One of the most frequent confessions I hear from developing traders is that they couldn’t change their bias when the price action 
warranted such a change. They develop a bias as to which direction a stock will trade and hold on to their viewpoint despite overwhelming evidence to the contrary. I have even heard there are many experienced traders who deal with this issue as well. Lack of mental flexibility is a burdensome trait for a trader to have to carry. It is a career shortener.
This morning I talked about JKS in the AM Meeting. They had a blowout quarter and raised guidance going forward. It was gapping up big in the pre-market and had more upside potential I believed. Based on the longer term chart and the Intraday Fundamentals my first thought was to consider the different trading patterns it could offer me the opportunity to get long. I decided my best bet was to be long if it was holding above 32.
The market opened and a funny thing happened. It quickly traded below 32. Then it traded below 31.50 which was the price I decided would be my “line in the sand”. In other words if it got below this level I would no longer consider JKS a good long candidate and possibly a short candidate that could fill its large gap. Whether I would look to short JKS would mainly be determined by the third SMB Trading Factor: The Tape.
The intraday technicals were indicating a potential gap fill in the first 15 minutes of trading. If I began to see concerted selling on the tape as well then I would move from neutral to a short bias. I saw such concerted selling at 30.30 and then at 30.10. There was also a good amount of buying around 29.80 so I made a mental note to be very short if it began to hold below that level.
As you can see from the intraday chart below JKS began to hold below 29.80 at noon and had very clearly defined support around 29.50. This presented the cleanest short opportunity all day. I talked about this consolidation on my Stocktwits.tv show at 12:30PM (at the 1:30 mark). I think my trainee was watching because he sent me a gchat later in the day about his “57 cent chop” 🙂 He has only been trading for a little over a month so you can understand his excitement….
2 Comments on “Bias Shmias!”
Just discussed this exact flaw in my trading (not changing bias soon enough) with my trading partner. After reviewing the premarket action, I think we had “the tell” that JKS would be weak throughout the day when it sold off from the premarket high of 34 and opened around 31.75. If my memory serves me correctly, most strong earnings plays don’t come in quite that hard prior to 9:30? Thoughts?
I am relatively new to trading, but am an avid poker player and have dealt with this frequently. My days were always defined more by my losses, not by my wins. I needed to become more robotic.I realized that I had the discipline to stick to a good plan, but just that I never carefully defined my plan. I increased my requirements for a playing hand, and literally developed if-then statements for most any pocket hand, flop, and betting scenario (took a lot of effort). Creating a highly detailed plan and practicing the muscle memory to keep to my plan has really helped.
What I found was actually really helpful: I realized that the more time and effort I would put into my plan, the more likely I was to stick to my plan and avoid big rips. In my opinion, being able to minimize your losses is more important than maximizing your wins.