Tomorrow’s Plan:

Tomorrow is the last day of July, so I am probably not going to be trading much. I will do a full July trade review over the weekend, and I do not want to end July by pushing it on a day that may not be pushable. The last thing I want to do is go into the weekend feeling tons of regret. Volume was higher today and the ISEE dropped quite a bit, suggesting that yesterday’s value was an outlier. There still has not been a very negative day in this pullback where we have closed with -2000 AD and the VIX through the roof. I am still looking for longs, and I think after today’s action, some of the stronger stuff out there may start headed up (like RIMM).

My Ideas:

•WDC looks like a great short. I did not short it today because of the uber internals at the open, but it is obviously following through to the downside on higher volume.

•UAUA has a great low volume consolidation at its highs, just what I mentioned I would like a few days ago. Any strong showing by this stock on the open and I will be all over it.

•HIG has this tiny cup and handle pattern on its daily chart. I am watching for a higher volume breakout above its 50 SMA.

•I am only trading the morning session tomorrow, so if these do not work out, I will be much less likely to place any trade at all.

Best of Luck Tomorrow,

Lucas

Today’s Trades:None

Today’s Lesson: None

Last Note

No trades today due to some buying power issues. At Keystone, we are supposed to post our plan on this separate blog, and if we do not, our buying power is taken away. I did, but there was some communication breakdown and I did not get buying power until 11:30 EST. It probably saved me some money as internals opened very strong and all indications pointed to a higher market. I was itching to buy LVS above 27 and it failed to push up, so lucky me!

Lucas

Tomorrow’s Plan:

So volume was lower, which fits with a low volume pullback. All the internals were marginally negative at best. All in all, it was a tough day to be active. I think its a good time to explore the feelings that urge you to trade during times like this. If you don’t have an edge, but you place a trade just to place it, then you are literally asking other traders to take your money away. This whole market feels like an Algo’s dream. This market could continue to pull back in this fashion for another dollar in the SPY without running into any tough support. The odd reading of the day was the ISEE at 240, which means massive call buying. I am a bit confused by this, but it goes along with a market that is not making much sense anyways.

My Best Ideas:

•AKAM got absolutely crushed on earnings, and is down almost 10% in the after hours trading. I will be watching AKAM tomorrow and today for any set ups.

•LVS, UAUA, and WFC are all longs in my list with the first two being the best candidates. Although I am not holding my breath for any momentum, I am open to see what these stocks do if they can breach the significant resistance above.

•I like a bid in Macy’s at the 18.60 level. This is just the kind of trade where many supports line up, and in the current environment, the bears will have a tough time pushing through. This is a test trade obviously, so it should be treated accordingly.

•Watching WDC to follow through more on the downside, although volume is falling.

Best of Luck Tomorrow

Today’s Trades:

Today’s Lesson: None

Last Note

This kind of market action is exactly what I was talking about when I mentioned marginal situations yesterday. This is really a great time to be asking yourself why you feel forced to make trades. What will you really miss out on? Another thing to watch for is the “gotcha” move. Basically you are watching the market, and do not know whether to place a trade or not, but the market is moving to where it could be profitable to place a trade. The sell off this afternoon was a great example. The “gotcha” move is the tail end of momentum where you are “convinced” that the move is real, and so jump on board. You can tell this move very easily because when you see it, that part of you that wants to trade either pushes the button to execute into momentum, or you feel regret because the move was “real” and you missed it.

The “gotcha” move can be so infuriating because you finally give in and feel relief that you are actually doing something, only to get your trade slammed back into your face, just like at 3:15 EST today. One of my big realizations was that the market is DESIGNED to put you into these marginal situations. They beckon to you, and seem to be offering just the right amount of edge, only to show you soon after how wrong you were. Why do I feel the need to trade in this situation? What do I perceive I am missing out on? What am I truly missing out on?

