Why do we trade? A majority start mostly to make money. In its best form to provide financial stability for their family. In its worst to mask some personal insecurities. Or maybe neither and trading is just something you are doing because life offered this path and you started walking.

“Trading is a zero some game,” say many. And if this is the case then a trader adds little to no societal gain. First, trading is not a zero sum game but I will let Roy Davis, Director of SMB Training, write about that in the future. Also why as traders do we let the public so mindlessly define our game as just a pursuit of money? Is that really what it is all about for the best traders? That has not been my experience.

SMB offered a free seminar a few months ago on Reading the Tape. I asked our audience to volunteer their ultimate goal as a trader. One ambitious, bright attendee answered loudly with a smirking smile,”TO MAKE MONEY!” I gave him a dismissive look.

The first year I made serious money as a trader taught me my life lesson about the consequences of excess money. My partner, Steve Spencer, and I had decided to take a weekend trip to play golf in Hilton Head. Taxes were due the following week. I stepped off the plane from my First Class seat and fielded a call from my hometown accountant. He had a number. It was how much I would owe the government based on my trading performance. I would share this number but it was so obscene and it’s a holiday weekend I would rather not depress myself. I remember writing that outsized check not in any way rich and now not nearly as financially secure as I had thought.

And that was the good problem. Lots of money, protecting lots of money is just another part-time job for you. It just adds more work to your life. After your monthly expenses are covered the extra money does not yield more happiness. It just brings more meetings with accountants, financial advisors, lots more checking of your bank accounts and investments.

I just finished a great book (a must read for all those running a business or hope to some day) Delivering Happiness: A Path to Profits, Passion, and Purpose by the CEO of Zappos, Tony Hsieh. Zappos has transformed how we think about the importance of corporate culture and customer service. Zappos from nothing became a billion dollar company focusing on all things customer service by delivering a WOW experience to their customers. Now their goal is to spread happiness.

Tony describes happiness:

Happiness is really just about four things: perceived control, perceived progress, connectedness (number and depth of your relationships), and vision/meaning (being part of something bigger than yourself).

Let’s try a fun exercise, using the criteria above and outline what would make us happy as traders. We have control over our pay since we receive a split of our profits. Check.

Are you progressing as a trader everyday? One of the things that brings peace to my day as a trader is filling out my trader journal. I have never understood why this is so calming to me. Now I know. This is my trading path to make progress everyday. As I keep a detailed trading journal, I am improving. To be happy as traders we must strive to get better everyday.

Do you feel a sense of connectedness as a trader? Are you a part of a trading team? 60 pairs of eyes are better than one. Developing friendships with your fellow traders makes every trade more interesting. Nothing is more fun than drinks after work replaying a chop in XYZ with your trading confidants. Asking a friend what they are trading intraday is infinitely more interesting than just a warm body to your left. The other day after an AM meeting I felt our traders had relied too heavily on our partners for trading ideas. After that AM meeting I had everyone march right back into our training room. I explained that we, the partners, did not have all the answers, and their success would depend heavily on them working together with their trading-mates to make themselves better. I was also offering them a way to be happier.

And finally are you involved in something bigger than yourself? Dr. Steenbarger has written that the true reward for becoming a great trader is that you also become an elite performer. In an interview I recently did for Your Trading Edge Magazine I shared how becoming an elite performer spilled over into other life moments making you a better friend, brother, finance, son, teammate, and trader. If you are an independent trader maybe you can start a virtual trading community that shares more trading ideas, giving you a purpose bigger than your P&L? Maybe if you sit on a prop desk you can work together to grow more trader’s profits so a larger hedge fund will seed your desk an even bigger book to trade? Maybe you can be a part of a desk trying to be the best on the Street for your product? This is fun. These are goals. And apparently all of this brings happiness.

What would make you happy as a trader? What is the point of doing anything if in the end it does not bring us happiness?

When we started SMB Capital not even four years ago we set out to do four things:

1) provide the best intraday training on the Street.

2) offer a payout that was fairer than I had received to our traders.

