Swing Trade Idea: TBT

Bonds are starting to move. Long term rates are creeping higher and bonds prices are reacting like they should (falling). I've been nibbling on TBT for a few months now and it seems like this trade is about to start moving.

As you can see from the chart below, TBT has been consolidating in a long wedge formation and is beginning to break out. One thing that jumps out at me right now is the huge volume that was traded on Thursday and Friday of last week. Here's the chart:Gameplan:

• Initial Entry Price--49.25
  
• Initial Stop Loss--46.00
• Initial Profit Target--60.00--sell 2/3 position
  
• Second Profit Target--75.00--exit rest of posisition
• Trailing Stop--once TBT closes above 55, the stop loss will be moved to 49.00 and the entire position will be closed out if TBT closes below an ATR Trailing Stop set for 20 periods with a 3.0 multiplier.
  

There you have it, the full game plan. Now we just need to put the trade on (I'm gonna add a fresh position to what I already have and manage the entire position with the above plan). Let's take a quick look at the risk to reward. With the 49.25 entry, the risk will be $3.25 with a potential reward of $10.75...a 3.30 R-multiple. This is good enough to put on the trade. Remember, the 60 target is the target for the first 2/3 and the remaining portion will be trailed up to 75, which means the trade could return more, but the intial targets are good for intially determining if the trade is worthwhile.

The scenario is built, the game plan is written out, and the risk-to-reward has been qualified as worthwhile to put capital to risk for...now I've just got to put it on and manage it. Easy right? Trading can be easy when you take those steps to plan a trade and then FOLLOW YOUR PLAN.

I'll write some follow-up posts to udpate on the progress on this trade.

TLT

On the Radar for Tomorrow

I have several spread sheets that are part of my nightly homework. The majority of the spreadsheets are automated (meaning that I just have to download current data and formula's fill in the rest) and some bits of them require some manual work. I bring this up because I think that going through this same exercise every night helps me stay in tune with the market and it gives me ideas of what to keep an eye on for the following trading day.

Here are a couple of snippets from one of my spread sheets that shows the 2 strongest sector/asset classes for today and the bottom 4 sector/asset classes. As you can see, Financials and Materials were today's leaders and Gold, Crude Oil, 20 Yr. Bonds, and Silver were the big losers. These will be the first things that I watch as tomorrow's trading unfolds and I'll be looking for continuation in these sectors. As for the spread sheet, it is broken up into two sections:

• Relative Strength--this ranks the sectors and asset classes by the performance vs. the S&P 500 (this is the same relative strength sheet that I used to post weekly on the blog) putting the most weight on today's price action but also incorporating price day's returns.
  
• Market Thermometer--loosely based on Alexander Elder's indicator with the same name, this indicator rates a stock's ability to trade at higher/lower levels...this helps with the relative strength rating because sometimes you can have a high or low relative strength rating in a stock but the stock is merely trading in the middle of a range. The thermo. is not anything super fancy, it just gauges the day's price action versus recent high/lows and the 52 wk high and low.

There you have it, a lot of words to really just say watch financials (especially JPM) and materials (DOW) and look to short silver, gold (GG, IAG) and bonds (TBT).

Hope everyone's having a great trading week so far.

TLT

5 Non-Trading Books All Traders Should Read

Here are 5 books that have nothing to do with trading (and only 1 has to do with money or business success) that every trader should read. These books should be required reading for anyone who currently trades or is interested in trading. I assure you that you'll get more out of reading any of these than the majority of trading books that are out there. Here they are:

1. The Inner Game of Tennis by W. Timothy Gallwey

A ground breaking book that was originally published in 1974, this book will teach you how to learn. The book was written about tennis but as with all great books, it could just as easily be applied to anything else including life in general. From the conscious vs. the subconscious, quieting the mind, and the destructive power of negative self talk, Mr. Gallwey walks you through the essential aspects of a mindset that enables learning and mastery.

2. Golf is Not a Game of Perfect by Dr. Bob Rotella and Bob Cullen

Why is it that sports books make excellent trading books? Because competitive sports and trading have many things in common, especially when it comes to the mental/internal side of sports and trading...and that's about 90% of trading success. Learning to accept a bad shot (trade) and moving on..the importance of staying in the "now" and not focusing on the past or the future..hitting this ball to get the best position with no regard to the current score (read "managing this trade to take what the market is making available with no regard to your P&L). These are just a few of the gems that you'll get out of this book. I would recommend this book to not only traders who aspire to grow and get better, but also to anyone as a general guide to life.

3. Think and Grow Rich by Napoleon Hill

A timeless classic written in the 1930's and it's just as relevant today as it was then. Commissioned by Andrew Carnegie, this book sets out the philosophy that Mr. Carnegie felt was the secret to his success. Some key aspects of this book are that it drills into the reader the importance of having a well defined plan with corresponding definite goals and a subconscious mind that not only expects the goals to be achieved, but already believes they are a certainty. If you haven't read it yet, go buy a copy because it's certainly well worth the $8 price tag and the time spent reading and re-reading it.

