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!

RIMM is a stock that Steve has been chirping for weeks. “If RIMM gets above 71.80 and then 72 I am going to get aggressively long,” chirped Steve. These were important technical resistance levels for RIMM to clear. Finally there was today. RIMM got above these levels and we got aggressively long. This was another Trade2Hold for SMB.

For those who did not get into this trade, I suggest you reevaluate your stock screening process. For those in this trade, now the work begins. Were you in at good prices? Did you put on enough risk for this opportunity? Were there prices to add more size?

For example 72.35 never dropped the bid after RIMM cleared these important technical levels. Did you add appropriate size here? As RIMM traded higher did you take off too much size, though the uptrend was still intact? Often developing traders tend to take off too much risk near big offers and whole numbers. Be careful to keep your risk on for such a set up and not convince yourself that you ought to lighten up without a very good reason.

As I taught last night on my StockTwits TV show, SMB University, trading is about finding the patterns that make sense to you. This is a pattern that should make sense to most traders. Now we have to find more patterns like this, and trade them with more size.

For those who crushed this trade, very well done! On our desk nice job Z$, Rosie, Danny, and Scuba.

Must read about what it takes to become a successful trader from @thekirkreport

Fascinating post about a new focus on the rotational training of professional baseball players.

A successful trader gives some hints about his shorting system for equity traders.

A statistical expert blogger discusses the odds of health care passing.

Using stats to improve our health care delivery.

Preparation for next week from Brian Shannon, @alphatrends.

SMB Traders will be watching this free seminar from Dr. Steenbarger of TraderFeed.

An advanced technical look at where we are at in the markets.

Quote of the Week:

“It’s not enough that we do our best; sometimes we have to do what’s required.” Churchill

I know of no more encouraging fact than the unquestionable ability of man to elevate his life by conscious endeavor.
Henry David Thoreau

SMB has a developing trader desperate to improve.  In a merciless 2009 he traded very well comparatively.  This quest to improve is not unlike that of an unprofitable trader hungry to just start breaking even.  This journey is no different than than the average trader desiring to become very good.  So how do you improve?

Let’s start with what doesn’t work.  So you are underperforming and you want to get better.  Too many new traders scrap almost everything they had been working on and try something completely new.  This is the worst thing you can do in most cases.  Let’s break this down logically.  So you are an inexperienced trader and have left one style of trading for a completely new system.  The reason you are most likely underperforming is your lack of skill development for a particular style. Why are you exchanging a lack of experience with some patterns for even less with others?

Those that are underperforming often think if they just learned something new.  Almost always it is- if I just learned some more technical analysis then that will make the difference.  Maybe but probably not.  Trading is about making set ups your own.  For every new play or pattern you learn you must 1) make that pattern your own and then 2) develop the skill to trade that pattern well.  It is better for the new trader to first ask: Am I in all the patterns that make sense to me and I crush ?  Or am I missing some of these set ups?  What can I do to ensure I am in more of the opportunities that are in my sweet spot?  And then how can I trade these set ups with more size?

Often traders seeking to improve should focus on the patterns that make sense to them.  What patterns are best FOR YOU?  Learn the nuances and subsets to these plays.  You will make the most progress by becoming better at these plays and patterns that make the most sense to you.

Now it is true that sometimes patterns that work one month will not the next.  And we must always be searching to add plays to our playbook.  But to do this takes time.  When you spot a new pattern that makes sense to you start trading it with small size.  It will take experience, practice, tweaking, and time to master this set up.  For this new set up there will be subsets and nuances to master.  Keep working on expanding your playbook because one market might overvalue the trading skill for this new set up.  But keep your losses small while you are learning.

Also generally it is not that a pattern that makes sense to you must be scrapped.  Often that pattern must just be tweaked. Focusing on completely new patterns often is an overreaction.

Further it may be the case that your patterns do not work anymore.  Micro-scalping in this present environment may be too difficult for most new traders.  Stepping in front of big bids and offers used to be a go-to-play at some firms and should have been deemphasized in 2004.  Rebate trading, adding liquidity and getting “paid by the market” now is only a sustainable trading style for HFTs.   If your patterns are obsolete as defined by your trading stats, then move on.

Trading is about learning what you do well and leveraging this talent.  How do you find more of these patterns that make sense to me which I crush?  This can increase your results 300 percent,  as opposed to spending an inordinate amount of time learning a new pattern that might add one percent to your P&L after you master it.  Search for these new plays but understand it’s the plays that make the most sense to you presently that will present opportunity for your biggest improvement.

Best of luck with your trading!

