Those who follow SMB closely know that our AM Meeting divides trading ideas into three sections. Fresh, Second Day Plays, and Technical Plays. On Friday during we discussed YUM that recently had been trending higher and was especially strong on Thursday. With this particular scenario we highlight “prices of interest” where we would look to play YUM on the long side. 56.60 and 56.30 were two prices I was prepared to get long and put on some risk.
As you can see from the chart below YUM traded well below these price levels. I took a loss buying YUM at 56.30 and then hitting out below 55.90. This was a much larger loss than I intended as I forgot to place a stop order after buying YUM and returning my focus to my primary trading stock.
After I hit out of my long position at the LOD I noticed that YUM never traded lower and it was at the bottom of the prior day’s range. So I bid for some YUM at 55.92 with a stop below the low of the day risking about 7 cents. YUM traded back up to 56.30 and I made back most of the loss I suffered on the way down. This trade wasn’t one I had considered making prior to the market’s Open but presented itself after some unexpected price action.
YUM did me a huge favor when again it traded down to 55.90 again and I bought back the stock I had sold at 56.30. I held the position for the rest of the day selling on the way up to 56.60, which was the original “price of interest” discussed in the AM Meeting. I finished the day very positive in YUM despite the fact that its trading pattern for the day was not something I had discussed or really even considered prior to the market’s Open.
It is MUCH more important to identify stocks where there will be OPPORTUNITY, rather than correctly predict their trading pattern prior to the start of the day.
*Disclosure: Long YUM
12 Comments on “I’d Rather Make Money Than Be Right”
It’s the way that professional traders like yourself that inspire aspiring traders like myself to think not about what we expect but rather to listen and watch what the market tells us. Very interesting and informative post.
Nice. I have a general question…bear with me….
-This stock was on my thoughts since I was trading MCD …and even though I looked at its chart during the day couple of times it did not occur to me to buy at close to yesterday´s low because I had not done my “work/charting it” and was looking at other stocks….
– I am sure you “shouted out” the level it was holding to your colleagues and that some benefited from this , which they would not have if they traded alone like me…how important is it to trade in a “group” where by definition you have more eyeballs looking for/at these levels? How would the average SMB trader do if he had to trade “by himself” in terms of not having peolple “shouting” out important levels being reached during the day? Why do´t you come up with a simple product that calls out these significant levels in real -time?
thkxs for the post, really useful again. João Oliveira
It looks like you were trying to catch a falling knife with the first buy. Even if you have a long bias, do you usually try to establish a long at an area of support even though momentum is clearly down?
-Geoffrey
Dude what do u mean by a falling knife look at a long term chart doest it look like a falling knife and do u think u can make money going long when a stock is up and vertical , the best way to trade is to anticipate the psychology a lot of people could have got long at those levels. It so happens sometimes there are other factors and things don’t work out that’s y u have a sop in place when ur wrong … of course u could only play the flags all ur life but even they dont guarantee u sucess all the time.
In my humble opinion i think u have a alert in almost all the software. Even if Steve calls out the levels other guys who have not seen the stock trade all day wont have a clue what to do when the stock reaches those levels. Ofcouse stve could say there are sellers and buyers at certain levels but even with that its of no use if you have not been watching the stock.
I second you on that thanks Steve … people here should think for themselves a bit.. It for us to build our own plays and strategies for the ideas we get if we dont like waht we see we can just move on to something more constructive.
I mean a falling knife by looking at the price action for the day, dude. In the first 5 bars it dropped $0.70, giving a clear sense that momentum is pushing toward the downside. Even though Steve had planned to go long that level, it appears as though he bought it in a real mechanical sense. Switch from the primary stock to this one, see it at a key level, buy, and switch back to the primary. He may have done much more than this, but it’s what I’m interpreting from what he said.
In my opinion, he did a much better job of selecting his long entry on the second go-around. He waited to see if the market would at least accept this next level as support and then bought in
Ya he did a good job buying it the second time , but it looks very ugly when u look it from say a 10 or a 15 min point of view .. if u want to play this a 1000 times i am sure ur always going to play looking at the 1st major retracement(thats what ur going to think at the time and the small bounce was enought to jump in… moreever its the 1st one hour of trading so its a kind of a momentum play so u cant be thinking to long for these plays ) …anyways you are only going to risk a third or a fourth of the money at first and then develop the trade.
Geoffrey,
Good question. I will factor the short term momentum a bit into my trade. but remember by definition if I am trying to buy at the prior day’s support the stock will have to be dropping in price to get there. If you look at a 1 minute chart you can see it dropped the .30 level then popped back up, so it was pretty low risk from my perspective. My mistake was not putting in a stop below .25 or .20 before returning to my primary.
I could probably write an entire blog post explaining all of the various factors to consider on this type of play but my intention from this post was simply to highlight the fact that observing price action and formulating new trading plans is far more important for intraday trading than “predicting” what a stock will do before the market opens.
Steve
JPO,
To me trading as part of a group is a HUGE value. I have “tunnel vision” and have a lot of trouble trading more than one stock at a time. Even if my price alerts are triggered I still miss a lot of trades. But my ears are very in tune to others on the trading desk. If someone calls out an important piece of trading information I find it invaluable.
Steve
That is something I struggle with as well. Generally, how many stocks are you and/or your desk watching? I feel I do a lot better when just watching one or two stocks, even though I know a wider universe would lead to more low-risk opportunities.
Hi,
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