3) create a culture of perpetual learning, where we all learned from each other.

4) share valuable trading information.

Many retail and independent traders trade solo.  I have tried this.  I am informed that this may work for some.  It did not work for me.  Steve tried it.  It did not work for him.  JToma gave it a stab, and he couldn’t help just watching CNBC on his couch most of the trading day (how ironic!).

As traders we are only as good as our stocks.  An environment that offers excellent trading ideas can turn a decent month into a memorable one.  All it takes is a few good ideas shared per week to change even an month.

Creating this environment can be tricky.   What information is relevant to share?  A desk must be disciplined to share only ideas that lead to good trading opportunities.  The air waves should be viewed as an emergency operating channel.  If it does not relate to making money then the channel should be silent, clear for the next trader to offer a valuable set up.

And sometimes the sharing of information can lead to discord on a desk.  Why is that guy always talking?  I remember a noob years ago who called out fifty trades on his first day live.  A senior trader loudly stalked over after the close and scolded,”When you start making money then you can speak, until then focus on learning how to trade.”  JToma loves to share the entertaining story of a guy who got punched out for trash talking on his desk back in the late 90’s (kind of like the Myers/Hammels scrum this week at the Stadium).  If people care about their performance there will be contentious moments.  As long as everyone respects each other and the desk, then these incidents become forgettable.

If you are not connected to a virtual environment or a desk that offers value to your trading through the sharing ideas then you are trading at a disadvantage.  If you are on a desk that does so then be the guy who keep offering excellent trading set ups.  Be that trader who makes things better, pay it forward.   One trader offering great call outs can change a row.  One superior row and carry a desk.  One day some of those you carried will pay you back with trading ideas.

This afternoon on CNBC’s Fast Money Halftime Report, Dennis Gartman (producer of the respected The Gartman Letter and former futures analyst for A.G. & Becker) and I seemed to dissent about how to play GS.  We didn’t.  Let’s discuss.

About a week ago, I advocated shorting GS at 150 with a stop at 151.17 and a target of 140. For anyone who followed this trade, it worked out very well – GS trended down to just below 140 intraday yesterday and I closed my position (as it reversed and closed above 140). As a short term trader, I love trades like this with a risk to reward ratio of 10 to 1.

On the show today, I talked about this trade and said that I would look to short GS again if it re-tests 150 (assuming SPY is under 95.50) or holds below 140 (assuming SPY is under 90). Dennis curtly remarked that he wouldn’t short GS and instead advocated shorting something like BRK-B, a stock that has already been going down. In a joking tone, I mentioned that I wouldn’t bet against Warren Buffet.  It made for good television.

The reason for which I appeared to disagree with Dennis is as follows: I am a short term technical trader, Dennis is not. The reason for which I get long or short a stock is based mainly on technical analysis, and the price action of a stock, and not overwhelmingly fundamental analysis. Dennis believes that fundamentally, GS is strong and I do not disagree with this. However, I see significant resistance at 150 and some support at 140. A break of the 140 support level and favorable market conditions (SPY below 90) would offer another good risk to reward short. I will continue to monitor GS and if it offers a good set up, then I will short it once again.

I am a trader not an investor.  I am a short term trader not a long term fundamental trader.  I offer trades that offer an excellent risk/reward- with a win rate of 60plus percent, a downside of 1 and an upside of 5.  There are many ways to make money as a trader.  This is my system.

Watch the clip here. Don’t forget to follow us on Twitter!.

JToma

Today on the desk I heard,”Oh that MON is so hard.”

And it was at times.  In fact it was very difficult about 90 percent of the trading day.  But it was not hard.  There were three simple trades that if made would have left even the average trader profitable.  Let’s discuss.

At 82.75 the offer would not lift in MON.  I got short.  MON traded down a quick 65c.  I know, who is better than me?

At 82.50 there was a battle.  After the housing number was released initially SPY spiked.  But MON could still not trade above 82.50.  Can anyone say Relative Strength Play?  MON had now showed us her cards.  MON was weak.  So we shorted some at 82.50.  MON traded down to 82.  Another nice trade.

