As we continue to gravitate towards more Trades2Hold, longer holding time periods for intraday trades, we found another excellent set up today in LXK.  This is a simple trade and a pattern you might spot a few times a week.  We will discuss the entry and the exit.  (let me state at the outset that for some reason I can’t type up the correct symbol of this stock.  All day I kept calling it by the wrong symbol and typing up the wrong symbol.  Weird.)

LXK announced positive earnings and gapped up.  It was at a 52 week high which is bullish technically for a stock.  29.80 was intraday resistance and Lexmark cleared this level.  We headed for 30 long and holding.  But then 30 presented the selling of a brick wall.  Hmmm.

30 lifted ever so slightly as SPY popped.  There was little interest to aggressively buy LXK above 30.  And an ARCA seller kept coming back to 30 with more inventory to unload.  Interesting.

The market continued to pop and LXK would not trade above 30.  30.05 was a price it would not trade above as most of the order flow was matched at 30.  With the market ripping and LXK at a 52 week high, why the heck wasn’t this stock finding higher altitude?

This presented a relative strength play.  LXK was much weaker than the market.  Also during earnings the pattern has been to sell the gaps.  Was this stock ready to reverse?

When the 30 dropped the bid LXK dropped out to 75c.

ALJ exclaimed, “What the hell?”

This was a very quick drop.  To me this signaled a failure from 30 and a Trade2Hold candidate as LXK retraced back towards 30.  I started a small position at 29,85c as the offer held slightly.  LXK found a way to touch 30 where I added some size.  I could not get the two lots that I wanted.  My 97c and 99c offers were not executed.  When a 94c buyer dropped I smacked the bids for another lot.

80c held the bid so I covered one lot there a hundred shares at a time as it kept holding and holding.  I held one lot.  After the significant volume at 30 this was a Trade2Hold for me.  I was going to give LXK a chance, even if I couldn’t type the dopey stock up on my Level II.

With a Trade2Hold we develop reasons to cover.  One reason to cover is if a stock breaks the intraday downtrend.  After LXK traded all the way down to near 29 I had lightened up a little.  I still was holding 3/4 of  one lot.

My 5 minute charts indicated above 40c was a break of the downtrend.  I set a stop for 1/2 of my position there.  65c was an important level on the way down so I set another stop to get flat.

Steve mentioned after we reviewed this trade that 20c was an area of consolidation to take some stock off the table.  You could decide to agree with him and exit some there.  My sense was that LXK had some more to fall so I held.

The market rallied into the close and I was stopped out at 41c and 66c.  Oh well.  The market has been weak of late so this gave me more pause to cover at 20c.

Above is my example of a Trade2Hold and my execution to exit.  You could have traded this with more size and covered in a way that makes sense to you.

In my review I should have added one more lot at 30.  I could have covered a little more into the steeper downmove close to 29.  

We received this tweet question today.

SkyTrader @smbcapital you guys trading $LXK at the close? crazy hold on the offer @ $30 (NYSE). wondering how you would play it tomorrow. thanks.

Tomorrow I will use this 30 as a significant level.

Best of luck with your trading!

DE was a strong stock this AM.  I blog this point besides DE being at its 52 week high.  And save that DE was up over 2 1/2 points.   There was a telling movement on the open from 51.50 to 51 which foreshadowed a new intraday high to visit.  Let’s discuss.

SPY 111.50 is an important intraday level.  We failed miserably there this open at around 111.42.  The downmove was ugly to 110.60.  During this downmove in the market I watched the bids get hit in DE.  I suspected that DE would find lower ground since the market became so weak as SPY tanked.  But there was significant buying on the bid at 51.45, when 51.50 was DE’s high.  And then 40c bought before FINALLY dropping.  And then 35c repeated this buy pattern.  And then 30c.  And then 25c.   Then 20c, and 15c, and the whole.

Yes DE traded lower but it showed noteworthy relative strength into the SPY dip.  So when SPY stabilized I started a longer term intraday position in DE near 51.  Fast forward and DE found 52.25.  Some on our desk got shaken out into this downmove.   Maybe one day these traders will become as good as me (just kidding).

