Something I see beginning traders struggle with a lot is blindly following rules and then wondering why their trades don’t work out. It’s an honest mistake to make, after all, we are taught from an early age that rules are to be respected at all times. Formal education hammers into us the idea that to succeed in any endeavour we must follow a prescribed path, we must conform, we must stick to some predetermined plan. The trouble with that kind of thinking though, is that’s not the way the real world works.Continue reading “Day Trading Is Like Living In The Matrix”
Creating a daily watchlist of stocks that are likely to move well is crucial to consistent profits in day trading. With such a huge universe of stocks out there — thousands that are worthy of consideration — we can’t possibly watch them all. We have to narrow them down to around a dozen or so that we think have the best chance of making an easily tradable, high probability move. Watching a dozen stocks is easy.
Added to the daily watchlist are a set of ‘core’ stocks — stocks that tend to make good moves at least a few times a week. They’re like reliable old friends. In my stocks book I talk at length about the methods I use to build both my daily and core stock lists. For today’s trades post, I wanted to show you a couple of trades that came from my core list (these are from Wednesday 12th June).
First up, ROKU:
When we watch a core stock, we aren’t looking at it any differently to the daily picks. We want to see the same patterns. We’re using the same rules and guidelines to judge them. And we want to see the same criteria fulfilled before we take an entry. The same goes for exits. We trade core stocks and daily stocks exactly the same. So here on ROKU it’s a standard entry pattern confirmed by momentum, and the exit happens when that momentum falls away. As it happens, there was more to be squeezed out of the trade, but not using my trading plan. Following the plan is the most important thing. Like I said yesterday, we can’t trade hindsight.
Next, Tesla, a stock I’ve been trading a fair bit recently.
Again, this is a standard setup with an entry confirmed by momentum. As it so often does, TSLA fell far and fast. I almost exited on the green bar, but with the previous day’s low just above I decided to hold it and see which way it would turn. There was already so much profit on the trade that I was happy to put my (mental) stop above that previous low. I was rewarded with an elevated heart rate and an extra two grand or so in profit, which I think was a fair exchange.
Five Grand In Half An Hour?
Making almost five thousand dollars in twenty minutes, TSLA was obviously an outlier of a trade, but lesser four figure trades from TSLA do occur several times a week. It’s not a stock for beginners, but it does go to show that once you have a system nailed down, and the psychology locked down too, you can take on these bigger stocks.
Taking those two trades together, it looks like I made more than five thousand dollars in about half an hour of work. But of course the reality is somewhat different. My ‘work’ starts before the market opens, building a list of stocks to watch. Yes, these trades came from the core list, but that has to be built too. Then there’s the waiting time. Both trades were over by around 10:30, but I still had to be in front of the screen waiting for them to set up then play out. With premarket work and waiting time, half an hour becomes two hours.
Five Grand In Two Hours?
The same goes for trading. The two trades I posted here may well have made more than five thousand dollars in about thirty minutes, but really that profit comes from years of study and practice and experience.
Does that mean I made five grand in two hours? It would still be a good hourly rate, right? But no, that’s not how it works. Because we have to count the time spent learning, practicing, and honing our skills. Nobody is going to come to a stock chart and make five grand on their first day, just as nobody is going to start any new job as an instant expert. A plumber might fix a broken heating system in ten minutes and charge me a small fortune for it, but I’m not paying for the ten minutes she had her tools out and the cover off the boiler. I’m paying for the years of training, apprenticeship, and experience she has been through that enabled her to find and fix the fault so quickly.
Continuing the theme of posting some non-tech stock trades, here are a couple more. First up, UTX, which provided another nice trade after yesterday’s four-figure winner.
It doesn’t get much more textbook than this. Perfect setup, staying below the EMA the whole time, and a nice entry on volume and momentum. The exit came when that momentum dropped away to nothing, and we hit a logical target. $1300 banked in about fifteen minutes.
Next up, another non-techie stock — SFIX.