At SMB we distinguish from good, very good, and great set ups.  Or we make A, B, and C trades.  We use this to determine how much risk we are willing to take on a trade.  An A trade receives risk the equivalent of 33 percent of our intraday stop loss, a B trade less, a C trade even less.

Today Rosie, one of our developing traders, bought LMT above an important technical resistance level, 80.  She started a position equivalent to a B trade.  She was waiting for more confirmation above 80.30 on the tape for this set up to be an A trade for her.  LMT had not traded above 80 for 6 months.  This was a level she was watching for quite some time. But the volume was thin, she did not see a big buy order enter the market.  So she just held her B trade.

The market started an uptrend after 10AM.  SPY resistance was not till 115, or much higher levels.  So we had a very strong intraday market without resistance till 115.

Rosie grabbed me after an end-of-the-day SMB meeting and asked me whether she should have traded this set up with more size.  Can an important technical level trigger an A trade for you?  Or do you need confirmation above this important level to make this an A trade?  What would you have done with LMT above 80?  Full size for an A trade?  Or would you have waited for confirmation on the tape, or with price above 80.30?

Best of luck with your trading.

For every trading decision we consider three factors: Reading the Tape, Intraday Fundamentals, Technicals.  Let me explain how we do this while discussing RIMM from today.

Tehnicals

GMan has been pounding the table about RIMM 70 for a few days (GMan actually started his position at 70.50 so he was in a position of strength near this level).  We draw all these fancy lines on our charts during our AM Meeting representing trend lines.   Adam and GMan had some lines glittering on our 65inch Flat Screen TV highlighting the 70 level.  The idea was if RIMM trades near 70 than this is a trading opportunity for us.   This is not an automatic short or long.  We focus our attention on RIMM at this moment and look for excellent risk/reward opportunities.

So when RIMM traded below 70 it received our full attention.

Intraday Fundamentals

There was no major news on RIMM today.  Joe P did make the interesting point that EVERYONE has this 70 circled on their charts for RIMM.  So below this level may bring out the selling and shorting. Also since this is such an important level we knew to be careful about the HFT’s playing their games, stopping us out of excellent risk/reward trades just because they can. So we had nothing from this element to aggressively short RIMM.

Reading the Tape

RIMM dipped below 70.  Spencer and I treaded lightly because RIMM was clearly not below this level.  And then we both started saying the same thing with different words.

I began with,”I don’t see the selling below 70 yet.”

And then five minutes later from Steve,”There is no seller below this 70 level.”

We didn’t see the bids getting smacked.  We didn’t see offers holding and then stepping lower.  We didn’t see bids dropping out quickly.  We didn’t see an increase of speed with the order flow.

So we both were short, but not for size since only one of our factors, technicals, called for a short.  We were ready to pounce if we saw selling.  We did try and stay short as long as RIMM was below 70.  But we were not willing to risk significant losses until we saw the tape showing weakness.

These are the three factors that we consider before every trade.  Perhaps some of them can help you.

Best of luck with your trading! Don’t forget to follow us on Twitter!

We had been waiting for BRK.B to hold above 80 for a Trade2Hold to perhaps 82.  Friday we almost had the hold above 80 but ran out of time.  80.10 became the new hurdle to clear before BRK.B knocked on the door of 82.

Today during one of those times Steve always warns that stocks can move, lunch time, BRK.B cleared 80.10.  I was doing something partner related and missed the first ticks above the level.  I made it back onto our trading floor and a few traders were chirping that BRK.B was above the level. SPY had cleared all important intraday resistance levels with 113 the next most likely stop.  So we had a very strong market on our side as well.  We had another check in our favor.  BRK.B was 80.25 bid, I sat down, bid 80.25, and  got hit.

GMan has some dopey meeting he wanted me in, so I set a stop for below the fig and exited the floor.  There was nothing really for me to do.  80.10 was a huge level so I didn’t need to do much other than stay long.  Periodically I checked in on my positions and reset my stops higher for BRK.B.  But I wanted to be in this trade.

Now certainly if I would have had more time I would have wanted to add here and there and increase my size.  But I didn’t have the time so I just stuck with my Trade2Hold from above 80.10.  Into the Close I added some size here and there, but not much.  Before the close I scaled out of 2/3 of my position at 81.90.  The only reason I lighted up was I was not interested in much overnight risk.

When we review our best Trades2Hold it is important to decode why they worked.  We cannot discount how strong the market was.  We cannot overlook that the market was strong AND it trended smoothly higher.  There were no moments when we wondered whether the uptrend in SPY would break and thus cause our stocks to break their uptrend.  We do not get days often like this as mostly the market provides us some moments of indecision and surprise.  But today was not one of them.  BRK.B did not offer moments of indecision.

