Trades — Thursday 2nd May 2019

Since the Easter break I’ve posted a few big winners, so I thought it was time to post a couple of bread and butter trades again, the sort we can expect to find every day. Because let’s face it, two grand profit from one five minute trade is, while not unheard of, not something we can hope to see every day either. It’s the bog-standard simple wins — the easy middles — that account for the bulk of a day trader’s profits.

First up then, here’s SFM.

Day trade on the SFM stock on 2nd May 2019

It doesn’t get a lot more textbook than this. A standard setup for a momentum trade on a modestly priced stock that’s accessible to anyone with a margin account. A pretty uneventful price drop after the entry, then an exit at a logical place after it a) failed to hit an obvious target and b) momentum evaporated at the same time. $600 profit on this puts it at the upper end of the ‘bread and butter’ type trades, but it’s well within expectations for a regular trade.

Here’s another, which occurred a few minutes later, on UAA.

Day trade on the UAA stock on 2nd May 2019

This trade was over much more quickly, taking less than ten minutes to produce $400. The exit was less clearly defined on the chart alone, but of course the chart never tells the whole story. For that we need the tape, and the tape made it clear that things had taken a turn and that it was time to get out. The chart hints at what happened with that whopping great green volume bar.

There you have it, two regular trades, neither of which was unusual, both of which were well within the realms of what we can expect on any trading day. Between them they netted a thousand dollars in profit (before commissions, which are negligible). They were far from the only trades like this, they’re were plenty more to be had…just like there are every day.

Shorting Tesla (For 5 Minutes)

If you have even a passing interest in a) the stock market and / or b) electric cars, then you probably know how Elon Musk’s Tesla is being shorted like no other stock. Not just by the big players either, there are whole groups of people self-organizing on Twitter and Facebook researching the hell out of the company, analyzing Musk’s every tweet, and shorting the stock like there’s no tomorrow. They are convinced that poor management, endlessly problematic manufacturing, and an unpredictable figurehead (Musk) mean that the company is inevitably doomed.

I’ve nothing against shorting a stock. Indeed I suspect that if I tallied up all my trades since I’ve been in this game I would find I have a preference for the short side. But I would find it very hard to hold a short position overnight, let alone for weeks, months, or even years. When you trade long, there is a limit to your potential losses. Go short, and you can lose far more than your initial investment.

All this shorting activity, and Musk’s digital equivalent of verbal diarrhoea on Twitter, make Tesla a volatile stock. It’s high priced (above my normal threshold), but like Apple, sometimes it puts up trades that are just too good to ignore. So when this nice short came along on huge volume and momentum, well, it would have been almost rude to refuse:

The price was already looking weak after dropping through the previous day’s low, which it retested (and failed to break above). The big drop came in two lumps, with a pause in the middle. The first alerted me to the trade, and when the second happened on huge momentum, I was in. As we can see from the chart, the next bar pushed back on even higher volume. With more than two grand profit booked, I was out.

I’m not going to say this was a stress-free trade, because when a stock moves that much that fast and you have money on the line, the old heart rate is going to become elevated. But I will say that making a couple of thousand dollars in five minutes is a considerably less stressful way to short Tesla than selling off stock and sitting on your hands for months on end!

Disney’s Double Bottom (That I Didn’t Trade)

Here was a nice little trade on Disney, a stock I don’t watch that often, though I probably should. With speculation and the eventual announcement of their streaming TV service, plus a lot of M&A rumours and news, there’s always something going on. The stock is priced a little higher than my preferred range (I usually stick to those under about $100), but it moves nicely and predictably.

Anyway, here’s what happened on Monday:

Shorting Disney stock on 29th April 2019

A pretty textbook setup and entry, with a target that did not get hit. So instead I was out when it dithered around 138, taking 84 cents a share for a $840 profit on a thousand share position in a little over ten minutes. With such a liquid stock a much larger position would have been viable (funds and margin permitting), but I had money tied up in other trades.

For anyone who likes that sort of thing, the double bottom and rejection of the previous day’s low provided a nice signal to get in for the ride back up from about 11am. But you know me, I prefer the easy middle and the early finish!

Easing Back In After Easter

It’s been a couple of weeks since I posted any trades here. As I wrote previously, we’ve had guests staying over the Easter break so I’ve mostly been away from screens, not trading and not posting. It’s good to take a break every now and then. It doesn’t have to involve travel, just a change of routine can help keep the mind sharp and motivation levels high. Doing the same thing day after day can become tedious. Trading properly is monotonous at the best of times. Taking time out can re-ignite the flame. Absence makes the heart grow fonder and all that.

I started easing myself back in towards the end of the week with a few trades. Here’s core stock NVDA, which I was keeping an eye on mainly because it had suffered huge losses the previous day. When that happens there is often a good amount of movement in the next session. The price might continue to fall as more people see the earlier drop and jump ship, it might bounce back as bargain hunters jump in, or it could just bounce around consolidating. It doesn’t matter which way it goes, all we as traders care about is that there is likely to be a lot of volume and some decent range, especially at the open as the latecomers join the party, all of which adds up to easy trades. Here’s mine:

Given the liklihood of early movement following on from the previous session, I had no hesitation taking the earlier entry. The drop was fast and ferocious, netting a $1,400 profit in around 5 minutes. The exit was when the price hesitated around the (second) target, the first having been blasted through without a second glance.