MON could not trade below 81.80.  I should know.  I hit the damn bids there enough times to learn.  A few times I myself tried to get 81.80 to drop I hit the bids so hard and so fast.  I couldn’t.  I quickly covered higher.  Ripper.

And this is some of the frustration with trading MON.  There are a lot of losing trades.  But then 81.80 dropped, I got short, and MON traded down to 81.  Another easy trade.  In fact I held some until I saw significant buying at 80.40.

You can’t just make the trades where you smash the bids at 81.80 cover higher for a loss,  and then proclaim,”This stock is too hard.”  You have to mix your results with these three easy trades above.  Often developing traders overvalue the hard trades and rips.  And then they are hesitant to execute on the easy trades.  They are sabotaging their results.  Judge the stocks based upon all the trading opportunities it offers.  This is a truer picture of how good a stock is as an intraday candidate.

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

I did not identify the pattern in IBM today until near the Close.   This soured my trading results.  The pattern in IBM today was to create a support level, hold that level with significant volume, trade higher from this support level, then drop, hold a level lower, and then explosively trade higher.  Basically IBM would not explode higher until its support level dropped.  I took rips on two of these drops.  But then I made an adjustment.  Let’s discuss.

IBM 101.50 held, traded up to 101.90 a bunch of times.  I bought 101.51 and kicked it out a bunch of times on the offer, 75c, 83c, etc.  I kept making the spread from the long side.  I kept a core long because IBM was in an uptrend.

Finally 101.50 dropped and I got flat and short.  101.35 stuck the bid, and then IBM squeezed back towards 101.90 quickly and painfully.  I missed the long and I was short.  Ripper.  

Then 101.35 would not drop.  I made the spread between 101.35 and 101.75 a bunch of times.  I held a core long position in front of 101.36 because IBM was still in an uptrend.  I made some nice chops.

SPY traded below 84.20 dragging the market lower.  IBM dropped the 101.35 bid.  I got flat and short.  101.21 held the bid.  IBM exploded.  I missed the long and took a rip short.

Intraday I recognized my mistake.  I did not identify the trading pattern with IBM initially.  If I would have made a small adjustment initially I would have killed IBM.  Instead I was only slightly positive.  Finally, I made an adjustment.  101.81 was support.  This level dropped and instead of flipping I got flat.  When 101.72 held the bid I got long again.  I held IBM into the close and sold at 102.27.  This was a profitable trade.  

101.85 is a nice level to trade off of for IBM tomorrow.  Best of luck with your trading.  Don’t forget to follow us on twitter.

Before the Open I was pissed.  As a partner sometimes I miss the days when I could just roll into the office and trade.  I look forward to the day when the guys we teach are running the desk.  And I can just come in and trade.  And I hope I get to sit all the way in a back row, with the young guys making fun of me, perhaps calling me the old man, and watch them make chops everyday.  But we are not there yet.

So today before the Open I had to make sure we were prepared for a video shoot, consider how to best respond to two sensitive emails, prepare for the Open, check what our new class was learning, answer my regular email, and finish a chapter for the trading book I am writing.   And one of the emails from one of our traders set me off. He was taking a mental health day. If anyone needs a mental health day on the trading desk it’s Steve, me, or JToma. Not some twenty something, young, health, relatively new trader.  I just cannot stand that.  This was all too much.  And I sensed the anger boiling insider of me.

Now if I had one of these things to handle I would not have gotten upset.  But I have learned when there is so much on my plate that an extra issue to handle can set me off.  I was aware of my mental state.  So I wrote down how I felt in my trading journal.  And then I started breathing.

For ten minutes I concentrated on my breathe.  I changed my mental state from anger to calm.  Now my trading results were not great today.  In fact I underperformed based upon the trading opportunities presented.  But I do not judge my trading success based upon my P&L.  There are some things I am working on to improve as a trader.  And I worked on those issues.  I would give myself a B plus for this trading day because of my work improving my trading.

