I have been talking a lot to our traders recently about properly allocating their mental capital. What do I mean by this? Each stock we look at as a trader will offer a certain amount of opportunity each day. If a particular stock is likely to offer far more opportunity than another then all other things being equal the traders attention should be focused on the stock with more opportunity.

I reiterated this point to one of our better traders in a one-on-one meeting the other day. There are very specific trade setups that this trader usually crushes. We agreed that he should focus most of his energy and risk on these setups. One such setup was offered by AIG today. He crushed it. Good job by him!

Some traders on our desk myself included did not crush it. At the end of each day I go through a review of each of the important trades I have made. There are usually only a handful of truly important trades. I want to figure out what I did well and what I could have improved upon in each trade. In the case of AIG it is clear that I did not crush it because I pulled my focus away from it at a key moment around 1:27pm. I started watching RIMM at the 74 level. Huge mistake!!

The 74 level in RIMM was important but the volume surge in AIG that began at 1:00pm was a signal that it was going to have a multi-point move. I know that some of you are thinking that hindsight is 20/20. Well, this is what I said in our AM Meeting yesterday about AIG, “If I see a huge surge in volume above 29 then I’m gonna be all in for a multi-point move…” And if that wasn’t enough the only twitter message I have sent out in the past 30 days under “spencermagic” was “initiating a position in $AIG. long if it holds above 28. if breaks above 29 on volume monday lookin for a multi point move” March 5th

Based on my preparation and conviction I should have given AIG my full attention as soon as it traded above 29 and the volume picked up. I failed to execute and that is squarely on my shoulders. If I executed properly then worst case scenario I would have been up over 5K today.

There was some chatter from other traders on the desk that they did not make money in AIG because it is not in their “playbook”. That is a crock of you know what. There are no traders on our desk with more than one year’s worth of experience that don’t trade “flag patterns”. The move in AIG from 29 to 31 in about fifteen minutes was a very clear flag pattern on enormous volume. The consolidation that occurred during the next ten minutes was an opportunity for any skilled day trader to get involved.

At the end of each day you should always ask yourself if you were properly allocating your mental capital. If not, your results are not meaningful.