FINDING TRADING PATTERNS- A STUDY OF @AIKI14 AND ME

Jim Gobetz, Managing Partner at Wallingford Trust, couldn’t trade a more different style than me.   He is a longer-term fundamental trader.  I am a short-term, active, intraday trader.

Jim subscribes to just about every news and research source you could imagine.  I subscribe to www.briefing.com.   Oh and also ESPN Insider.

@aiki14 makes decisions on his positions based on information that he concludes will affect the price of commodities, equities, options or other financial products.  I trade only equities.   I trade stocks with fresh news, but then seek confirmation of my biases from the intraday trend and order flow.

Mr. Gobetz lives in Wallingford, PA, the suburbs, population 15,000 and voted by Money Magazine recently as the ninth best place to live in the country.  My firm is located in the heart of Wall Street (can you still admit this?)

Jim trades with massive, heart-pounding size.  I trade no more than four lots per trade.

@aiki14 orders others to make most of his trades.  I use my fingers.

Jim has the genetic advantage of not requiring much sleep.  I just awoke after my normal and required 7 hours.

Mr. Gobetz runs assets of $1.6 Billion dollars.  Uhmmm…… I trade with less?

Mr. Gobetz flies in private planes.   I fly commercial- usually in coach, though I do prefer the extra leg room offered by JetBlue.

Mr. Gobetz searches for trading patterns that make sense to him.  I search for trading patterns that make sense to me.   A match?   Zoinks!

@aiki14 and I do the exact same thing!  We find trading patterns that make sense to us.

SMB Morning Rundown – March 12, 2010

Today, the Market appears set to open higher. The levels we are watching in the SPY are 115.70 (sup) and 116.80 (res). Below 115.70, the next support level is 115.40. Above 116.80, the next resistance level is 118.

Our best AM Idea for today, which we highlighted in our AM Meeting is to buy AAPL on a pullback close to 226.70. Tgts: 228, 230.

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A New Arrow For Your Quiver

I have never written a blog about the trade setup I’m about to discuss. For the most part we share pretty openly the setups and techniques we use on a daily basis to make money. I have been contacted by many developing traders who actually can’t believe the amount of information we provide free of charge via our blog.

There are a few setups that I have been reluctant to discuss for fear that somehow the trades would become more crowded and impact my ability to make money. Most likely that fear is unwarranted as trading is about finding setups that work for YOU and figuring out how to best trade them. Even if I were to discuss the following trade setup during our AM Meeting 80%+ of our desk would not make the trade because either it is not part of their playbook or they would be focused on a different stock when the setup triggered.

The trade is a fade trade based on a breakout on heavy volume during the prior trading day. On the second day the stock opens higher than the prior day’s breakout price. You buy the stock when it drops to the breakout price. You are relying on the fact that those who paid on the prior day’s breakout are willing to defend the stock at that price, and those who missed the initial breakout may initiate a position at that price as well.

The example from today was FSLR. Yesterday it popped on big volume from 110. This morning when it pulled back there it was bought. There was a huge surge in volume and it traded up four points in 15 minutes. Depending on the time of day and what the box looks like when it hits your entry price will help you to determine how much size to have for the play. But this is a trade I am willing to make 100% of the time. The risk to reward is generally greater than 1:10.

SMB Morning Rundown – March 11, 2010

Today, the Market appears set to open lower. The levels we are watching in the SPY are 114.25 (sup) and 115.20 (res). Below 114.25, the next support levels are 113.70 and 113.

Our best AM Idea for today, which we highlighted in our AM Meeting is to short AIG at 40: Tgts 37.40, 36.

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THE NOTHING TRADE

I bought a stock today after it cleared an important resistance level. It was neither strong nor weak. I didn’t sell it. I didn’t buy more. I am still just sitting there holding. I am not confident it will trade higher nor am I concerned I will get stopped out. I am not optimistic nor pessimistic. This trade is a nothing.

RIMM could just not trade above 74.60 the other day, after clearing the important 71.80 and 72 technical levels. RIMM just couldn’t- no matter how many times Steve and I encouraged (screamed?) at RIMM to trade higher.
“Get up you piece of $hit already!”
Yeah that didn’t work. We felt better but it didn’t make RIMM trade higher. So this was our important intraday resistance level. I set an alert for 74.65. We talked about this level on our desk. And I just waited.

