Today at SMB’s headquarters in midtown Manhattan we watched some trading tape with our developing traders.  And yesterday we did the same.  A recurring theme jumped out.  How to enter a stock above an important level when you missed your initial buy.  Let’s discuss.

One of our better traders showed his tape of GIS recently (Honey Nut Cheerios….delicious!).  Between you and me I think he might have been a little tired from a late night out on the town.  58 was a huge resistance level.  And finally GIS cleared this resistance level.  The first opportunity to buy was 58.07 and our solid trader passed on this pay.  He bid 58.01.  Smart idea.  But not a complete thought.

What happens if the stock does not pullback to the level it broke above?  How do you buy this stock a little higher than you initially had hoped?  I have been noticing this incomplete thinking from our traders as of late.  They will buy 58.01 but if they miss this initial buy, then they have no plan to buy the stock above the level.  And they are better traders than that.

Often in trading you don’t get exactly what you want.  But also often there is a plan B trade that can be very effective.  OK so we have a stock above a level, plan A was not available so we need a plan B.

For me if the stock does not pullback to the level and lingers .07 by .08, then I pay .09.  I prefer a battle with .07 by .08 as this increases my win rate when paying .09.  But if 58 is a huge level I will pay .09 if the stock lingers.

What is also interesting to me is an inability to get hit on the bid.  So if GIS lingers at .07 by .08 then ticks down to .05, I bid .03, the stock shows my bid but I do not get hit.  I step up to .05 and do not get hit.  And then we see .09 offer where we must decide whether to pay.  For me I am paying.  But then again I was also asleep by 8:30 PM last night (had a little too much vino with dinner at Tao perhaps).  We all must develop our plan B’s that make sense for us.

Look, it is not important that you follow my plan B.  It is important that you have a plan B.  And it is helpful to have a few different ways to get into GIS above 58 if your initial buy does not materialize.

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