I just spent thirty minutes writing in my trading journal about a trade I did not make. I am pretty sure the young trader recently moved next to me thought this was a little odd. And then I got up and walked around our trading floor (btw very nice digs) and talked to anyone who would talk back about the set up. Finally I ran out of people to talk to and was forced to return to my seat. I made money in this stock (UPS), I actually made a chop during an Opening Drive, but this one pass on a trade just has me puzzled. So I ask: Was I correct not to make this trade?
Let me set the scene. UPS announced before the open: UPS raises Q4 guidance; streamlines domestic mgmt structure (57.41 ) : Co raises guidance for Q4 (Dec), sees EPS of $0.73-0.75 vs. $0.63 First Call consensus, up from $0.58-0.65 previously.
UPS gapped up on this news.
60.08 in the Premarket refused to lift the offer and sold enough to cause me to share, “60.08 has held the offer for size twice now in UPS.”
The market opened and UPS first decided to go find 59.50. First move bearish, but not determinative as we used to say in law school. UPS quickly rebounded and we were met with that 60.08 seller (chump?). “Come on buddy let’s get the party started. Lift.” And then finally the seller at 60.08 lifted. I was already a little long and added two lots. Mentally I was thinking Opening Drive Play.
UPS found 60.50 and I took some off on the way up. I kept my core long even when UPS failed at 57c. I was giving UPS a chance to drive higher.
And then the play that leaves me thinking and now blogging occurred. And frankly I am still not sure what I should have done. Let me explain.
UPS quickly dropped out to 60.10ish. Spencer bought. Danny bought. Dov bought. GMan bought. Noobs bought. I did not add to my position. I passed on the trade. My thoughts: this just doesn’t feel right.
When a stock breaks above an important resistance level I almost always buy the stock when it returns to this price. But here I didn’t. Was I afraid? No. I don’t think like that as a trader. Was I slow? It is hard to be faster than me making trading decisions.
I am a rule based trader. I have my playbook and when I spot a trade that makes sense to me I pull the trigger and accept the result. And buying this drop out is in my playbook generally.
But I didn’t like that UPS dropped out so quickly and found this price again, 60.10ish. I would have preferred for UPS to hold higher. I would have preferred a held bid at 60.35, 60.25, heck even 20c. I would have bought more if UPS could not trade below any of these levels and slowed without a held bid. I would have bought more if UPS did not go down and then cleared the intraday high of 60.57. I just didn’t like this drop out right back to the level.
For me this drop out is either Pattern 1) a great buying opportunity or Pattern 2) an example of buying above a level, 60.08, and then selling below a level. Lately I have found this drop out to more probably indicate that UPS was now Pattern 2. But even if it was more likely Pattern 2 couldn’t I have bought 11c, 13c, 15c and just hit UPS below the whole at 60?
If I was wrong and this was Pattern 1 I would have caught more size to the 61.13 intraday high. So on one lot I would have made $1. If UPS traded below 60 I would have lost 13c. My risk/reward was favorable. I estimated that my win rate was 1/3. It is possible with this set up that my risk would have been greater with slippage, and on the open increased volatility. It is also possible that I would not have held UPS for $1. I could have lightened up at the 50c mark. I could have found another reason to lighten up.
There was something else going on here. There was a voice in my head saying,”Don’t Bella.” It seemed to be protecting me from a trade not in my comfort zone. As a trader, even a rule based trader, you must listen to that voice in your head that seeks to protect you. Sometimes in trading you can’t exactly put a finger on why a trade doesn’t feel right. It just doesn’t based on years of trading experience and all the variables of this present trading opportunity.
I am going to think some more about this trade this weekend. I would love to hear what you think about my split second Real-Time decision not to make this trade.
Best of luck with your trading!
22 Comments on “Was I Correct Not to Make this Trade?”
On my one minute chart there isn’t even a red bar on that pullback. The correction all took place within two green bars. I like to see a couple red bars on a pullback, not just a spike down and back up, and because of this I would have passed on adding.
There’s something about spikes back and forth that make me sit on my hands.
On my one minute chart there isn’t even a red bar on that pullback. The correction all took place within two green bars. I like to see a couple red bars on a pullback, not just a spike down and back up, and because of this I would have passed on adding.
There’s something about spikes back and forth that make me sit on my hands.
In my opinion you are correct not to make the trade if it does not seem right to you. If it does not seem right, then you arent mentally ready to accept the outcome, so you dont take the trade.
just my 2 cents, thanks for the great blog
In my opinion you are correct not to make the trade if it does not seem right to you. If it does not seem right, then you arent mentally ready to accept the outcome, so you dont take the trade.
just my 2 cents, thanks for the great blog
I agree with your decision. Much of trading is psychology. I was long UPS when I missed the move on Fed Ex, and figured that UPS was not far behind.
shouldn’t you give a play like this every time and get out if the play is proven to be wrong?
shouldn’t you give a play like this every time and get out if the play is proven to be wrong?
