Markets Change And So Must I

I received the following thoughtful email from a reader and former SMB student the other day:


From your recent email:

Simple chart set ups are just opportunities for you to consider a trade.  They are not a signal to just make a trade.  Skill is needed to determine when an excellent risk/reward is present.  Skill is needed to know when to load up, get out of a position that isn’t working, and lighten up a position in the money.  Other factors like Reading the Tape and Intraday Fundamentals are most helpful to make better trading decisions.

It’s what you learn after you think you know it all that counts!

I’m going through an interesting period in my own trading.  For the past year I’ve traded primarily eminis complimented with some equity trading.  My emini playbook worked great in the 3rd and 4th quarters of 2011 in the wide whippy chop that the markets experienced.  The last month the markets have had a much different personality.   What do you know, my emini playbook doesn’t work very well when the daily NQ range is 15pts!  So I’ve shifted in the last couple of weeks back to stocks in play where there is much more opportunity for intra-day gains.  The leverage is not as great but the opportunity is tremendous.  My trading log is full of entries about the changes in market personality and the impact on my strategies/setups and my playbook is being updated to reflect what plays work best in what market types.

One of the best things about working in the markets is that there is *always* something new to learn.

To your point, there is no such thing as a simple setup that prints money.  Basic technical analysis is like learning the alphabet, important in its own right but the alphabet doesn’t write a great story by itself.



I love receiving emails such as yours! Seeing the self awareness and willingness to adapt in a former student makes me feel a sense of pride. Longevity of traders is largely determined by their being able to adapt within a market or move to other markets when their present market is not offering favorable opportunities. As Bella has mentioned in the blog previously the future of short term trading will be centered around technology that allows traders to move easily between markets as well as model the trading plays where they have an edge (stay tuned). Those without this type of technology will be at a severe disadvantage.

Your observations on when trading the eminis made sense fits with my view that day trading market instruments whether they be eminis or market ETFs makes most sense during periods of higher volatility. When things calm down and you hear the groans about lack of market movement it is essential to key back in to Stocks In Play.

As you know as a former SMB student the way we identify Stocks In Play is via the SMB Scanner in pre-market, we then discuss possible trading patterns for them in the AM Meeting, we then scan the SMB Radar by 10ish, and finally share our ideas and positions with one another via our Virtual Trading Floor. Soon, very soon I hope, we will share this technology with those outside of the firm. I am hoping with hundreds in the VTF instead of the current 50 that the additional pairs of eyes will increase PnL for everyone.



Steven Spencer is the co-founder of SMB Capital and SMB Training and has traded professionally for over 15 years. His email is [email protected]

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