Don’t Give Up on Your Good Ideas.

As we have discussed before coming into the day with a game plan of your expectations for the day is probably one of the most important things for a trader.  It gives you some structure for the day and you are able to spend the day executing your plan instead of looking for trades.  The key is after the open modifying that plan to what is unfolding and only taking those trades that fit your ideas for the day.  There are too many days that I hear traders saying that they missed a trade or that they were in something and got whipped out only to see the trade work out later on in the day.

I think the major reason that traders miss out on trades is that they are not planning for when the trade goes against them.  Many traders only see the profit potential and are surprised when the trade goes against them.  Then when the trade goes against them they panic, exit the trade, then move on to another stock.  If you have identified a stock as having an oppurtunity for a trade, don’t be so quick to give up on the scenario.  In your planning you need to plan for a scenario where you would have to reenter the trade.  One example of this is a trade I took in Best Buy(BBY) today. 

Coming into today I identified BBY as a good short candidate because of the recent price action where it has basically traded down from $45 to below $39.  I basically planned on shorting BBY below Friday’s lows of 38.63 if the markets were weak and followed through to the downside.  If BBY traded up I planned on executing a short around Friday’s high of 39.50.  Shorting the previous days highs is kind of an advanced trade that I’m trying to add to my playbook.  The reason that it is kinda difficult is that you are shorting into the most recent price action.  The risk/reward for these scenarios are usually phenomenal, which is why I am trying to make this trade a part of my arsenal. 

When you plan these types of trades you need to plan for a reentry because the first time you take it the trade may fly in your face the minute you execute the trade.  That was the case today. I took BBY around 39.50 on the pause we had around 9:55.  My stop on this trade was above the high for the day which was 39.64.  My initial profit target was 38.80 so my risk/reward was around 6 to 1 with much bigger expectations for reward if we got through the previous days lows. 

Well as you can see I was immediately stopped out of this trade.  But I didn’t run away or switch to another stock.  My plan was that BBY was still weak on the higher timeframes, so if BBY gave some confirmation that it was heading down I would get back involved.  We got this confirmation as the sellers pushed BBY back below the 39.50 area around 10:25.  I got in around 39.40 and the trade was good for almost a point right before lunch. 

The point of all of this is don’t waste all of your hard work.  You are spending all of your time coming up with ideas, don’t throw them away once the bell rings.  Be patient and wait for the scenarios that you have planned for to unfold.  Best of luck in your trading and have a great night. 

Kyle