I use this technique, calculating the strength of the stock by watching the bid buying into a downmove, to determine which stocks to enter longer term intraday postions.  DE Buy 51 was an excellent intraday trading opportunity.

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

Good traders pick their spots.  Some opportunities allow us to be more aggressive than others.  When we spot one of these opportunities we pounce, like a baseball player who takes a healthy cut a 3 and 1 fastball.  If we fail to pounce then in our journals we must detail this opportunity so the next time we do. 

During our SMB AM Meetingwe identified 109.80 and 108.80 as important levels in SPY.  Knowing these levels provided us an edge intraday today.  The market stopped trading lower on the Open right at the 108.80 level.  Was Mother Market listening to our AM Meeting?  And then later stocks had trouble trading higher until we clearly held above SPY 109.80.  In reviewing my work there was an opportunity today where I could have been most aggressive.  Let’s discuss.

Bear with me as I set the stage.  SPY found support at 108.80.  Then SPY popped to 109.10ish.  The pullback is the tell.  Would SPY pullback to 108.80 or would it show more strength into the pullback?  It showed more strength.

SPY found support at 108.90, a higher low (more strength), then spiked to 109.20.  So the pullback was shallower than I expected and the spike was more explosive than anticipated.  Now we had a market that was starting an uptrend.  And SPY’s next level was not until 109.80 so we had a lot of room to run.  When SPY held this 190.20 this was our opportunity to be most aggressive as intraday traders.

The strongest stock I was watching intraday at SPY 109.20 was CAT.  So I bought some more.  I should have bought even more than I did.  The market showed us her cards.  I had a safe level to add size in CAT at 56.30 (out below 19c).  This was my time to be most aggressive.

The market has room to run until resistance at 109.80.  CAT was above a level at 55 and acting well intraday.  A safe level to enter was offered in CAT.  Add this all up and this was my opportunity to be most aggressive today.

When can you be most aggressive with your trading?

Best of luck with your trading!

I received this email from Reader Josh.  This is a very interesting dilemma he finds himself in as a new trader.  For SMB Readers do you have any advice to offer Reader Josh?

Hello Bella,

Into the Close I recognized that one of the stocks I was long was stronger than all the others.  That was DNDN, which will now be the first stock I consider to trade as I prepare before the Open tomorrow.  Let’s discuss.

Into the Close I was long LVS, DRYS, AIG, and DNDN.  SPY broke from its tight range and started an upmove into the last 45 minutes of the trading day.  LVS did not trade higher, though it had cleared important technical levels.  DRYS did not trade higher though above 7 was significant.  AIG  in a nice intraday uptrend was stopped in its tracks at 41.30.  Not a strong upmove into the Close.   But then there was DNDN.

DNDN closed strongly into the Close.  It printed near its intraday high for the day.  This is old school strong.  DNDN found support  at 26.70 and then cleared its intraday resistance at 27.27.  Rosey called this out and got us in the trade to 50c.  Now this move was not explosive above intraday resistance but it was better than all of the other stocks.

After the Close I made a note in my trading journal that DNDN finished the strongest into the Close.  This will be the first stock I check when arrive early tomorrow AM.   DNDN above 27.50 is my first trading idea. I will look at AIG next as it was the second strongest stock into the Close.   LVS above 18.30 will get my attention.  I have created a hierarchy for the next trading session.

All of this is subject to change overnight.  But now I have started to think about my next trading session and the stocks that are the  most interesting for how I trade.   I start generating trading ideas for tomorrow right after the Close today.

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

What do all of these things have in common? We took down our leaderboard at our firm a few months ago. Today one of our traders left early because he got stopped out. The other day I was interviewing a candidate for our desk who defined a good trading day by how much he made or lost. What is your answer?

Sunday on StockTwits TV I offered my definition of an optimal trading day. First I considered whether it should be defined by your P&L, whether you were Number 1 in the firm, your mental state after the trading day, or some other metric. I chose an answer that falls under the category of some other metric. I particularly eviscerated the argument that you ought to judge your day by your P&L. It made for some good TV as well.