4. 10-Minute Toughness: The Mental Training Program for Winning Before the Game Begins by Jason Selk

I picked this one up after I heard Linda Bradford Raschke recommend it in one of her presentations and it's a good one. Mr. Selk will help you come up with "Performance Statements" to help you stay focused and he'll show you how to utilize visualization techniques to train your mind by visualizing various scenarios and how you will react to them. Furthermore, this book helps with goal setting and staying solution focused, two elements that are key to growth and consistent performance with anything.

5. The Art of Happiness by The Dalai Lama and Howard Cutler

Face it, if you're not happy in life then you won't be happy trading. Trading doesn't bring happiness but this book will explain what does or can. There are literally hundreds of other books that could fill this same spot on the list (like: 7 Habits, Psycho Cybernetics, Change Your Mind Change Your Life, the Bible, etc.) but I put this one on it because I like the eastern view that the Dalai Lama presents. We could all benefit by applying the Dalai Lama's general outlook to our trading.

There you have it. 5 non-trading books that I can almost guaranty will improve your trading..I say almost because you are the essential element in the equation and you have to be ready to be willing and honest for change to happen. These books will help you if you're ready, they certainly have helped me.

TLT

NYC

I'm in New York City for the rest of the week. Probably not going to post until early next week, unless something big happens or I end up having a little extra time to post. Here's a pic of a trading floor from a pretty big bank that is right across the street from my hotel and very viewable from my hotel window..it's kind of fun to watch them over there and see different levels of activity going on at different times of the day.I hope everyone is having a great week!

TLT

Recognizing a Range Bound Market: Key to avoiding the Chop

After the first hour of trading, it is clear that today is a range bound market with a high likelihood of chopping up anyone who attempts to trade it (unless your trading method is geared specifically for this type of market). I've made only one trade this morning, only because there is nothing to do right now. I've got JPM on my radar as a long and GG on my shortlist, it's just a matter of them properly setting up for the trade.

So instead of trying to trade and getting chopped up I thought I'd post about how I attempt to recognize these types of day. Learning how to recognize this type of poor trading environment and keeping myself out of the market when it's like this (sometimes that's the hard part) has positively affected my P&L way more than anything else. You can make some killer trades when conditions are good but it's all for nothing if you just end up giving all your profits back when the chop fest begins.

Ok, here's what I'm looking at this morning:So that's a pic of a choppy market that is likely going to continue to be range bound. On a good trading day, you want to see the opposite. The watchlist should be mostly one color. The line charts for the advancers/decliners, up volume/down volume, and VIX/SPY should all show the lines heading in opposite directions to indicate a trending market. Today they're just crossing back and forth over each other...a sign to go post on the blog instead of trading.

Another indicator that helps is the NYSE TICK. This indicator shows the NYSE stocks that are making upticks vs. downticks. Readings between -400 and +400 are generally considered neutral. Everyone has their own take on how to use the tick and what levels are important. I look at +-1000, 800, and 500. The other thing I do is keep an eye on whether the majority of the ticks are in the positive or negative zone. Having a moving average helps as well. Here's a chart of today's 2m tick chart:As you can see, today's tick chart has been all over the place. That's all I've got for now, hope everyone had a good weekend.

TLT

***Update***
The market literally broke down right when I hit the post button to publish this post. I was able to catch a piece of the GG short that I had planned (short below 39 with a profit target at 38.50). Unfortunately there is not much follow through for shorts right now as the market has been in an uptrend lately. Thankfully I grabbed a piece of the sell off, I just thought it was funny that the market sold right as I published the post about the market not doing anything.

Can You Say Short Squeeze?

WDC was a big money maker this morning as many traders sold it short right off the open. The daily chart shows significant levels being violated and the hourly was slanting down..all great bearish signs. But all good things must come to an end and this one was swift. WDC has been one direction since the 3rd 15 minute candle stick this morning and that direction has been up.

I'll admit it, I thought about shorting it at a couple of different spots, including the resistance at 38 after it filled the gap and looked like it might head back down. Fortunately I did not take any of those trades because it went off on a tear...must have been ripping through stops. In fact it's still moving higher as I write this post. Here's a 15 minute chart to illustrate what I'm talking about (although this chart was saved 20-30 minutes ago and now it seems outdated):That, my trading friends, is what a short squeeze looks like. What fun!

Hope everyone's having a great day.

TLT

Anemic Volume Today

It's no surprise that today was a range bound trading day with little opportunity, unless you were trading something that was stock specific like CSCO. Volume was well below average for most stocks and indexes. Here's how I track intra-day volume in order to get a clue as to it being a trend day or a range day, which is important to identify so that you have realistic expectations for follow through on trades.

