An Easier Trade

One our traders came over as I was talking to Jay our hyperkinetic intern about the cool new retweet button he installed on our blog, “Bella do you have a minute.”  As a partner I have learned what can follow could be just about anything.  Previously in the day one of the calmer traders on our desk stormed into my office and exclaimed,”I just did the stupidest thing.  I am going home before things get worse.”   Before I could answer he closed my office door and stormed away.  “Have a nice weekend?”   Well I can’t say my days as a partner at SMB are ever boring.  So what did this trader want to talk about?

Frustrated he brought up a chart of OXY.  OK great.  This is a conversation I can handle.  He moaned about being,”the worst trader in the world.”  Every trader has this thought every week.  Get used to it.   He outlined how badly he had messed up an opportunity in OXY at a key resistance point.  Then he moaned again.  Finally I cut in.

Sure OXY was difficult near the 81.50-60 resistance level.  There was some above below nonsense around this key level.  Get that.  Seen that before.   Not sure I wouldn’t have ripped up some money around this level as well.   Not exactly something to be all that surprised about.  This is just another example of what Dr. Steenbarger described in a lecture to our firm this week as “choppiness” around important levels in the market.  This is probably not going away as long as HFT remains.

And this trader, a person of exceptional intellectual acumen, was all caught up in the money he ripped up around this level.  And I looked at the chart.  I could certainly see how this had happened.  Personally I agreed that he ripped up too much.  But so what?  While looking at the chart there was something crystal clear to me as an experienced trader.  A trading veteran who has started many a trading setup ripping up too much money and then crushed the stock just moments later.   There was an easier trade just staring at us on the chart.  A trade that would have more than made up for any previous rip.  An opportunity that if seized would have manifested a solid trading day.

Below this important resistance level of 81.50-81.60 there was consolidation around 81.25.  We love these plays.  Consolidation after a failure is a technical layup for the intraday trader.  Give me more looks at trading set ups like this please Mother Market.  And then OXY broke down from this consolidation.   Further SPY was showing difficulty holding above 112 a huge resistance level from this week.  This was a Trade2Hold.  This was an easier trade.

Let’s take a look at the math.  This trader has just started his trading career so was trading with only 200 shares.  He ripped up $100 bucks near the 81.50-60 level.  Instead of focusing so much on these rips what if he focused on all of the opportunity that OXY offered.   He shorts 200 shares when 81.50 fails again.  At 81.20 he covers a hundred shares as it slows and is not down $40 bucks.  And then when OXY consolidates he reshorts another 100 shares at 81.30.  The market is weak, OXY starts to trade lower and the first place to even consider covering is 80.  He covers a hundred shares and is now up $210 while still long a hundred shares.  80 fails to hold so you reshort another 100 shares with a mark or 79.95.  OXY continues lower with the market.  Let’s say when SPY hits 110 a huge support level he gets flat OXY at 78.20.  Chop!

Remember starting the day down $100.  I wouldn’t.  Would you consider OXY a difficult stock.  No, it was ripe with opportunity.  Now as a brand new trader he is up $565 (I hope like hell I got that math right!).  Not bad for a Noob.

This easier trade was your ticket to a profitably trade.  And to all developing traders I have seen opportunities like this after rips day after day for the past twelve years.  Find that easier trade.

Best of luck with your trading!

oxy december fourth

4 Comments on “An Easier Trade”

  1. Bella,

    Several questions.

    Why is a consolidation after a failure a layup?

    Why can’t/won’t the above below program do the same thing at $81.25 as it did at $81.50?

    Thx.

  2. Bella,

    Several questions.

    Why is a consolidation after a failure a layup?

    Why can’t/won’t the above below program do the same thing at $81.25 as it did at $81.50?

    Thx.

  3. The writing style of your materials is getting better and better. Congratulations!
    But I truly think you’ve enter in a distribution pattern, because with this post you gapped up and exhausted the medium term move. 🙂

  4. The writing style of your materials is getting better and better. Congratulations!
    But I truly think you’ve enter in a distribution pattern, because with this post you gapped up and exhausted the medium term move. 🙂

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