One of the stocks highlighted during today’s Stocks In Play call was GILD. It had gapped lower on Friday to 43 but then trended higher to Open around 46. It spent the rest of the day trading between 46 and 47.20. There was quite a bit of accumulation around 46.50 and it never traded below the key 46 support.

Based on Friday’s price action I discussed my plan for trading it on the long side today. I would first look to see if it supported at 46.50 and if it not I would look to buy close to 46 for a move back to 47 and eventually higher.

As the market Opened today GILD quickly traded below 46.50 so there was no trade at that level on the long side. It then dropped quickly close to 46 and I got long. I took some risk off when it move back up towards 46.50. I placed my stop below 46 for a break even trade.

Its next move was to drop very easily down to the 46 level. It attempted to bounce one more time but couldn’t get above 46.15.  The price action didn’t bode well for my long. I was stopped out 2 minutes later below 46. As it continued to move lower each bounce attempt was met with a lower high establishing a very clear downtrend below 46. The price action was clearly signalling an intraday short. Traders on the desk who were still trading it had adjusted their intial bias and were now trading it on the short side.

I was off the desk by this point but was glad to see others were now focusing on trading it short (I can see traders’ positions on the SMB VTF). There is this tendency when young traders come up with an idea to be unable to accept being wrong and focusing on the other side of the trade. I have developed a “trick” over the years that makes it easier for me to quickly flip my bias when the price action warrants. I remind myself that there were probably many other short term traders who were thinking the same thing as I was initially and when the stock moves in the opposite direction a ton of people are probably trapped and will continue to fuel a powerful move in the opposite direction.

If you have that attitude it is easier to detach yourself from your initial trade idea. As short term traders we aren’t attempting to discern whether the FDA news released on Friday should cause GILD to trade to price X or Y (job for hedge fund analysts i guess?). We are following the price action and using key levels in an attempt to capture then next significant intraday move.

Steven Spencer is the co-founder of SMB Capital and SMB Training and has traded professionally for over 15 years. His email is [email protected].

No relevant positions

*live trades discussed in this post took place in T3 Trading Group, LLC a CBSX broker dealer