I keep an excel spread sheet that I update daily. This spread sheet tracks the average for the prior 20 trading day's average volume, range and 14 period ATR (average true range) for each 15 minute period of the trading day on the S&P 500 index etf (SPY). Okay, that was a mouthful. This spreadsheet is useful because I can look at it and tell what the average volume for the prior 20 days on SPY between 10:00 and 10:15. For example, today's volume for that period was roughly 2.5 million shares. By itself that doesn't mean much to some people. Well, my spread sheet tells me that the average for that 15 minute period (10:00-10:15) for the past 20 trading days is 6.8 million. It doesn't take a market wizard to figure out that today's volume for that period was way below average.

I print this sheet out in the morning and leave blanks to hand write the SPY volumes for that trading day. This method works better than just a moving average on the volume below the chart because it compares apples to apples (or the same period of time to the same prior periods). Here's a screen shot of today's sheet:Maybe we'll see a little more follow through tomorrow..this chop can really put a dent in the P&L if you're not careful. The chop got me a little but fortunately I was catch some of the CSCO move this afternoon to put me in the green for the day.

Hope you all had a good start to the trading week.

TLT

T.G.I.N.F.

Yes, Thank Goodness It's NOT Friday. Why do I not like Fridays? Most traders dislike Friday because they know they have to wait through the weekend for the markets to open back up. While I feel this way as well, there is a much better reason that I don't like Fridays..at least when it comes to trading.

I cannot stand to have a bad Friday tradingwise because then you get the whole weekend to stew over your mistakes and what you should or should not have done. This is not fun. I had a bad trading day this past Friday. After the market closed, I was writing in my trading journal and doing other end of day activities related to trading when it hit me...I did not have a good Friday last week either. And then I checked my trading journal and realized that I have not had a good day of trading on a Friday in at over a month, and even the good Fridays that I've had were mediocre at best!

After having this little break through, I pulled up my trading reports and looked at a report that breaks down trading performance for different times and more importantly, different days. This really put things in perspective for me. The day of the week that I have the highest win ratio (batting average) is Monday with a 60% win ratio. Not bad for the type of intra day trend style trading I do. My absolute worst day (drum roll) is the dreaded Friday with a win ratio of only 28%..ouch.

So what does this tell me? Either to not trade at all on Fridays or at the very least, reduce my trading to a little while in the morning and keep very tight risk control measures...like quit for the day after 2 losing trades or 2 winning trades. So why are Fridays so bad? I don't really know but I have a few ideas that pertain specifically to me..it will be different for everyone I'm sure.

For one, after having had a bad Friday once and thinking about it all weekend, I began going into Fridays thinking, "don't have a bad Friday, don't have a bad Friday." It's funny how when we tell ourselves not to do something or that we don't want such and such to happen, we either do it or whatever it is happens. A weird phenomenon that some chalk up to the subconscious and it's inability to comprehend the negative phrasing. Thus, we say, "don't do such and such" but our subconscious only hears "do such and such." So this could be a factor explaining bad Fridays and it is also the reason that positive self talk is so important.

Furthermore, I tend to go into Fridays with the mind set of, "it's the last trading day of the week, better make some money." This tends to screw up my open mindedness with trading as I'm now expecting something from the market that may or may not happen. Having expectations that don't match up with the market in trading can lead to a disaster, especially if you're stuck in your expectations and fail to change your trading based on what is unfolding in front of you through out the trading day. Every dip in an uptrend begins to look like a buyable dip and the thought never crosses your mind that this could be the end or even a late day reversal. You stop looking for or even ignoring evidence that supports or conflicts with your ideas. As you can imagine, this is not a profitable trading mindset.

Then note that Mondays for me tend to be the opposite. I'm refreshed, open minded and ready to see what the market is going to offer for the new week. This leads to great trading days. Imagine that. It doesn't take a genious in psychology to figure this stuff out but it does take a discplined trader that is both open and willing to change in order to take the necessary action involved to improve on these problems. As for me and my discipline and willingness, we'll give it a little time and then I'll do a follow up post on my progress or lack thereof.

Okay, that's enough for one post..I didn't mean to sit down and write a book, I just needed to get all of this down in written form.

I hope eveyone's having a great weekend.

TLT

Sandisk: A Lesson On Holding Good Trades Longer

Early in the program at our trading firm, the head trader said that after a month or two, our biggest problem would be holding good trades longer. I don't know about it being our biggest problem, but SNDK was a great example of leaving profits on the table today. I traded in and out of it a few times and failed to pull the trigger a few times as well. Despite making money in this stock today, I would have made much more just holding any of my long entries (both the ones I took and failed to take) until the close. Given the recent choppiness of the markets, it was nice to see some follow through in various tech names, such as: sndk, ctsh, wdc, and stx. Easy money is always welcome and getting frustrated about booking profits too soon is just a sign of easy money..and for that I am grateful. Remember, it's always easy to look back on a chart and say, "I should have done so and so..", but having a plan, sticking to it and making money is great. At this point, I will closely monitor whether I'm consistently taking profits too early and if that's the case, I'll adjust my plan accordingly.

Hope everyone's having a great week.

TLT