Mike why is it wrong to leave after being stopped out? If I cannot trade then why stay? Because your goal for the trading day is not to make money. And your optimal trading day should not be defined by money. Your goal for the trading day should be to learn while improving and expanding your trading playbook and contemporaneously trading in the zone for at least 5 1/2 hours. (Go watch the video on StockTwits TV if you want a fuller description of my optimal trading day.) If you leave before the Close you have forfeited hours on the demo where you can improve and expand your playbook. Getting stopped out does not mean you had a bad day. But leaving early ensures an atrocious trading day.

New traders have got to stop trying to make money. It is sort of like that girl you know who really wants a boyfriend. The harder she tries to get one, the more she obsesses about landing one, the worse her chances. We all know we meet the people we were intended to be with by just living our lives.

Trading is about skill development and discipline. Great traders make money because their trading playbook is stacked and they are constantly expanding and improving it. Money, P&L, is just an outgrowth of a killer playbook.

I was interviewing a bright young trader yesterday who described trading as an activity where you either win or lose based upon your P&L. I gave him a hard stare. Each day is a learning opportunity. Each day can be successful if your goal is to improve and expand your playbook. In fact, you can have the best trading day of your career and get stopped out. Huh? Bella now you are really losing it. Say on this same day you watch the markets via a demo and add a new play to your playbook that you will crush for the rest of your career. That is a great day!

Best of luck with your trading!

This Sunday on StockTwits TV at 8:30 PM I will be discussing an Optimal Trading Day.  I will discuss how some define an Optimal Trading Day, how not to define one, and offer a suggestion as to how to define an Optimal Trading Day.

What I mean by Optimal Trading Day is what is a great day for you.  What is the best day for you?  How do you define a perfect trading day for you?

Please share in this blog post and we will discuss on my Sunday night show.

Enjoy your weekend!

It is the summer.  It is finally hot in NYC.  It is so hot that when you just miss your subway it gets really uncomfortable waiting for that next one.  Ripper.  And most market commentators keep talking about slow summer trading.  Chirp.  Chirp Chirp.  And most market players were predicting a correction a few days ago.  Chirp.  Chirp.  Chirp.  And this leads me to our topic of the day.  Don’t start your vacation before your vacation.

Look I get that it is hot and nice and it is human nature to start thinking about all the places you could be playing golf.  And it is the end of the summer and easy to start daydreaming about your summer vacation.  It is so near.  And then the talking heads start with “trading is slow.”  And then some more talking heads offer “the market is headed for a correction.”  And you are sitting at your seat and just watch the market trade higher.  Where is this buying coming from?  Why is the market trading higher on a slow summer day?  And then AIG trades higher and you pass.  HURN trades higher and you pass.  FAS finds support into the close and you pass.  HPQ shows strength and you pass.

You cannot ask for a better opportunity than HURN above 19.45, with a quick pop to 20.35. HPQ was a layup on the open begging the alert trader to buy.  FAS was a gift from the trading gods for the focused trader who saw 67.25 support.  For the momentum trader AIG entered the room above 25.  Today I sat in my seat and was in every one of these opportunities.  My vacation starts 9/5 and not  8/19.

If you missed all of those plays above because the setups were not right for you then fine.  But if you missed these setups because you were not expecting an upmove, or you were not ready for today’s upmove, well that is not ok.  And if you were distracted because of the time of the year that is really not ok.  The Market is not going to show up at your office and start handing out cash.  And on a day like today even if the Market did, would you even be there?

Over the past twelve years I have found the last week in August to be slow.  But guess what?  It is not the last week in August!  And there were excellent opportunities in all of the stocks above.  For the intraday trader today was not a day without opportunity.  And the last week in August will not be here for another seven trading days.

So for the intraday trader not yet on vacation, sit in your seat.  If you show up to work, then focus. Don’t start your vacation before your vacation.

Don’t forget to follow us on Twitter!

I received this email from a reader of our blog.  I thought we could discuss……

Hi, this is Ivan in NYC(Bulgarian immigrant) – regular reader of the blog. I’m a retail trader – relatively a newbie.