I think you’ve made the right decision. As we gain experience as traders, it acts as our sixth sense so to speak. Sometimes, we can’t put a finger on the “why”, but most likely, the instance was right. It’s all in the mind, and just because everyone else is buying doesn’t mean you should too if you have doubts about it. When there’s doubt, you lose confidence in holding on to the trade. Most likely, even if you added, you won’t be holding through the whole $1 move. Thanks for the blog.
I think you’ve made the right decision. As we gain experience as traders, it acts as our sixth sense so to speak. Sometimes, we can’t put a finger on the “why”, but most likely, the instance was right. It’s all in the mind, and just because everyone else is buying doesn’t mean you should too if you have doubts about it. When there’s doubt, you lose confidence in holding on to the trade. Most likely, even if you added, you won’t be holding through the whole $1 move. Thanks for the blog.
“shouldn’t you give a play like this every time and get out if the play is proven to be wrong?”
+1
“shouldn’t you give a play like this every time and get out if the play is proven to be wrong?”
+1
Listen to your intuition. More times than not, it’ll be right if emotions are not clouding your thinking.
Because you are one of the successful traders, you have internalized what you have learned even if you cannot always explain it. Maybe you’ll have an answer for us by Sunday’s show.
Listen to your intuition. More times than not, it’ll be right if emotions are not clouding your thinking.
Because you are one of the successful traders, you have internalized what you have learned even if you cannot always explain it. Maybe you’ll have an answer for us by Sunday’s show.
Question: would you have bought that 60.10 area if you had no position on when it started heading back there?
Seems to me that it is largely a question of how you want to deal with risk management when you no longer feel that you are in a position of strength in the stock.
I certainly would not have been interested in buying that 60.10 if I had not cut some (or all) of my core shares near the .57 fail; would have needed the level to have paid me enough in order to cover the extra risk attempting to buy the level for a 2nd time in a possibly violent opening trade (i.e. your ‘pattern 2’… ugh do I know that one).
Question: would you have bought that 60.10 area if you had no position on when it started heading back there?
Seems to me that it is largely a question of how you want to deal with risk management when you no longer feel that you are in a position of strength in the stock.
I certainly would not have been interested in buying that 60.10 if I had not cut some (or all) of my core shares near the .57 fail; would have needed the level to have paid me enough in order to cover the extra risk attempting to buy the level for a 2nd time in a possibly violent opening trade (i.e. your ‘pattern 2’… ugh do I know that one).
IMO when you have an opening drive of almost a dollar in a fairly thick stock in the first 3 minutes that is followed by a 50% retracement, that tells you the move might have trouble sustaining itself through the day. A large buyer would probably have bid that before it falls all the way back to 60. That doesnt mean it wont have a nice bounce off the 60 level and in this case to new highs, but i think it means it might have a hard time trending higher throughout the morning. But who knows, its much easier to say that in hindsight.
Or maybe it was just the sell above the level program coupled with a well timed pulling of the bids by the large buyers so they could buy at lower prices.
IMO when you have an opening drive of almost a dollar in a fairly thick stock in the first 3 minutes that is followed by a 50% retracement, that tells you the move might have trouble sustaining itself through the day. A large buyer would probably have bid that before it falls all the way back to 60. That doesnt mean it wont have a nice bounce off the 60 level and in this case to new highs, but i think it means it might have a hard time trending higher throughout the morning. But who knows, its much easier to say that in hindsight.
Or maybe it was just the sell above the level program coupled with a well timed pulling of the bids by the large buyers so they could buy at lower prices.
Take a look at the tick chart (133 tk on Think or Swim) of this play. Since time isn’t calculated in a tick chart and there is no time bias, it looks like a trade I would take every time. Price action is price action regardless of time.
I need to make rule for how much influence time should have on my evaluation of price action.
Take a look at the tick chart (133 tk on Think or Swim) of this play. Since time isn’t calculated in a tick chart and there is no time bias, it looks like a trade I would take every time. Price action is price action regardless of time.
I need to make rule for how much influence time should have on my evaluation of price action.
I would never 2nd guess the intuition, it’s that little thing that we’ve developed with +10yrs of trading. and i’m sure if you had a way to track the %’s on your intuition, i’m sure it’s probably over 75%. So this trade (referring to decision to use intuition) was wrong…kinda like those trades you do risk/reward, had a loser, lost 10c and moved on. Can’t 2nd guess it b/c it’s a skill that you’ve unconsciously been working on your trading career.
We traded the stock thru the same level, and got a little nervous b/c it was trading so volatile for such a big cap name, however we were lucky enough to execute on the pull back b/c we planned for a buy stop thru 60 with a 59.50 stop.
Keep up the great work guys!
I would never 2nd guess the intuition, it’s that little thing that we’ve developed with +10yrs of trading. and i’m sure if you had a way to track the %’s on your intuition, i’m sure it’s probably over 75%. So this trade (referring to decision to use intuition) was wrong…kinda like those trades you do risk/reward, had a loser, lost 10c and moved on. Can’t 2nd guess it b/c it’s a skill that you’ve unconsciously been working on your trading career.
We traded the stock thru the same level, and got a little nervous b/c it was trading so volatile for such a big cap name, however we were lucky enough to execute on the pull back b/c we planned for a buy stop thru 60 with a 59.50 stop.
Keep up the great work guys!