I am particularly impressed with my ability to sense my anger before the Open and then change my mental state. Are you self aware of your emotions before, during, and after the trading day?  While today was a negative trading day, I took a step forward.   Each trading day is an opportunity to get better.  And I did so today because I was self aware.

Best of luck with your trading! 

One of our traders had a great trading day.   He finished negative.  The market was up 500 points as the Obama administration unveiled its plan to remove toxic assets from the books of the nation’s banks.   BTW we now have traded up 1300 points since the day I left for vacation.  This trader did not make many trades after 10AM.  Today he was a role model that we all can learn from.  Today he planted a lot of seeds.  Huh? Let me explain.

This trader has been underperforming of late.  He is better than his previous results.  He knows it.  I certainly have let him know this.  I have challenged him to step it up.  His results are unacceptable commensurate with his ability.  Lately he has been fighting the trend and becoming frustrated too easily.On the Open I heard him cussing under his breath.  A few minutes later I noticed he went for a walk.  Very nice response.  The only way to alleviate your frustration is to leave the desk, breathe until your state is relaxed, and then return.  You cannot will yourself to calm down.  You are frustrated.  You will remain frustrated until you change your mental state through relaxation techniques.  This trader was aware of his frustration and then reacted.   

Later during the trading day he missed an excellent trading opportunity.  I heard him cuss under his breathe.  And then I saw him start writing.  He did not pick his head up for ten minutes.  He made notes of this excellent trading opportunity.  By doing so he reinforced a set up that works for him.  Next time he will be more likely to catch this trading opportunity.I like what I saw from this trader.  On a day where almost everyone on the desk was very profitable, he lost money. But his actions were very encouraging.  His actions were those of a consistently profitable trader.   For this trader, continuing with this type of quality work, it is just a matter of time.

I call it planting seeds.  When you consistently work like the trader above you are planting seeds that will grow later.  In this case your reward will be cash as opposed to tomatoes.  In college planting seeds meant something different, but that is a different discussion.  In college this meant talking to as many pretty co-eds as possible with the hope that in the near future there would be a payoff.  And I have to explain this because I know too many on our desk (think CMU and GDI) would think this is what I meant by planting seeds.   Get into the habit of judging your trading day based upon your development and not your P&L.   Better to plant some seeds and be negative today then to make money and not improve as a trader.  

Best of luck with your trading!  

Today a new trader asked me a question about getting back in. This new trader got long MS in front of a support level identified by Steve during our AM Meeting. The support level did not hold, this new trader exited, and then MS spiked. Sound familiar? Anyway I was pulled aside to offer some suggestions how to get back into MS when the support did not hold. Let’s discuss.

First, I was most encouraged that this newbie understood that letting the stock trade against him was not an option. Many unprofitable traders review a trade such as the above and conclude that they should have held this stock longer. Wrong. Incorrect. Absolutely false. Before every trade that you make you must have an exit plan for if the stock trades against you. In this case MS traded against his exit plan. His only option was to exit MS. Anyone who disagrees with the above let me save you some time. Go find another profession because trading is not for you.

Now this is not the end of the trade. I said he had to hit the stock. I did not say that this new trader ought to now take a nap, or go for a walk, or break his keyboard. This new trader can consider getting back in. For example, if there was buying at 21.77 getting back in would be a good trade. If you noticed a particular selling pattern during the down move to 21.80, this pattern disappeared, then you can re-enter MS. If MS was trading lower because XLF was ticking lower, XLF suddenly showed some strength, then you could re-enter.

Look my list above is not meant to be exhaustive. If it was then I would get exhausted putting the list together because there are many ways to get back into MS. You, as a new trader, should have a list of hypotheticals that will get you back into this trade. You should develop this list. You should visualize these scenarios in your head. You should develop a system FOR YOU that allows you to re-enter this trade. I have a list. I gave you some of my ways to get back in. But you are not me. And my list ought to be different from yours. So make your own.