Although, I can not formulate particular trading strategy just by reading the blog I enjoy reading it and find it useful.
I would like to ask you about your honest opinion and advice to the retail traders like me – what are the main disadvantages we have compared to the equity firm traders?
What honestly do you think are retail trader’s chances to be consistently profitable in swing and day trading?

Thank you for sharing and Good Luck.

Bella Responds:

Trading is probably the most difficult thing you will attempt in your life.  It is like trying to join an exclusive country club- they do not let everyone in, and they don’t let everyone stay.   But more are capable of becoming a successful trader than you may think.

There is this outdated bias that you must work at a big bank, live in NYC, and have millions behind you to succeed.  This is simply not true.  Technology has opened the markets to the masses. Trading platforms, like LightSpeed, with direct access to the markets are available.  Charting software is simple to find.  Blogs with exceptional education are prevalent, many like this blog for free.  Now we have StockTwits TV, a tremendous educational trading resource.   Training programs are offered for those looking for help to become a professional trader.  With 30k you can open a retail account (you will also need capital to survive the learning curve).  Now anyone with a passion for trading, the desire to pay the price necessary to succeed, and some capital can compete.

But these are some pretty big ifs.  Are you truly willing to pay the price?  Will you work on your game everyday?  Or will you bail as soon as things get a little tougher than you expected?  Will you ensure you receive the proper training?  Or will you just read a few charting books and conclude that this all the training you need and then foolishly attack the markets?  Is your passion truly for trading?   Or do you think trading would just be something cool to try?  Do you have some capital to trade your own account and survive the learning curve?  Or are you under-capitalized and just hoping that you will start making money on Day 1?

Technology has opened the markets to us all.  Can you become a successful trader?  I don’t know. But I do know that it is entirely up to you.

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

“Have you ever seen anything like that?” asked a new trader.

“The news isn’t new,” chirped a trader on Day 18 of his trading career.

“AIG traded up from 15 to 23 and I barely made any money how is that possible?”

Let’s discuss AIG and all the plays that will be like AIG going forward.

1) There will be many more AIG’s.  You didn’t miss the only great trading opportunity of the year.  And yes stocks really can just move like that.

2) Often breaking news hits and traders decide that the news is not significant.  Maybe the news is not new.   But that is not dispositive of whether AIG will trade higher.  Stocks go higher for one reason: there are more buyers than sellers.  Your opinion about whether this news warrants a higher push does not move the market.  If the stock spikes, consolidates, and then makes a new push higher, then get long, and leave your opinion for drinks after you crush the trade like many of the better traders on our desk (and then drinks on you).

3) As intraday traders it is frustrating to trade an AIG with a long bias but get shaken out frequently such that you do not kill the stock.  If this is the case then you have some work to do. What trades for your system would have worked?  Let me offer some help.

In the AIG’s of the world think about these trades:

a) The Pullback: wait for a pullback in AIG, get long, and hold until AIG makes a significant upmove.  If AIG trades against your entry price, hit AIG, reevaluate, gather information, and buy again at a better price.  But hold AIG into the significant upmove.  Do not wuss out and sell the dopey stock 9c into an 80c move.

b) The Scalp: wait for AIG to trade down too quickly and too far and then scalp the offer, wait for the stock to slow into the upmove, and then sell.  There are many 30c low risk trades to be made waiting for downmoves to overshoot.

c) The Held Bid: the safest play is to wait for AIG to pullback and then hold a bid.  Enter from this held bid and hold into the next significant upmove.  If the bid drops then hit, reevaluate, gather info, and if a bid is held again just below then buy it back.

d) Momentum: Buy every new intraday high, and hold until the stock slows, and then sell.  This play will generally work best the fresher the news.  With AIG as time passed, the Sell the New High Programs dominated.  So you had to buy into pullbacks and scrap buying breakouts.

These are patterns that work for stocks such as AIG on trading days like today.  You ought to have plays that work for you with an AIG.  I am going to go home soon and undoubtedly “Old School” will be playing on some movie channel that I have purchased and do not need.  And like I know that this movie will be somewhere I also am confident that there will be another play like AIG soon.  And like the great “Old School” they can get better every time.

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