Trading to the long side this time, this was a little more tricky. There was a possible earlier entry but this was best avoided due to the lack of real momentum behind it. As it happens that entry would have worked out okay, but we can’t trade with hindsight, we can only follow the rules. So the second entry it was, with some real momentum to push it higher. The exit came when it turned, which was obvious from reading the tape (alas not always so obvious from the chart). Not a huge winner, bringing in $390, but not bad for about ten minutes.
Finally a tech stock, to remind us all that sectors don’t matter. This came late in the session when I’m normally starting to think about calling it a day. But there was a lot moving, and it’s a shame to miss out for the sake of an early lunch.
CRM was on my list for the day, so when it made its second move I was ready for it. There were two very obvious exit targets to aim for, and it blasted through the first without too much difficulty. The price didn’t quite manage the second, hesitating for a bit as it decided where to go next, so I was out. $1550 better off for the trade, and still done in time for lunch. In the end the price decided to go further, and anyone less lazy than myself could have had a pop at that third entry for potentially another thousand dollar profit on top.
Time again for a quick reminder that I don’t post all my trades on this blog, only a selection that are interesting for one reason or another. There were a ton of tech stock winners on the day that I haven’t posted here because they all look much the same. Hopefully this selection reiterates my point from yesterday that sectors don’t matter, only the chart does. There are winners — and losers — in every sector. All we have to do is find and trade them.
I said the other day that it sometimes feels like I only trade tech stocks, but that’s not the case. In an effort to diversify what I post here, here’s a trade on UTX, a stock that — whilst it has ‘technology’ in the company name — is not a tech stock in the strict sense.
As we can see from the chart, it doesn’t matter what the industry sector is (aerospace in this case), the patterns and setups work exactly the same. I don’t care if UTX sells microchips, aircraft, or ice cream. All I want to know is where those little red and green bars go.
And on Monday they went down. Fast. We love momentum, so when the pattern set up I was ready to dive in with a short and ride it until it faltered.
It faltered on the next bar. Momentum reversed, a battle raged between buyers and sellers, and I was happy to cover my position and let them have at it. A nice four figure profit in about five minutes.
It’s been a while since I posted a Tesla trade, so let’s rectify that situation right away.
This was short, sharp, and to the point. The trade lasted about six minutes, so that works out at more than $200 a minute (a meaningless but fun statistic).
My study of this particular stock continues, and continues to bear fruit. I could point out that Tesla has been playing around at the $200 price point for a while, but I don’t care about that. I only care about what it’s doing on any given day since the open. I care about short term (i.e. single morning) price patterns. And I care about how the price moves on a minute by minute basis.
My method for trading Tesla is scalping, really. Certainly there are trades to be had on longer timeframes, anything from hours to days, but that’s not my style. Any time we have money in the market, that money is at risk. Tesla is a particularly risky place to put cash because Elon could tweet something mad at any time and send the price goodness knows where. So these quick in and outs are my preferred way to go. In on the entry signal, and out at the first sign of weakening momentum. The great thing with this stock is that a quick in and out, around five minutes in a trade, can yield a four figure profit with alarming regularity.
Another day of WWDC brings another Apple trade. Not as big a win as yesterday’s, but better than a poke in the eye with a blunt stick.
The setup wasn’t as clean on this trade, and we had just crossed the EMA which is a yellow flag (but not a red one). Momentum at the point of entry was good, and the price dropped nicely for about ten minutes. The exit came when momentum fell away to nothing.
Looking at the chart there was more on the table, but it wasn’t signaled, there was no momentum. Trying for more would have been gambling not trading.
There were some other nice trades around too, and not just in the tech sector. I know this blog sometimes feels like I trade only tech stocks, and it’s true that a lot of the big moves happen there (and much of my core list is tech), but there really are trades to be had across the board.