We talk about needing a Reason2Sell when we enter a Trade2Hold.  Sometimes that reason is simply the bell is about to ring.

Best of luck with your trading!

Long 1/3 of a lot for BRK.B

During a StockTwits seminar at the NASDAQ I remarked that new traders who wish to become great must train like an elite performer, and Olympic athlete. Well here is the training of speed skater Apolo Ohno.  Do you work as hard in a focused way as him as a trader?  If not then why would you expect to become a successful trader?

Thanks to Chris Gillick for sharing this article on Stevie Cohen of SAC Capital.   Mr. Cohen first became a great trader by Reading the Tape, measuring the order flow to make excellent risk/reward decisions.  Hmmmm.  Where have I heard that before?

How Derek Jeter trained to significantly improve his defense from below average to Gold Glove caliber.

Two time Heisman winner Tim Tebow works on his throwing delivery to improve his draft status.

Must read blog from Dr. Steenbarger from Traderfeed about those who win.

Touch improves performance and why SMB Traders will be doing high fives after trades going forward

Michael Covel shares how to follow the greatness trend.

Top Ten must read blogs from the WSJ.   Congratulations to @reformedbroker from the StockTwits network for making this impressive list.  Well done!

Tonight on StockTwits TV Steve Spencer, partner at SMB Capital, will discuss the new SEC rule limiting short selling. Please tune in at 8:30EST PM.

We have a great new training class from September 09.  Some classes for whatever reason can turn out outstanding and others ordinary.  Same teacher, same material, but very different results.  And from my seat very different teaching experiences.  We haven’t held a new training class since September of 09 so lucky for us that they are so enjoyable.   June of 08 was our best class ever.  But our September class is showing signs.

Today after the Close TH (he is TH until he starts making a lot of money and then he will get a nickname like “GMan” or in @howardlindzon’s case “HMan”- you are welcome Howard) showed tape of a trade he made last month in BA (Boeing).  60 was an important level and BA violated this support level.  So TH started a short position- Trade2Hold Below Support Play.  And then we started having fun.

BA ticked quickly down to 59.73 on light volume.

I commented,”She only agreed to a First Date.”

And then BA quickly snapped back to the 60 level.

“She is looking around the restaurant to upgrade potentially.”

And then BA ticked through 60.

“She has gotten up from her seat and smiled at someone.”

TH countered,”She is just going to the bathroom.  She will be back.”

I continued,”If 60 holds the bid up here then she has sat down at another table to talk to another guy.  If 60.10 holds the bid then she has given her number to that other dude.”

We rolled some more tape and BA found lower ground.  50c of a clean downmove followed.

TH grew more confident in his relationship.

I asked,”Did BA go down because it was weak or was it just the market was weak?  Is she just with you because you took her to a nice restaurant?”

We watched some more tape and then BA went down another point.

TH was beaming.   If he was an NBA baller he would have been pounding his fist against his chest.  Clearly BA was weaker than the market.  She liked him.  Or as Trader Chris quipped,”He just hooked up Bella!”

Like those who you might date your stocks send you mixed messages.  Your job is to intake the data and determine if she really likes you.

Best of luck with your trading.

After the Close we watched video of HRB (H&R Block).   16 was a huge level on our longer term charts.  And HRB found this level.   And a few interesting questions were raised during our Tradecast.  One was: would you buy before you saw strength on the tape at 16 or would you just buy?

There is no right answer to this question.  The answer lies with you.   If you are an aggressive trader then when a stock finds an important support level you ought to buy.   And buy almost every time so your results are consistent.   If you are more cautious then you might wait for confirmation on the tape before entering.  For me I am piecing into a position as HRB trades near 16.   I am an aggressive trader.

Later during our TradeCast Noob Sean asked whether we ought to short when an offer was holding 16.   For me this was not a short.  Perhaps for Sean it was.   I thought this was a failed breakdown below 16.   For me the play was buy 1/2 a lot when 15.92 dropped and allowed for a new intraday low, but then rebid instantly.   And then wait for the 16 offer to lift to increase my position to 1.5 lots, waiting to add size at higher levels, and treating this as a Trade2Hold.   For Noob Sean maybe this was a play both sides (short below 16, long flip above 16) near the 16.   It is entirely up to you.

There are market principles that must be followed however.   And as long as you respect these market principles and then seek to make trades your own that is fine.   For example, shorting strong stocks and buying weak stocks is not a good idea.  We are all wired differently.   We all have different levels of experience, tolerances for risk, buying power, trading skill, etc.   Our trades must make sense to us.

Best of luck with your trading!