You are only as good as the stocks you trade. Let me repeat this. You are only as good as the stocks you trade! This is a major point of emphasis on our desk. It is taught to trainees during their first week of training. And stressed on a regular basis to all traders at SMB. It is the reason why we have an AM Meeting to discuss the stocks “In Play”. As all experienced traders know, stocks that are In Play offer superior risk/reward (the basic reason why is discussed below).

In this morning’s AM Meeting I told our traders that today was about the financials. More specifically, it was about MER. MER had issued a secondary raising about $8.5 billion in cash. The secondary diluted the current shareholders’ stake by around 38% but helped prop up MER’s decimated balance sheet. Everyone at SMB knows that I think MER is a horrendous stock to trade intraday. In fact, I think I tried to ban the desk from trading it back in June. But the news was so significant today that I recommended it be traded. Our head trader who also despises MER recommended that it be traded on our AM Ideas Sheet.

What we both recognized was that the large players in the market would be taking sides on this piece of news. And the large players have billions to put to work. What this means to us as day traders is that there would be significant intraday volatility in MER as well as enormous liquidity. The combination of the two is what allows us to make large chops while limiting our risk.

The other idea that stood out on the AM Sheet was AG. It was a pick of one of our young traders. It beat on earnings and was gapping up in the premarket. Both of those things are good indicators that a stock will be In Play for the day. I had never traded the stock before so asked some of our senior traders to comment on it. They said that normally it was difficult to trade but that because of the news they planned on trading it on the Open. Both senior traders who traded it made huge chops. In fact, when I saw how much money they were up I actually made a few trades in it.

MER and AG were the right stocks for today. I plan on trading MER again tomorrow as a second day play. If it holds below 26.25 I’ll look for a downmove to 25. Weakness below 25 and it could work its way back down to the 23 area. If there is follow through on today’s strength then I believe it could trade as high as 27.63