For the past week or so we have been on the look out for the turn on the market. We are currently a bit overbought and it seems that the turn could have started today. We had a very nice steady sell off and based on the price action we could tank tomorrow. If the SPYs start to hold above 85.00 then all bets are off for the short side.

As active traders we try to not trade with a bias but let the price action determine the direction of the market. However, at times we fade the direction of the market at big support/resistance levels where the risk:reward is favorable. These fade plays are for the most part not high probability plays. On these plays the risk is easily quantifiable and thus very appealing to risk adversed traders. The reality is that these 10-20 cent plays can add up over the course of a day and month.

Our desk has shown the ability to kill it on days when the market ranges or has wild volatile swings. These fade plays are very effective on these market days. However some of these very talented traders have gotten too caught up in the short term mentality and have not been able to take full advantage of trending days.

You see, fade trading can provide steady money with very little pain. On a fade trade you are in when the stock is momentarily out of juice in the direction of the “trend” and out the moment it starts to not trade in your favor. This technique allows you to become a very discipline and patient trader but has a major flaw. When abused, this technique gives you a false sense of risk aversion. It is almost as if you become psychologically unable to hold a stock once it trades against you, unable to hold for a big move, and unable to take some pain on the entry prices. On trending days all of these three things are needed.

After the close Bella held a meeting with the traders to talk about this issue. I didn’t make it to the meeting as I was too irritated at the underperformance on the desk on a trending day like today, including my own. I thought it would be more productive for me to write this blog than to go in there to yell at our guys. I had an okay day but I really should have made a lot more as I was on a trend day mentality. I was just unable to find a spot where I felt comfortable loading up and holding for the big move. I screwed up the one chance I had but at least I was able to hold some stock on the short side in BAC longer than usual for my style.

It cracks me up that some guys in our desk took mad pain shorting into the strength on the days that the market was giving clues that it was going to turn and now are taking pain fading the weakness on the day that we are turning. It really is a silly mental mistake due to lack of focus. For those of you abusing the fade trades I would strongly suggest doing some visualization exercises to help you take advantage of the painless easy money a trend day can provide. Go back in the SMB Edge manual and look for those exercises!

Get some rest, tomorrow should be a very exciting day. Gman out! Don’t forget to follow us on twitter.