I received this email last night during the Cavs/Celtics game. I have to admit I was more interested in the game than responding to this email. But let’s take a swing at it this morning.

Hey Bella,

This morning when you were trading USO on the open and buying at the 32 level, initially 32 had dropped but you mentioned to someone else who was also trading USO that you did not hit out because you wanted to see the offer hold below 32. What was the reason for giving USO that little bit of time to see if it would hold an offer below 32 as opposed to just automatically hitting the bid once 32 dropped the way you normally would? Was it something you saw on the tape or was it just because 32 was a really important level and wanted more confirmation than just a bid dropping for the first time?

I bought USO just in front of 32 yesterday a few times. 32 has been a significant support level in USO recently. The first time USO traded up towards 30c slowed and I sold half. I bought some back when USO traded near 32 again. The bid dropped 32 and USO showed me the 98c bid. I did not hit it. Thus the question above.

I keep tight stops. I was long USO because 32 was the support level. So why didn’t I hit USO when the bid dropped 32? Good question. My exit plan was not to hit USO until the offer held below 32 or the 31.95 bid dropped. Often stocks pretend to break levels and then trade much higher. I did not want to get shaken out in a fake breakdown. Further I was holding USO for a large move. USO had bounced off of 32 the day before and hit 80c and even the whole a few times. This intraday there was some resistance near 32.50. So my upside at a minimum was 50c, perhaps 80c to $1. My risk/reward was still more than 5×1 if I gave USO to 94cish.

But there is a much bigger issue here. And it is something that we preach on our desk daily. Do not fall in love with charts. The order flow is more important than any chart. Use your trading skills to supplement your chart reading. And I did not see an aggressive seller before that first time USO dropped the 32 bid. If I had I would have been quicker to hit out. If I had seen an aggressive seller near 32 I may have adjusted my exit to if the 32 bid dropped and then reevaluated. I use my trading skills to formulate my exit plan.

And really this speaks to a much bigger issue for new traders. It is very difficult for the new trader to learn how to trade just by reading charts. And most of the great traders that I know that trade off of charts were great traders first. Then after they were great traders they learned how to read charts. And even today they use their trading skills to take positions when they spot a good looking chart set up. We recommend that first you ought to learn how to trade. Charts are important. You must learn how to read charts. First develop your trading skills. Then you can use charts to supplement your trading skills. And without trading skills your charting knowledge will not be as valuable.

Best of luck with your trading!