Focus on The Fundamentals

sspencerGeneral Comments, Steven Spencer (Steve's) Blogs, Trading Theory2 Comments

Wouldn’t it be great if every day you could turn on your trading platform at 9:25AM, quickly type up a few stocks, and then start trading the Open?

Woudn’t it be great if every day you could buy/short 5,000 shares at some great technical level and cash out for 10K by 10:00AM?

Wouldn’t it be great if the stocks you were trading moved 100%+ intraday, so no matter how sloppily you traded you would still finish positive for the day?

I’m not sure how great that would be but it certainly would not be a path to excellence.  The market requires that we strive for excellence each day.  That we are properly prepared and ready to take advantage of whatever opportunities present themselves.  SMB’s traders have seven fundamentals that they must master to become successful traders.  The mastery of these trading principles are a key part of a traders journey towards excellence.

I would like to review our seven fundamentals as to how they related to my trading of SEED on the Open today.

#1 Proper Preparation: I traded SEED for the final hour yesterday as it was one of the strongest stocks in the market.  I noted two key elements of its trading pattern for the following day.  I then watched it trade in the aftermarket and noted that after closing near its high it was pushed up in after hours trading to 11.  When I arrived at work today at 8:00AM it was gapping above the prior day’s after market high and trading near its mult-year resistance of 12.  I researched the fresh news that had been released and its business profile so that I could have a better understanding of its context in the market.  I learned that it was in the Ag space which has been one of the strongest sectors in the market recently.

#2 Hard Work: As soon as I completed our Stocks In Play meeting I returned to my desk to start watching the premarket action.  I watched as it traded down from 11.50 to the 10.90s.  I paid close attention to how much volume was being done on the bid to get an idea as to its upside potential when the market opened.  As the market opened I observed that there was real selling at the 11.30 level.

#3 Patience: I waited to buy the stock in the premarket until it came down to the 10.80s, the price range I highlighted in our meeting as a good entry point, based on the prior day’s after market trading action.  I also waited for it to come back down to 10.80 right as the market opened before buying additional shares.  I did not add to my position until it traded above 11.35 a level where it failed twice to trade above in the first two minutes after the market opened.  I did not buy any shares on the pullback from 12 until it hit my price of 11.30

#4 Discipline: As soon as it traded 40 cents in my favor I sold some at 11.30 to cover my risk if it reversed.  When it failed to hold above 12 for the second time I got flat when the 11.85 bid dropped.

#5 Detailed Trading Plan: I discussed my plan to get long at 10.80 in the AM Meeting.  My stop was below 75 cents.  If I got stopped out my intention was to get long at 10.50 or if the bid held above 10.80 again.  I had a profit target in mind of 12 based on mult-year resistance.  I intended to sell the majority of my position the first time it approached 12, and if it failed a second time to hold above 12 I would get flat as close to 12 as possible or on the next down move.  The final piece of my trading plan was dependent on the tape as it moved up after the Open.  Once it became clear that 11.30 was the first resistance area I planned to buy stock once it traded cleanly through this area understanding that I would sell these momentum shares if it quickly traded back below 11.30.  I also planned to buy at 11.30 on a pullback so long as it demonstrated a strong move above this level.

#6 Sharing of Information: I clearly explained the trade in advance to the desk prior to the market Open.

#7 Reviewing the Trade: When I was done trading the Open I reviewed each trade I had made.  I considered whether I should have gotten short on the second failure to hold above 12.  No regrets there as I was trying to maintain a long bias based on the massive accumulation yesterday and follow through this morning.  I am ready to short tomorrow on a failure to rally above 11.20 or a move below 9.80.  Although my preference is another 3-4 point up move with fairly uniform pullbacks.

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SEED 2-day 11-25-09

2 Comments on “Focus on The Fundamentals”

  1. Great blog post!

    I hope to see more of these kind of posts that go into extreme details about specific trades.

  2. Great blog post!

    I hope to see more of these kind of posts that go into extreme details about specific trades.

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