I felt a rip coming

I caught a scalp for the first downmove in DSW. I caught the upmove from above 52.12 to near 53. And I caught the downmove from below 52.50 to 51.65. I looked at my PnL and I was barely positive. How is that possible?

I was not trading DSW on the open with size as it was so early and touching a lot of prices. When a stock touches a lot of prices it is hard not to get stopped out. Before every trade I set a price or a visual for where I would exit. DSW’s price action, or lack of clean price action, made it too risky to get big.

I was on the desk, right three times in DSW, with an eery feeling that a rip was around the corner. If you trade long enough you will start to physically feel that danger is near. I said on SMB Real-Time, I feel a big rip coming in DSW. When you are so right and up so little in a stock that is not clean, history teaches the experienced trader that a big loss is coming.

Sensing to be careful I developed only two scenarios where I would get big:

1) If DSW got below the intraday support level of 51.65. There was a stubborn buyer there.

2. If DSW held 52 on the offer cleanly. Meaning if I could spot a large seller at the same price on the tape at 52.

I downshifted to this more conservative trading approach because the stock was not acting as cleanly as I had hoped.

DSW broke below 51.65 and I added more size. The uptick rule was in effect (you can only short by selling on the offer) so I put some out at 54c 57c 59c 63c, piecing into a larger short position. I was confident in a sharp move to the next significant long term support level of 50.

What came next? A reversal and a big rip. But also a few good market lessons.

a) Play defense when you add to a position as it breaks an important level. If the stock does not act like you had envisioned when it broke that level, then lighten up. When DSW got below 51.65 the only thing that could happen was not that it could only trade lower. A failed breakdown, reversal pattern could follow. Watch for that.

b) When you feel a rip coming, learn to listen to yourself. As you gain screen time your body will send signals. Your trading brain will warn of danger.

I hope this helps your trading. Keep working on your trading game.