Bella,

I have attached a couple plays from this week. I don’t have the the tape for them but I explain it with the arrows.

I also had a quick question. Today i my worst day trading NYX. There was so much volume done in a tight range that I expected an explosive move up once the stock showed its direction. I was scared to miss the move with size but am uncomfortable giving 600-800 shares five to 15 cents because that is such a large percentage of my daily stop. While trading the stock i kept thinking “this is the time,” and sized up. Looking back, watching my tape, and seeing how many tickets I printed clearly displayed that I was simply over-trading: I lost money being long in a stock that trended up nicely for the day. My question is at what point do you shut off the momentum plays on the open. Gman suggested if it doesn’t work three times then he only position trades and I was thinking about adopting a similar rule. Do you kind of go by feel or do you have a defined rule for this sort of situation?

Bella Responds

This is spot-on thinking. When you are making momentum trades and they are repeatedly failing, do you switch to a position trade? I do. GMan does.

I love your thought process of being afraid to not be in it. Too often trades do not properly value the risk of not being in a trade. And with NYX there was risk in not playing.

I do not have a set number of when I switch from momentum to a position trade. There are too many factors (combinatorial explosion) to consider for me to just have a firm rule. Sometimes I start with just position trading, other times I might momentum trade five to ten trades, other times it is three and then I switch.

For me it is more of a feel about when to switch from momentum trading to a position trade. But I have developed that feel by trading these scenarios thousands of times and asking myself when to switch. I’ve also spent countless hours just thinking about when I should have switched. So through experience I have developed a feel to switch at a time that makes sense to me.

Keep asking yourself this question as you trade plays like this. And work on developing a rule that makes sense to you.

Mike Bellafiore

Author, One Good Trade