GMCR from 7/16
Where to add size on this play? I thought about it all day and discussed it with a number of other traders.
One camp was “be big at 19.20, the 2nd time, at 11:20am with an out in the mid 30s”. I can’t totally agree with this. I don’t think you can get that big there, responsibly. I think its a spot to initiate a position or add to a position, but not with a lot of size b/c although it is a significant level from the prior day and it did consolidate under there today before breaking lower, there’s not enough information at 11:20 to have conviction it wont just keep grinding higher. Is my logic faulty on this? Should I trust that level more and get bigger into it?
A 2nd camp said “short more when 19.03 drops”. I agree its a reason to add to a position, but I don’t think its a place to get big b/c we are still above lows. Its shorting into and above intraday support.
A 3rd camp said “short when the 90c and low 90s buyers drop”. Its an ok place to add I thought, but not get big. Its just hitting lows on a stock that’s not trending (yet), mid-day.
I fall into the 4th camp which is short into the tight consolidating bar around 1:40pm, around 18.70s after the first pop after the downtrend is established and confirmed. That seems like a place where you can actually size up and get responsibly bigger b/c you have so many more checks in your favor: stock is downtrending finally, consolidating below lows, first pullback of the downtrend, etc.
How do you see it?
This is all-star work by an SMB Trader. I will answer his question but as a Reader please value the detail of this trader’s work more than my response. Do you work like this? Are you reviewing your work in this kind of detail for your best trades? If not then that is the most important lesson. Work like this SMB Trader!
Another important trading point before we get to the answer. Most traders cuss and bang about shakeout trades. “Can you believe that shake in XYZ? If that wouldn’t have happened I would have made $$$.” And the trader obsesses about this complex shake pattern. Yeah don’t do this. Do the complete opposite.
Obsess about the GMCR patterns. Those that trend. Those that can make your month. Even if you make a chop in this trade obsess about how you could have made more. Be hard on yourself with these clean, trending trades and pay no matter to the shakeouts as they will not pay you throughout your trading career. Review, Obsess, Master the CLEAN Trending Plays.
Now to the answer. 19.30 was a very important level intraday and from Friday. GMCR was extremely weak on Friday and it is excellent preparation to game a Day Two, follow through trade. Below the Friday support of 19.30 is an excellent risk/reward area to consider a short. When GMCR gets below Friday’s support and the intraday support of 19.30 you must initiate a short.
Second, when a stock gets below an important technical level I want to see it move away from that price. The steeper it moves away from this price the more interested I become in shorting more. The push to 19 is a nice push lower but not the weakest move away from support you will see. On a scale of weakness from 1-10 (10 being very weak) I grade that a 6. It did move away from this price, 19.30, and because of this fact I want to short more into a pop holding below 19.30. You have that 19.20ish and I would add some there.
I am not a huge fan of the short below 19. It just is not weak enough for me in this trade to add more. I know many on our desk did. It’s 3 hours into the day and GMCR is a mere 30c below our support area of 19.30. This is not weak enough for me to add more here at 19. There is still risk of a reversal. GMCR has not moved far enough away from this support level yet for me to get bigger.
Having said that it is not important what I would do. It is important that you as a trader consider what you would do. What makes sense to you. It is important that you do the work to answer the question whether you would get shorter below 19. If you have done that work and wish to get shorter than that is your answer.
I LOVE your analysis about getting shorter after the downtrend is confirmed. This is such an important trading principle. We want to be in the easiest of stocks to trade and at their easiest entries. We might call this “Low Stress Trading”. I have to get bigger there. Too many do not press their shorts there as we are now 40c plus from our original core short. Get shorter. That is the right thing to do.
The email sent to me above is the example of the type of work you must do everyday to become a great trader. Trading offers you the opportunity to get better everyday. This is you getting better at your trading game.
Bella
no relevant positions
