One of our better traders asked me a follow up question about trading HOG into the Close. As you may remember I blogged about a HOG Trade to Hold from 18.50 to 17.90 into the Close yesterday. This excellent trader struggled with HOG in the AM. He asked about the adjustments that he could have made trading HOG. Let’s discuss.

First let me make the point that this solid trader is our most improved trader (MIT). What stands out about MIT is 1) his determination to succeed, 2) his thoughtful questions. People often say things like, “I will do whatever it takes to succeed.” And then we start working with them and as soon as the train gets off the tracks their work product worsens substantially. These traders will not truly do whatever it takes to succeed. They just talk a good game. And that does not get you very far in this game. Traders who are tough work through the bad trades. They persevere through periods of underperformance. They find a way to improve. They get back on track.

Over my 11 years of trading there have been many missteps. Boy have I been a dope at times. The lows can be miserable. They are lonely. They test your resolve. Anyone who has traded for over a decade is one tough SOB. They are not just talking a good game. They have proved their toughness, often through challenging markets, and against major obstacles. One of the most frustrating aspects of mentoring is working with the know it all new trader. The developing trader who has never made a dime, yet is an expert in short term trading. GMan said it best on our desk today,”Shut the f**k up already and listen.”

My partner, Steve, is one tough SOB. And it is funny because if you met him for the first time you would walk away concluding he was a Wharton intellectual. He is so damn smart. But Steve will grind it out like Tiger. He will take a loss and fight back. The day for him doesn’t end until the bell rings. A bad start is just an opportunity to make a comeback. You would have to literally drag him away from his trading station to end his fight. And he fights with every tick, everyday, sick or not, tired or alert, hungry or well fed. Do you know how many times he has picked himself up after the Close and announced he was heading to get some lunch?

Secondly, MIT asks the best questions. A sub chapter in the book I am writing for Wiley is entitled Be the Best Listener. There is a direct correlation between how well a trader listens and their results. But after thinking about MIT I might add another sub chapter on Ask the Best Questions. And this young trader asked another excellent question after the Close today. Asking good questions to experienced traders will make you a better trader. Who better than the guys who have fought the wars who can assist the developing trader?

Anyway MIT struggled with HOG into the Close. He asked about the adjustments he could have made. He struggled intraday trading HOG based on the order flow. While short he got stopped out a few times even though HOG was in a downtrend. I offered him three potential adjustments.

First, if you are trading a stock that does not trade well via the ticks, then wait till the volume increases. Often a stock will trade poorly via the ticks during the late AM and midday and then trade cleanly into the Close. Stocks that are garbage can become good. Second, you can consider increasing your stop loss. If a stock like HOG is in a clear downtrend, then you can get short, and increase your stop loss. So if your exit price was a loss of 5c, then increase it to say 15c, but hold the stock longer into the downmove. With HOG we had a potential downside of at least 50c (and potentially $1.50), from 18.54 to the whole. 18.61 could have been your stop. Instead of covering when 54c lifted, give the stock some more room. But only make this adjustment for stocks that are clearly trending and have some more room to move. In the case of HOG a downmove to 17, filling the gap, was possible. And the third option is you can move on. If you cannot trade the ticks, and you do not feel comfortable increasing your stop loss, then move on. Trading the ticks in a stock that does not trade well will only breed frustration. This may manifest a huge rip.

Great job by SMB today. Nice job with BBT and RIMM.

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