The market had a broad rally on Tuesday. \u00a0When we came into the office on Wednesday we cautioned our traders against chasing moves in stocks that could be a bit overextended when the market opened. \u00a0Our thought process was to look for safer long entries based on the prior day’s support levels. \u00a0I think you probably know how the rest of this story goes. \u00a0Most of our traders stepped in and bought stocks too aggressively prior to Tuesday’s proven support levels (this trader included), and were in a position of weakness when the “good” prices were reached.<\/p>\n
Why would a trader step in at prices where the risk\/reward is not great? \u00a0A large part of it is the psychological need not to miss the eventual expected up move. \u00a0The problem with this type of thinking is that it removes one of the most valuable trading edges a professional tends to possess. \u00a0The amateur retail investor\/trader’s behavior can be gamed fairly well BUT if your behavior as a professional begins to mimic that of amateurs then your edge disappears.<\/p>\n
By 10:00AM almost every market leader we were prepared to buy on pullbacks had hit their preferred entry prices but many on our desk were unable to participate because they had hit their daily loss limits or were close enough to their loss limits that they were hesitant to buy stocks that momentarily appeared to be weak. \u00a0Each of these stocks had multi-point bounces that would have provided very nice chops.<\/p>\n
Most well trained traders have great ideas. \u00a0They can identify trades that offer great risk\/reward. \u00a0Almost always\u00a0under performance will come down to execution.<\/p>\n","protected":false},"excerpt":{"rendered":"