Lucas

Tomorrow’s Plan:

Nice pullback today day, and even though it was higher volume, most of that volume was in the morning. VIX made a bit of a reversal as well. I think the extent of this pullback will tell us a lot about how strong the bulls really are. Besides that, I am watching for something surprising to happen. The way I see it, the market is moved the most by people who are FORCED to do something. So in dull times like this, sometimes watching for a breakout of some kind indicates a relative strength or weakness of a certain sector. If you do not find these little gems, you can be stuck doing nothing as the market just churns. A likely candidate for this is gold, and I am watching to see if this breakdown has legs. I am keeping in mind though that many of the big gold miners, like ABX, GG, and NEM have earnings before the end of the month. Also, the dollar is going down as well at the same time, and if the market continues, then the big three will be all falling at the same time: odd conditions!

My Best Ideas:

•UAUA is my best long idea. It has low volume near its highs here on this pull back, and I am looking to go long this puppy on any and all opportunities when the market decides to kick it up.

•AKAM also looks great to the long side, but has earnings here soon. LVS had earnings and I will be watching it for any plays tomorrow that may present themselves.

•I continue to watch WDC as a short sell, and so far it has not wanted to go down. I would love to see this thing pop up to the 30 area, or maybe even slightly above it, and catch a wicked reversal. Otherwise, it is still setting up as a nice short.

•Other then that, it is slim pickings out there. I think if you don’t make money in the morning session, you should probably call it quits on the day. The chop has become very “summer-y.”

Best of Luck Tomorrow

Today’s Trades:

Today’s Lesson: None

Last Note

I felt pretty darn good today. Reason being? Well despite the loss, I really just did not care about much. I really started to recognize how much trading is just a business. I read something cool the other day called the 5% principle. Basically, most semi-professionals who do not bring home the bacon regularly fail because of 5% of their actions. 95% of the time, they are steadily chugging along, and making decent decisions in the now moment. Then 5% of the time, for whatever reason, they go on tilt, or fritz out, and stick around in a marginal situation for too long. I am finding that for me, it is often the marginal situations that lose me the most money. When the trade is obviously no good, there is no problem; the same applies to the other extreme. However when I am feeling like I need to do something, and there is nothing very obvious, I lose money.

Today was a good example where volume really waned in the afternoon, but there were some bullish set ups in some of my stocks. I was completely on the fence on whether to take them or not. On one hand, I knew volume was low and edges were scarce. On the other hand, I wanted to avoid the regret of missing a move that I correctly realized. I am not sure why, but for some reason, when I recognize an entry and a set up, I feel some entitlement to its results. If I do not get those results, I am regretful.

Anyways, back to the 5% deal. I find for myself, when I really push it in a marginal situation, I rack up losses that undermine the other times I am successful. I felt great today because I took a great loss in WFC, and then relaxed the rest of the day away knowing it was a low probability situation. Don Miller said it best about the phases you go through as a trader. At first, you are four steps forward, seven steps back, then you are four forward and four back, and finally four forward and none, or one back. That little thing in my head that says “you have to do something,” is what creates so much misery. Poker is helping me a lot in identifying those scenarios. When you have K-Q off suit, and everyone else pushes into the pot aggressively, it is just NOT worth sticking around because your hand is most likely dominated. Once in awhile, you will flop the nuts, or some other circumstances will dictate buying in, but a lot of times, those are the type of situations where you will go to the river, and lose. That feeling of “I am not quite sure, but I just want to be in because I am tired of sitting here,” will cost you so much money. The point you want to get to is asking yourself WHY you are tired of sitting here. That reason will be the million dollar reason.

Lucas

Tomorrow’s Plan:

VIX closed below 23, which has been a really huge level for it over the past few weeks. The /ES also closed nose to nose with its daily 200 SMA. So the market, as well as its internals, are at a pivot point. It is possible that we blow right through these significant areas to the upside. On the other hand, I am starting to see some overbought indications, and volume today fell. Just because we are overbought does not mean the market cannot become more overbought. So I think tomorrow will be a day of flexibility. We have to be ready to take longs, but if overbought tendencies start to show, and the internals line up intraday, we have to be ready to take momentum shorts.