Finally RIMM made the journey above 74.65, and the bid was holding as well. I bought a small position. Initially RIMM acted well but then it didn’t. Later in the day it acted well, but then there was no follow through. RIMM is still above my stop. But the market is still below SPY 115 which is an important market resistance level. Maybe RIMM just cannot find 80 if we are not firmly above SPY 115?

I didn’t get stopped out. There were no real buy orders that I spotted in RIMM. It did close higher but not much higher than the 74.65 resistance level. If the market so much as coughs I could envision getting stopped out.

But there is just nothing to do with this trade. I could sell it and wait for the clear buy orders to enter the stock. This is an option. But for my system RIMM is still below my stop so I stayed long. And all day I stayed long for the same reason. This trade is just a nothing.

Hoping you become a better trader tomorrow than you are today!

SMB on StockTwitsTV

Earlier today, Steve appeared on StockTwitsTV to discuss the Market and the stocks in play for the day. Watch the clip below and feel free to leave your comments on this blog. SMB appears on StockTwits TV every Monday and Wednesday at 12:30pm EST so be sure to tune in!

Don’t forget to follow us on Twitter.

SMB Morning Rundown – March 10, 2010

Today, the Market appears set to open flat. The levels we are watching in the SPY are 114.07 (sup) and 114.50 (res). Below 114.07, the next support levels are 113.70 and 113. Above 114.50, the next resistance level is 115.

Our best AM Idea for today, which we highlighted in our AM Meeting is to buy AIG on a pullback to 32.00. Tgt: 33.50

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Mental Capital

I have been talking a lot to our traders recently about properly allocating their mental capital. What do I mean by this? Each stock we look at as a trader will offer a certain amount of opportunity each day. If a particular stock is likely to offer far more opportunity than another then all other things being equal the traders attention should be focused on the stock with more opportunity.

I reiterated this point to one of our better traders in a one-on-one meeting the other day. There are very specific trade setups that this trader usually crushes. We agreed that he should focus most of his energy and risk on these setups. One such setup was offered by AIG today. He crushed it. Good job by him!

Some traders on our desk myself included did not crush it. At the end of each day I go through a review of each of the important trades I have made. There are usually only a handful of truly important trades. I want to figure out what I did well and what I could have improved upon in each trade. In the case of AIG it is clear that I did not crush it because I pulled my focus away from it at a key moment around 1:27pm. I started watching RIMM at the 74 level. Huge mistake!!

The 74 level in RIMM was important but the volume surge in AIG that began at 1:00pm was a signal that it was going to have a multi-point move. I know that some of you are thinking that hindsight is 20/20. Well, this is what I said in our AM Meeting yesterday about AIG, “If I see a huge surge in volume above 29 then I’m gonna be all in for a multi-point move…” And if that wasn’t enough the only twitter message I have sent out in the past 30 days under “spencermagic” was “initiating a position in $AIG. long if it holds above 28. if breaks above 29 on volume monday lookin for a multi point move” March 5th

Based on my preparation and conviction I should have given AIG my full attention as soon as it traded above 29 and the volume picked up. I failed to execute and that is squarely on my shoulders. If I executed properly then worst case scenario I would have been up over 5K today.

There was some chatter from other traders on the desk that they did not make money in AIG because it is not in their “playbook”. That is a crock of you know what. There are no traders on our desk with more than one year’s worth of experience that don’t trade “flag patterns”. The move in AIG from 29 to 31 in about fifteen minutes was a very clear flag pattern on enormous volume. The consolidation that occurred during the next ten minutes was an opportunity for any skilled day trader to get involved.

At the end of each day you should always ask yourself if you were properly allocating your mental capital. If not, your results are not meaningful.

SMB Morning Rundown – March 9, 2010

Today, the Market appears set to open lower. The levels we are watching in the SPY are 113.70 (sup) and 114.50 (res). Below 113.70, the next support levels are 113 and 112.75. Above 114.50, the next resistance level is 115.

Our best AM Idea for today, which we highlighted in our AM Meeting is to buy RIMM on a pullback to 73.15. Tgts: 74, 75.

Don’t forget to follow us on Twitter!

SMB on StockTwitsTV

Earlier today, Steve appeared on StockTwitsTV to discuss the Market and the stocks in play for the day. Watch the clip below and feel free to leave your comments on this blog.  SMB appears on StockTwits TV every  Monday and Wednesday at 12:30pm EST so be sure to tune in!

Don’t forget to follow us on Twitter.