are looking for a change in the intraday trend of an asset, volume spikes can be very helpful. I blogged in the recent past about an intraday spike in $BBBY and $CL . I blogged about both wondering if a turn would happen after I saw what seemed like a spike and in both cases the theory was correct...both stocks turned direction with the volume spike coinciding with the highs for the day.

 - http://jpotrading.blogspot.com/2011/04/bbby-surge-in-volume-indicating-turn.html
 - http://jpotrading.blogspot.com/2011/04/cl-8500-high-for-day.html

-Yesterday silver was collapsing and coincidentally the dollar was very strong. People were wondering if there was a cause and effect and if so in what direction; so I watched $FXE while wondering when/if $SLV would turn.

-The 11.00 volume bar in $FXE shows a spike in volume and the dollar stops stregthening.
-The 11.10 volume bar makes a huge volume spike (turns out biggest of the day).

This gave me confidence to make a long scalp in silver...the thought of something more substantial occured to me but $FXE and $SLV were just not bouncing with the energy needed.

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.

Relative Strength by Joe Fahmy

Interesting lecture on Relative strength by Joe Fahmy.

Short Weak Acting Stocks. $akam $adtn $cree $study

If you are going to short a stock, choose one that shows  weakness during the course of the day. Below are the graphs of three I traded to the short side profitably today.

-What they all have in common is that they start exhibiting relative weakness from the start. On a strong up-trending day they kept making new intra day lows. So again and for my benefit SHORT WEAK ACTING STOCKS NOT THOSE THAT ARE ACTING WELL!.

The Story of Three Gaps. $SLB $GE $MCD ; $study

-SLB posted ok results friday pre-market. The stock gapped up over 2% but did not take out recent highs at 87.70...the opening drive high was 87.56 . The first fifteen minute candle was long and red and took the stock close to unchanged. This all hinted this stock was not going higher today. I waited for a bounce and shorted as shown in the chart.
-I should have shorted a little later, when the stock was falling rather than going up, and thus a clearer pattern established.
-Exit was poor, but I just was desperate to lock in some gains.

-Compare SLB with how GE, which also reported results, behaved. It opened up 4% clearly above recent highs; the first fifteen minute candle was green and never violated to the downside. So whereas the SLB opening hinted "I want to go down" , the opening in GE hinted "I want to go up" .

-Another interesting comparison is MCD which reported yesterday. Its fisrt two hours are almost an exact mirror image of what happened to SLB.
-MCD opened down, but had a nice initial green fifteen minute candle. It then reached unchanged; pulled back; and proceeded in the direction of the initial 15 minute candle.

The Opening Behaviour Gives Clues Again; Gap Direction and Initial 15 minute Range. $AAPL $GS $study

-I have blogged before about the importance of the opening level/behaviour. http://jpotrading.blogspot.com/2010/12/importance-of-opening-level-in-gaps-ccl.html

-Two days ago AAPL had what were apparently stellar results (again), and multiple upgrades. But it was only trading between up 0% and up 3% in pre-market...not impressive. Obviously the great results were competing with the opposing force of Steve Job´s medical leave.

-The stock opened at the pre-medical leave highs and quickly went down. This was a strong clue to the question of whether AAPL  was going up 5% due to results or down due to the medical leave.
- The pullback off the early lows was also instructive...its high coincided almost exactly with the previous day´s high...once this failed...

-GS had results that were not impressive, but far from dismal. It gapped down and the question was now what? It was range bound by the initial 15 minute candle , and one could trade this, but the "real trade" came with the brake of the opening 15 minute candle...and appropriatly the brake came in the direction of the initial gap down.

Good Trades Have a Logical Story Line. Overnight Positions Have Missing Chapters. $SPY $ADSK $study

-I had a number of reasonable trades yesterday. The common theme was I could explain the reason for the trade in a logical manner, a "good story", and hopefully the market would agree with the ending I had in mind.

-For example the following $ADSK trade. Citi had downgraded the stock( http://finance.yahoo.com/news/A-60Second-Guide-To-What-siliconalley-2380963544.html?x=0&.v=2 )and it opened down more than 2%. It recovered valiantly to the point that I thought it was too much. I shorted at 40.71 with a stop at 41.02 . My "story line" played out fine. It would be invalidated should ADSK trade over 41.02 .
-Importantly if my story was wrong I would just stop reading it or leave the cinema at my stop level.

-The problem with overnight trades is you cannot tell a good story because ...there will be missing chapters. The story takes on a plot out of your control. You cannot leave the cinema till it is too late. I came in short SPY ( http://jpotrading.blogspot.com/2011/01/yesterdays-trades-spy-de-bidu.html )and by the morning the market had a written a couple of chapters that left me with a loss. End of story; I either liked it or not.

-So no overnight trades please. You have no edge.

$MSFT $NVDA . "Work needed on exits." Repeat 1000 times.

- The $DIS trade I blogged about yesterday ended well as I covered at 39.52 (30 cent gain)http://jpotrading.blogspot.com/2011/01/dis-do-your-homework.html

- More importantly I took to heart my own advise of looking for "easier" breakout trades. At 14.00 I wrote in my journal "time to look for pops" and this led to successful trades in $MSFT and $NVDA .

- So, looking for strong stocks I bought $MSFT 28.56 (14:09) and sold it 28.65 (14.49).

- Thoughts: Well done for the effort...totally unnatural for me to do these momentum trades. (Gotta do more) . Horrible exit. There was no reason to exit the trade when I did. I wrote in my blog "market falling and making me nervous" . Well the correct thing would have been a trailing stop at or slightly above my entry.

-My quest for "poppers" then led me to$NVDA. My shorting instincts almost got the better of me at the point shown in the chart.

-Thankfully I did not and went long as shown in the chart. Also set the stop to my entry point and therefore did not get shaken out when it pulled back....but could not resist selling at 19.09 . Bad move...look at all the money I left on the table...and again a reasonable stop would have kept me in the trade.

-This problem with my exits is recurring . Had the same problem with $RL and SBUX and $BBBY earlier in the week . http://jpotrading.blogspot.com/2011/01/rl-work-needed-on-your-exit-points.html