My Ideas:

•WDC looks like a great short, although I believe that its range will contract further as the days go on. WDC had a huge move, and lots of volatility, which tend to beget smaller moves and less volatility, and back again to volatility. So being away aware of this, it is still one of my go to shorts.

•UAUA had a really strong up day and is a great continued long case. It is approaching its 2010 highs. If it could consolidate a bit at those highs, it would be a super good long, like A+. I am watching to see what it does.

•HIG had this odd sell off today in the afternoon. I am not sure if news came out, I didn’t check, but anytime that happens, I consider it a warning flag. I will be watching this tomorrow and Wednesday for signs of continued selling. If it can get below today’s lows, it has about 80 cents of room to the downside before significant support.

•AKAM is interesting here. I recognize a very lucrative pattern when I see it. Because its volume has been so low, and it made this little topping daily pattern today, it has a chance to really plummet if the market does as well. The stock is obviously a long on all time frames, and is above all its moving averages. However, I think there is a small probability that it could really dive tomorrow, like to the 43ish vicinity. Am I saying it is going to happen for sure? No way, but my subconscious pattern recognition perked up after today’s weak close around its opening range breakout. Otherwise, it is a continued long, although a low volume one at that.

Best of Luck Tomorrow

Today’s Trades:

Today’s Lesson: Do You Do This?

Here is the scenario: you have made a couple trades on the day, and for whatever reason, you are slowing down your trading. You see a signal in one of the stocks or instruments you are following, and you see the trigger price. You pass on the trade. Perhaps you already had a couple losses on the day and aren’t feeling confident, or you do not like the current market environment. For whatever reason, you see the trade and do not take it. Now comes the interesting part; do you watch to see how that trade would have worked out to tell you whether it was a good decision or not? Do you feel relief when the trade signal fails? Do you feel regret when it begins to follow through? More importantly, do you change how you are going to take the next trade because of that outcome?

These are important questions to ask, because their answers will begin to free you from what most market participants are trapped under. Most traders associate outcomes of the last trade with the next trade, and try to “balance the books” so to say. By this I mean that if they were not aggressive enough in the last trade, the next trade will warrant an aggressive entry, sometimes before the actual signal materializes. If they were too aggressive in the last signal, then their next trade will be much meeker, waiting for the signal to print, and perhaps even waiting to see if it starts to follow through before getting involved. Why do we do this? I caught myself doing it today, and I swear, 9 times out of 10, it is the wrong move. My second trade in AKAM was an aggressive entry on a pullback because I had missed two aggressive entries earlier in the day. I can clearly see how missing those aggressive entries earlier in the day made my “balance the books” mechanism kick in that upped my aggressiveness. When that AKAM trade failed, I dialed back the aggressive entries to the point where I probably won’t take any more trades for the day.

I believe it has something to do with regret, and attempting to deal with regret by unmaking a perceived mistake. If I should have been aggressive/passive and was not, I can resolve this feeling of regret by being aggressive/passive in the next trade. That statement must make sense on some level because I act it out almost every day in some form or another. Really examining this belief, and all the feelings associated with it, is beginning to bring me some truth around this whole phenomenon. Do you do this? What have you found?

Last Note

I kind of feel like I am drifting a bit. I have noticed that my focus and drive have waned over the past couple weeks. This is not necessarily a bad thing. I think people sometimes mistake a constant state of stress as being “driven.” I have been writing a lot; writing about my feelings and my experiences. However these writings do not really have a specific goal in mind. I wonder if I need one at this point in my development? Whatever the case, I am where I am. Listening to Denise Shull’s seminar on thinkorswim today kind of jolted me a bit. I have been neglecting dealing with regret, like today’s lesson shows. Regret really is the most caustic thing for your trading results, and for awhile I was Johnny on the spot in recognizing when I was feeling it. Lately though I have not been as diligent as recognizing and naming it.

Trading is hard though; us traders did not sign up for an easy job. Trying to do something everyday that cannot be done can really be exhausting. What am I trying to do? Well, at this point I do not really have words for it, but trying to get it all day is completely draining. I think most traders who have been at this awhile know what I am talking about. Be careful out there in this summer lullaby.

Lucas