A Terrible Trading Error

I mentioned yesterday that I have guests for the next couple of weeks so wont be doing much trading or posting. I did end up with some trading time available on Wednesday though, so although I skipped the pre-market research, I was able to squeeze in some quickie trades on core stocks. One of them was a bad mistake. Here was a 5-minute trade on NVDA:

This wasn’t a great setup and it’s more by luck than judgement that it worked out. If I hadn’t been in a hurry I would not have taken this trade. In my trading journal I rated it as a failure, even though it put $340 in the account. It’s never the financial result that counts, it’s all about the execution, and here I failed on almost all counts (I did exit well, as soon as it showed sign of weakness, so there’s that).

Another of my core stocks is another chip-maker, AMD, which produced a better trade:

That’s a much nicer setup with a much clearer target. It’s unsurprising that it produced a bigger profit, making $450 in around fifteen minutes.

I really am quite angry with myself for the first trade. I know I only took it because I was in a hurry and that’s entirely my fault. I was very lucky it worked out.

HOLI, 9th April 2019

Here’s a two-biter on HOLI:

It’s all standard stuff here —a regular entry and an exit when it faltered at the intitial target. Then it made another move on even greater volume, so there was no reason not to take the second short. Again, the exit was when it faltered, thus taking the easy middle bit.

The two trades combined to produce $860 profit, all in under half an hour. Not to be sneezed at.

I should mention that I have guests staying for the next couple of weeks, so I will be trading infrequently (if at all) and posting even less frequently! It’s good to take a break once in a while.

Don’t Wait To Get Stopped Out

Here’s a trade that went wrong from the off:

It all started out so well. The setup was good and it looked like there was some momentum, but the price hesitated. My rule is if it doesn’t go well right away, get out. There’s no point hanging around to see if it will come good, because most of the time it won’t. I jumped ship with a single cent profit, which covered half the commission.

In this case the trade did eventually come good, and I went back in just a cent higher than I’d previously got out. This time there was no hanging around, momentum was there, and I rode it up for more than a dollar, thus taking more than a thousand dollars profit on BABA.

Emergency Exits

People quite often tell me they get killed in the market by being stopped out all the time. And almost equally as often they tell me that the trade they were stopped out of then turned around and became a winner, except they were no longer on board, adding insult to injury. They ask me if they are choosing bad stocks.

The thing is, you can’t really choose a bad stock as such, just a bad entry. Sure, if you pick the ‘right’ stocks you will find a higher rate of good entries coming your way, but even a poorly chosen stock can present a good entry. Just as a theoretically excellent stock can offer a bad one.

The problem these traders have is that they are waiting for their stop loss order to be hit. Stop loss orders are an essential tool for the day trader, and wherever possible I recommend having a stop automatically placed by our trading software as soon as our entry order is filled. But the job of that stop order is to be our emergency exit. It’s like an airbag in a car — a last line of defence if we lose control. If we are driving at high speed and see a collision ahead, we wouldn’t keep our foot on the gas and assume the airbag will save us, we would at least try and brake to stop the car before we hit the obstacle. The airbag is only there in case the brake doesn’t work, or if we cannot stop in time.

The stop loss order is the day trader’s airbag. It’s there to take us out of a trade if we lose our internet connection, or if our computer crashes before we end the trade, or if there’s some other kind of problem that means we are no longer in control. But as long as we are in control, we don’t want to rely on that stop order. If a trade doesn’t work out the way we envisage, there is no point waiting for the stop to get hit. We should always try to exit ourselves, and do so quickly with the minimum possible loss.

In the above trade, I was out with a 1 cent profit. That’s $10 on 1000 shares, so in reality a $10 loss once commission is taken into account. Had I waited for my stop loss order to be hit, I’d be looking at a $50 loss at least, which would be $70 after commissions. I could take a $10 loss on every core stock on my watchlist and still be better off than taking a single $70 loss! What’s more, I only need to make a tiny profit on one trade to easily cover my tiny loss. But if I rely on my stop and accept the bigger loss, I’m on the back foot with a defecit to try to recoup.

Having taken that tiny loss on BABA, the tape showed renewed momentum and the price made another break for it. There was no reason not to enter again, so in I went. Had I been burned by a larger intial loss, I might have hesitated on taking the second entry. But having got out quickly for essentially break-even, there was no reason to hold back.

Keeping losses small by exiting at the first sign of trouble means that we get to keep our account balance intact, it takes the pressure off trying to win back a large loss, and it means we can take multiple entries without hesitation or fear of the risk. Stop orders are for emergencies only.

PDD, 5th April 2019

A two-biter today, on PDD:

First entry was textbook, with an exit at the initial profit target to take $400. But there was another clearly signalled move (complete with triangle confirmation) on even bigger momentum, so it was worth jumping aboard to ride it down further. Thad added another $370 to the pot in about ten minutes or so. So a total of $770 for this stock.

There was more to be had for anyone trading a different strategdy and who doesn’t mind taking trades going into the lunchtime slump.

As a reminder, I don’t post all my trades here (it would take too long and I’m lazy), just a selection that I think are interesting or that give a flavour for any given day.

ROKU, 4th April 2019

Here’s a nice little trade on ROKU:

Although there was plenty (plenty!) more to come after the initial textbook entry, the signals weren’t as strong and momentum wasn’t so much in evidence. You win some, you lose some, and you miss some. Still, almost $800 banked for a fifteen minute trade isn’t too shabby.