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!

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

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!

Ok so I was honest and shared that I got ripped in DNDN when it dropped 16 points in 40 seconds.   And I was one the chumps who got their RMBS shorts busted after a huge chop.  But today the trading Gods smiled on me.

There was breaking news in MIL (Millipore Corp).  TMO (Thermo Fisher Scientific) it was reported made a 6 Billion dollar offer (“6 million dollars”).  MIL skyrocketed from 71ish to over 100.  I missed the move scrambling to find out why the sudden spike and partly just being a wuss.  I couldn’t do the math quickly enough in my head figuring what 6 Billion would translate for the stock price, Spencer was on a flight to Singer Island who could have calculated this in a millisecond (he went to Wharton afterall ), but I did sense that everything above 90 was dangerous.  I chose to sit on my hands and wait for a safer trade.

MIL started to trend and trend down.  At 90 there was a nice battle with the sellers victorious.  I started a small short position.  MIL traded down about $1.25, I covered and then waited for my next trade.  MIL didn’t really trade higher and I found a new place to short.  And then something really strange happened.  The bids dropped out in a free fall (I later learned a MIL spokeperson said the bid was just a rumor).

I thought- maybe there is no deal.  And then I sensed-lock it in Bella.  I placed a bid and got hit at 78.82.  A cool ten points lower on 300 shares.  Almost immediately the bid was 85.  So that went well!

I waited for hours to receive a phone call telling me my trade was busted.  Dovey was razzing me to expect a call any minute.  I ate a few of Rosie’s delicious oatmeal, chocolate chip cookies and managed my other positions in AIG, SLB, BRK.B.  My phone never rang.

While this trade was awfully lucky, I was short for a good reason.  I am very fast.  That is why there are speed drills in the training program Noobs.   I did sense the downmove slowing so this execution is partly because of my Reading the Tape skills.  And didn’t I have this trade coming to me after the nonsense in DNDN and RMBS?

On a side note I am about to make a rather large purchase in the near future.  And I learned right after the trade that this large purchase is going to run me an extra 3k.  Typical!  It is like that Seinfeld episode where Jerry throws $20 bucks out the window and then finds $20 in his jacket.  Maybe I should refer to myself as even Bella?

Anyway that is how you make 3k in 30 seconds.  Maybe I should put together an infomercial and hit the road?  And by the way if you are new to this blog and think you can really make 3k in 30 seconds without once in a few years luck, please do not return to read this blog going forward.

Best of luck with your trading!

A great base-stealer works on his technique to get even better.

60 percent of StockTwits followers are hard core professional traders.

“I did then what I knew how to do. Now that I know better, I do better.” — Maya Angelou
from @Shimmy33

An Email from Trader Rob S

Hope all is well. You likely heard it on TV, but I thought of you when I listened to the discussion on Shani Davis and his daily routine to winning the gold tonight.

- Writes daily in his journal daily. What he did right, wrong, how he felt , how he reacts to his performance each day…….. it was like reading your blogs on trader journals.

It went on, you get the point. I best do an extra good job on mine tonight!

Michael Arrington from Tech Crunch reviews StockTwits.

Brian Shannon from @alphatrends offers advice on why to stop using 60 minute charts.

Dr. Steenbarger of TraderFeed posits whether traders can be trained to maximize trading intuition. Fascinating question!

Fed communicates that it is not tightening broadly.

Manufacturing jobs may be on the rise.

Charles Kirk from @thekirkreport shares a list of 100 fundamentally strong stocks near highs.

When you see someone on Financial TV are they just talking their book?

Special StockTwits TV show tonight at 8:30PM EST. We will be releasing my intro to our Reading the Tape Seminar from last Saturday.

I know when you trade it is best to stay calm.  And busting your keyboard is not keeping cool.  I get and have blogged that you make poor trading decisions when you are not in the zone.   But having sat on a prop desk the past 12 years of my life I have heard and seen many smashed, broken and eliminated.  Instead of pretending no one gets upset or that this is somehow a personal weakness, let’s talk about how to diminish these very human urges.

When I first started trading whacking your keyboard was commonplace.  This was the birth of day trading so like a fine wine we needed to mature as an industry.  At our firm there was actually an internal system for replacing battered keyboards.  A tech guy would grab your shattered keyboard, or what was left of it, give you a brand new one, and the firm would just bill you.  The whole replacement process took 30 seconds.

My first week of trading I critiqued about someone cursing the trading in AMAT,”Why is he so upset?  That is so unprofessional!”  And then I started trading.

Yesterday one of our traders obliterated his keyboard when JCP stopped him out of a 7k share position.  He is one of the better intraday traders on the Street.  I was not on the desk at the time but I was told that some of the keys traveled two trading rows.  Three traders were commissioned for the search, rescue and replacement of the hurled keys. Impressive!

We are not Buddhist monks.  And while it is best for us to trade in the zone it is unrealistic to trade every minute of every day of every year in a calm state as a trader.  And the shorter your time frame the more this is true.  Intraday traders have more opportunity to experience loss and missed opportunities which triggers frustration and anger.

Before each day I check my temperate and record it in my trading journal.  There are certain days when I am on edge even before the Open, which makes it more likely that I may lose my cool.  Over the years I have learned that when I am getting worked unfairly by market players I can become heated.  This is the lawyer in me who believes in fairness.  The point is I can feel it coming.  And you as a trader can learn to observe your feelings to avoid being that guy who demolishes his keyboard.

Making notes in your journal of what sets you off is a great start.  Adding visualization exercises to better control your emotions on these things that may cause you to trade on tilt help.  When you observe you are tense get up from your trading station and go take a ten minute walk to cool down.  Dr. Steenbarger of TraderFeed is the best source for all things trading psychology.

It is not abnormal to have these urges.  You are not weak.  We are all wired differently.  Some of us get set off by our trading more easily than others.  But there are steps you can take to trade in the zone.  And just a quick note.  If you do get to the point where you cannot help but smash your keyboard (and this should happen at most once a year).  Bang the crap out of it such that there is not one key left.  If you don’t then you are just making noise!