Apple’s Worldwide Developer Conference (WWDC) is arguably the biggest event in their calendar (the yearly launch of the new iPhone gives it a run for its money). The week-long meetup is a chance for developers to learn all about the latest technologies they can use in their apps. It begins with a ‘keynote’ presentation on the Monday morning. This spectacle is aimed as much at the media as it is the nerds, and is used to show off upcoming products, both software and hardware. Given the importance of the keynote — it’s essentially setting the stage for Apple’s next twelve months — the stock price is predictably unpredictable throughout the morning. Too volatile for me. I prefer to wait for the dust to settle. ByTuesday, everyone’s had a chance to digest the news and more considered opinions are traded. Thus easier trades like this one come along:
It’s a nice straightforward textbook setup, catching the easy middle, with a clear target that was hit without trouble. Not as profitable as yesterday’s Facebook trade, but few are. Anyway, almost one and a half grand profit in fifteen minutes is not to be sniffed at.
There was a good opportunity for a second entry shortly after, with another thousand dollars on the table for anyone who traded it.
I’m just posting one chart today, because it’s a peach. This was a late trade for lazy old me, who is usually done by lunchtime, but the tech stocks were a-tumbling, and opportunity was everywhere.
There’s a certain amount of luck in trading, I’ll be honest. Or rather, a certain amount of bad luck. It can often be the case that we miss a great trade because we’re in another not so good one, or because we just didn’t have that stock on our watchlist. FB is one of my core stocks so I’m always keeping an eye on it. And because this was a late trade, I was out of everything else by the time it happened, so could give it my full attention. In other words bad luck did not afflict me, and because I was prepared I was able to capitalize on the opportunity when it came along.
As it turned out, my attention was only required for about five minutes. By then we were heading north again. A pause, or a reversal? Nobody knows, so it was time to get out.
Had I gone for the second entry about ten minutes later, I could have almost doubled my profit. Was that a mistake? Maybe. But the momentum on the second part of the move was less, and I’d made more than enough money for the day to deal with the risk.
Trading in a week with a bank holiday is often a bit odd. A lot of traders take the whole week off, and the market has a different feel. Sometimes trades happen a bit later than usual, as though everyone is relaxing and taking their time. There’s always plenty of opportunity though. Here’s a nice little trade on DKS, a stock I haven’t posted here for a couple of months.
All pretty textbook stuff. The setup wasn’t the greatest ever, but the drop when it came was fast and furious — just the way we like them. The exit was signaled by a clear shift in momentum on the tape.
It’s been a while since I posted a two-biter on this blog. Here’s one that happened on QCOM, an old friend (by which I mean a stock that’s been on my core list for years, not a favourite, because of course we don’t have favourites!):
This trade was never great from the start, with the price dithering and going sideways. Still, QCOM is a stock I’ve traded for many years and is generally quite predictable and reliable. Also, chip makers were heading south in general (we never look at a chart in isolation). So the entry was worth the risk, and indeed for a few minutes it all looked okay.
Then momentum faded. Rather than hope it might turn around, the strategy says exit (and the golden rule says never let a profitable trade turn into a losing one). So I was out with a paltry 14 cents / share. Still, $140 is better than a kick in the teeth, and provides a buffer for another entry should one come along.
And indeed one did come along, less than ten minutes later. With momentum picking up again, and the buffer of the previous trade, the risk on the new trade was very low. This time things dropped further and faster. The final exit came when momentum turned, giving a profit on the second bite of 74 cents, so $880 combined.
People often tell me they get stopped out of trades (which is a problem, because we shouldn’t use stops as exits), and that they then watch in horror as a few minutes later the price goes their way. I’m always puzzled by this. It’s as if people have some kind of rule that says when you’ve had a losing trade on a stock you can’t trade it again for the rest of the session. It’s like a loss (or break even, or smaller than expected win) somehow makes a stock temporarily toxic — to be avoided until the poison wears off. But that’s a folly. A good setup is a good setup regardless of what came before. I never rule out a stock because I might have taken a loss on it earlier. There are many other reasons I might miss a second bite at the cherry, but a disappointing first entry is never one of them.