Bella,
I have a question about trading midday.
The lecture on times of the day (Day 15) seems to recommend giving extra room on the downside and the upside during midday trading:
In most trades you need to give your stock a bit of extra room to both the downside and the upside. Your mentality is to find plays that you can hold for the bigger move.
but the lecture dedicated to midday trading (also Day 15) recommends as best practice to:
4. Take your profits quickly. and
6. Lower your loss limits, to the tightest of the day.
They seem like opposing views in a way. The trades I’ve been placing midday seem to work better when they’re off important levels and I give them a little more room on the downside (to account for little fake breakouts that seem to happen more in midday) and less room on the upside since the stock may not quite make it to the next important level. I may take profits at an intermediate level instead, as long as the risk/reward is still 5 to 1. I basically assume a level is going to hold and breakouts will not work unless I see otherwise (ie volume coming in). Am I correct in this?
Bella Responds
Such an interesting question and great catch by you. Awesome focus during your learning period. So why the discrepancy?
The lecture you read in our training program is during your learning period of Reading the Tape and was written during a very different market. Today we do emphasize longer holding trades and trade more midday than 2006 (when the lecture was written). In 2006-2008 we focused more on momentum trading and scalping as this worked best for the new trader. Today we focus more on Trades2Hold as HFTs and a very strong market are present.
We find that trades that work best work best right away. Joe Fahmy, our guest lecturer on Monday, reaffirmed this trading principle. Legendary trader Paul Tudor Jones cuts trades that are not working for him quickly and are irritating to spend his emotional capital on better opportunities. Your solution to give your trades “more room” if done because your holding period is longer and you expect a large gain makes sense. A conclusion to give a trade “more room” because it is the midday, or you are gaming for shakeouts needs further review.
Great job by you working on your trading game!
Mike Bellafiore
Author, One Good Trade
