Proper Preparation Disguised As Luck-- $WLT

I was long WLT two weeks ago as it was trending higher from 11 to 14. Then they made an announcement after the close about a new financing deal and it gapped lower the next morning causing me to give back a decent chunk of my profits. After trading down to 12 in the morning where it did huge volume it consolidated for 90 minutes then started a second down leg. Many traders on the desk got short and were paid with a 50 cent down move.

The next morning WLT spiked up to 11.90 on the Open and offered a great risk/reward short trade. Prior support areas that trade huge volume become resistance as many hope to exit positions when they retrace to their entry price. I passed on the trade as I was still a bit annoyed that I was caught in the prior day’s gap lower. Mistake. So I gave up on a trade with 15 cents of risk that turned into a $1 winner. I made a mental note that if WLT approached 12 again I would load up on a short position.

Six days later WLT price alert triggers 11.90 just as market opens. I place an offer at 11.95 and receive a partial execution. This means that my entire offer was not executed. This seems to happen often these days. As soon as HFT sense there is a real offer or bid they stop executing against it. WLT traded about 30 cents lower fairly quickly and I covered 25% of the position. Mistake.

WLT is broken again and short entries near recent resistance areas are an incredible gift from a risk/reward perspective. I don’t see WLT trading up to 11.95 again unless there is major fundamental news that change the prospects for the company. As of the close Friday it sits poised to break below 10 for the first time in almost a decade.

At the end of the day when I was reviewing my trades I noticed the absurdity of the execution at 11.95and StockTweeted it. I received a few comments from traders who noted I seem to get “a lot” of these “silly prints”. Noone actually described it as luck, but I think that’s probably what many were thinking. Most short term traders can identify important inflection points with some practice but very few are willing to commit capital at those prices until they see further confirmation on the tape. The problem is that by the time they receive their confirmation so have several thousand traders and HFTs and those prices are no longer available.

So the question becomes through consistent practice and building a playbook of trades that make sense to you can you develop the confidence to enter trades at these prices before the rest of the market realizes the excellence of the risk to reward?

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