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