So when I got back, it was right around 7am. I missed the opening. But so what, I missed it. Turned out to be one of my best trading days ever.
Here's my trading journal from today.
And the best of all is that I adhered to my discipline. I applied what I knew,
and it worked like a charm. The results (profits) are not spectacular. However
the process was commendable.
Going into today... I knew I had to give my full attention to the session. I knew I don't have to trade, I don't have to put up any positions. And if I do, I knew it was going to be small position sizes. This is designed to build up my confidence in trading.
Well, I turned on the computer, market is down about 1 percent, with volume expanding. It is
unusual because it is a Friday, and morning volume vastly exceed previous days if not weeks.
The gap from the open doesn't look like it would be filled. The speed of decline suggests
rejection of the level from yesterday which is near the year's high.
As usual, I looked at relative strength. X was among the weakest in the early morning. After
it reached a new high few days back, it is no surprising it is out of favor and institutions
are now dumping the stock. CNX, GDX, WDC were also among the weakest.
Then the volume subsided and the classic pattern is forming. So I went short. I got out soon
with minimal losses/gains because I thought probabilities are no longer on my side. I was
more likely to be wrong. Not that I knew I was wrong for certain, just that the disconfirmation
was too great. Some sectors have bounced a bit, which seems like a failed pattern while some are
not, still hanging on. The market at the time was still sliding down, however with volume
drying out. Obviously overall market momentum was slowing down. Plus, it is very oversold -
the signals didn't even form on the overall market. It is too much of a risk to stay
short. So I covered.
Then the market continued sideways with drying volume, with no real bounce to the upside, nor
real push to the downside. Then the pattern began to tighten, which gets really interesting:
first, no meaningful bounce suggest heavy institutional selling, and lack of buying conviction.
Volume drying out suggests everyone is sort of waiting to unload the remaining shares, hoping
for a rebound to unload. It's worthy to note that even at 8am PST, the volume is way above
normal, which suggest traders are all in for this one - and the morning move is meaningful.
Tightening of patterns suggests there could soon be another trade.
Indeed. WDC had one of the cleanest patterns. Upper time frame charts suggests there could
be more room to go on the downside. I begin scouting for the weakest to do a break out trade or bounce trade.WDC, OIH, SMH and SPY are the candidates. IB screwed up on my OIH short. My stop limit could have triggered at $.15 above my entry - I had to change to a market order after missing out. So I got in on the orders. Since
I got in on OIH late, it is the most painful. My losses began to accumulate. I knew it's not
the time to cover, as there's no reason to except it showed losses more than anticipated
(due to that 15 cents). Then finally I got stopped out as it went above a previous swing
high. However the overall market was still convincingly weak despite being very slightly
up (loss on SPY was negligible). This is demonstrated by very weak rising volume and the relative
weakness of the tech sector (my WDC and SMH are working). In addition, the downside break
out occured with huge volume and is confirmed across the board. Traders are all over this one.
The push back above the support occured with much less volume. I began to notice the
time sale chart. Red - green - white - red - white - green. No pressure from either side,
and it seems like everyone is waiting for the next move. From the tightening of volatility
and how the downward trendlines converge, there was no reason to cover. The next move could
be just around the corner. The entry was sound.
Then, as suspected, the upside momentum died immediately and downward volume began to pick up,
and that pushed the market to the lows. No cover yet, as I knew my target. 113.20 on the SPY,
from 15min swing low/support line, which seems to be a solid support line. Then BAM, a huge
red candle with great thrust. quickly retreat about half that candle. No cover yet. This is
normal. I tried to picture all sorts of traders trying to battle it out. This is just some
traders who went long that got stopped out, and suddenly there's lack of immediate selling,
so it had to rebound. The next few bars occured with no volume - suggest momemtum will likely
continue. Meanwhile, my WDC and SMH are working out great - tech was weak, and they just
continued to drop 1 cent at a time.
Then BAM another drop. Less thrust this time. I noticed that SPY had just touched 113.20 -
and the selling had immediately stopped, seemed to be across the board phenomenon (from
the corner of my eye I noticed white bar BEGAN to build) - I said to myself - QUICK - GET OUT.
I was going to get out with limit, but SPY has already moved up a couple more ticks -
I'm out with market. So then and there, I'm out of all positions. A few seconds later,
SPY would had moved against me by about 12 ticks. And that was the bottom. 113.20, right
on the tick. That was the bottom for EVERY stock. WDC, SMH, and OIH. What an exit.
That was tight.
Took some time to calm myself down and congratulate myself.
The market only rebounded lightly. Still relatively tight range - I told myself, could
there be another entry?? The liquidation seems to be very strong and there's just lack
of buying conviction across the board. Considering it's a Friday, and people don't want
to go home with positions on a day like this, I thought there might be more selling
toward the close. So I kept a close watch. The
close was relatively drama free.
I was thinking how the recent conversations with traders has helped me, particularly
something that I've actually took note of:
1- hitting the bid/hitting the ask/market depth/dynamics - what does that mean? buy and sell? No. It says about agressiveness.
2- where does the money come from? institutions. We run before the institutions,
they are slow.
3- idea that to rely on psychology than anything else
To recap, the highlights are that:
1- ability to gauge market strength (spot aggressive buying/selling)
2- importance of sticking with the trend
3- utilizing time and sales/market depth to gauge buying/selling strength
4- anticipate and be prepared. Be quick.
5- I followed my process. I sticked around.
6- confidence that my analysis DO work!
Yes, today is a fairly easy day to trade. You should have seen the days when trades turn sour, which I will blog soon enough.
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