21.80 was the support level discussed. This trader got long at 21.85 and hit MS below 21.80. Right after he exited MS spiked. 21.77 was not violated. When a support level such as 21.80 is violated I consider whether this leaking to 21.77 is really just a fake breakdown. I am mentally agile. MS may be breaking down or it may be a fake breakdown. I am prepared for either possibility. I will exit my stock, but I will look for ways to get back in. And if MS does not trade much below 21.80, and I do not see a clear seller below 21.80, then I may re-enter.

Best of luck with your trading!

Last week I was in St. Martin working on my tan. I definitely have the best tan on the desk and by far. Of course the week I am away the market rebounds 1000 points. It was like they knew I was taking a vacation. So today was my first day back and I treaded lightly.

So I missed all of last week. I traded an easy stock. I traded with manageable size. I traded easy setups. This is how you get back into the game.

It will take me a day and a half to get my feel back. Until I do I must make adjustments. And today I did. I traded JPM. GMan mentioned during our AM Meeting that XLF 8.40 was an important level. I noticed on the Open that JPM would not trade below 24.25 unless XLF was below 8.40. I noticed that JPM could not trade above 24.50 unless XLF was above 8.48.

And then I just waited. I caught a quick short when XLF traded below 8.40. I caught a nice upmove when XLF traded above 8.48. I stuck with very simple trading plays. And this is how you do it when you are returning from some time away.

It was good to get away for a week. Seems like our desk had a nice week while I was away. I wonder if they wished I would have stayed away longer.

Best of luck with your trading.

I traded WYNN today.  It was a very good intraday trading stock.  I have noticed lately that stocks are being bought differently in this new market.  Let’s discuss the trading in WYNN today to explain.

The market has sold off from 13,000 to today’s close of 7270.  WYNN has sold off from 110 to today’s close of 21.75.   Lately it takes time for stocks to trade higher after buying is identified.

21.60 was a significant intraday level in WYNN.   WYNN was in a downtrend trading between 21.25 and 21.60.    WYNN had trouble trading above 21.60.  It finally did.

Now normally after a stock like WYNN traded above 21.60 we would expect a quick upmove.  In fact, if after WYNN cleared an important intraday resistance, and did not trade higher quickly, we would assume that this was a fake breakout.  This may be the case in today’s market, but I have noticed that there is also another possibility.

Stocks have taken longer to trade higher after significant buying is identified.  Lately it is not unusual for WYNN to take out the resistance level of 21.60 and not trade higher immediately.  Lately a 21.60 level is cleared and a stock like WYNN slowly buys on the bid.  And this is what we saw today in WYNN.

WYNN traded above 21.60 so I started a long position.  But I expected a bid to step up above 21.60 and hold.  This did not occur.  A 21.60 bid did appear.  But that bid often dropped.  There was some buying at 21.60, the bid would drop, and then offers were cleared on the downticks.  WYNN was being bought at 21.60 it was just being bought slowly and carefully.

I saw this same pattern in PCLN and MFE last week.  It is not my job as a trader to spend much time figuring out why this is.  It is my job to recognize this pattern.  And this has certainly been the pattern in the stocks I have been trading lately.  The upmoves just take sooooo long to develop.

As you can see from the intraday chart WYNN eventually trades higher.  WYNN made a very nice move from 21.60 to 22.87 before it reversed.  But the move took time to develop. So going forward I will be more patient when I spot significant buying.  I will give my stocks more time to trade higher since this is the pattern of late.

Lastly 21.10 is an important level in WYNN.  It could not trade below there today.  21.10 held three times. I will set an alert for this level.

Good to be back at my real job trading.  It took a great deal of work to prepare for my two presentations at the Trader Expo.  Sorry I did not have time to blog.  Thanks to Alex for his help with the presentations.  Thanks to Emre for his help with the videos.  Thanks to GMan for working his tech magic so we could pull the whole thing off.    Thanks to Roy for setting the whole thing up.  And of course thanks to Charlie for just being Charlie.

Best of luck with your trading!