Short term traders make thousands of trades each year. But not every trade is of equal importance to our bottom line. We develop a trading plan for every trade regardless of how large or small the opportunity, but with experience we begin to identify the trades that offer the greatest upside and the best risk/reward.

I have found in my 20+ years of trading that identifying potential turning points in the market can make a dramatic difference in your trading results each year. On these days the risk/reward is magnified for making broader market trades, and many individual names will establish important short term tops/bottoms as well.

Recently, the market began to show some weakness following the September employment report. After a “trend day” on October 11th the September 2016 low for the SPY was less than 1% away. I was prepared with a plan on the 12th if we traded to 211.30ish as this has marked an important support level the past few months.

Every day before the market opens I run an AM Meeting and part of my job is to convey the importance of various setups. In the case of buying a market pull back to SPY 211.30 I let our desk know on Tuesday that I had entered a trading “script” to execute on my plan Wednesday if market traded down to that level. The script was filling in for me as I took off Wednesday for a Jewish holiday. 

As it turned out the market moved sideways Wednesday and my script never triggered. On Thursday I was able to manually execute on my trading plan. I knew that many traders were focused on SPY 212 so I incorporated this price into my plan as well.  Below 212 I stayed short until my target buy area. The thought process was many traders would get long above 212 and as they got out below this level I would ride the selling wave down to 211.30 and switch to long.

This was a note from our AM Gameplan

After I flipped from short to long I shared the setup on Stocktwits and Twitter. Of course, those on our desk and in the SMB Community understood my thinking beforehand and could see my position go from short to long in SMB Real Time.

Setups like this and SMB core trading principles are taught as part of our Fall mentoring program “SMB DNA”. The program is part time to accommodate those who are already trading or working another job full time. All live lectures are outside of market hours and other training materials are archived for review on your own schedule. For more info click on the banner…

Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, options, forex and futures. He has traded professionally for 20 years. His email address is: [email protected].

Steven Spencer is currently long SPY