I received this question last night about a recent Tweet where we suggested an excellent entry for RIMM.  Let’s read the question and then discuss.

Dear Mike,

I have been following SMB via Twitter and your blogs for some time now and have got a lot out of the posts. So thank you and all at SMB for that. I have incorporated your daily trade ideas into my existing trading to see how I can play them out. Using just a 100 shares I can put into practice some of what I think is the SMB trading style I have gleaned out of the blogs etc. However, one of my most common challenges is when to exit a trade with certain sorts of trades, today’s SMB trade idea into the close was a good example for me.

Best Idea Into the Close: Buy $RIMM on the pullback @ 85.42, out below 85.30, TGT: 86.50; Look to hold $SPY at 95.40 #mkt

With the above I managed to get filled the first time @ 85.42 (which was lucky as it was only there for a second it seemed). The price then went up from this almost immediately. All the time the SPY was holding above 95.40 and all is well with my world and looking forward to the journey towards $86.00. Very soon after this the SPYs started to drop and fall under the support of 95.40. My question is this: Should I at this point  be looking to exit the trade at the first sign of the price stalling or building up on the Ask if the SPYs are under the 95.40 support.

What I ended up doing was staying with the trade until it dipped the second time to 85.42 stuck with it on the small bounce back up and got out 63 when the momo seemed to slow right down and the offers were building. So although it was a positive outcome it actually felt like driving a race car and spinning off on a corner out of control but ending up still facing the right way afterwards!

I am a Trader in the UK and thank you for taking time to read this e-mail. Any input would be gratefully received on how I should be thinking about exiting these sorts of trades.

Bella’s Response:

This RIMM trade was a longer term intraday idea.  With such trades we sell only when there is a Reason the Sell.  One of the Reasons to  Sell is a substantial change in RIMM’s corresponding futures, which in this case was SPY.  When SPY broke 95 into the Close this is a substantial change.  If you had a shorter time frame for this trade then you might have exited when the 95.40 support was violated.

A word of caution about trading off of levels that others post on Twitter or StockTwits.  Make sure you understand their trading system and time frame.  We trade with a very short time frame.  We are very active traders.  We do not place much emphasis on one trade.  We ask if we made that RIMM trade 100 times would we profit.  We would so we make this RIMM trade.

Also often when SMB spots levels we get shaken out. But because of our trading skills we reenter the position quickly and still catch the move.  For the developing trader I cannot overstate the importance of developing trading skills.  These trading skills will be what keeps you in this game for over a decade like Steve and I.

Steve and  I have seen many traders have a good run and then are unable to consistently profit in the market. It is our trading skills that allows us to continue.  It is our constant development as traders that has manifested our longevity.

Great question.  Good job of searching for valuable trading information. Thxs for reading.

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