Are You Paying Attention??

Sometimes as traders we spend too much of our time focusing on the negative.  We spend all of our time going over the trades that didn’t work instead of spending our time on what types of trades are working.  The market is filled with repeatable patterns that if you are paying attention you can turn into trades that you understand.  If you can make sense of what is happening in the market and the particular stocks you are trading, then you will be able to trade with conviction. 

One pattern that has been working well lately has been happening on big gap down days.  On these days the market gaps down and for the next 30-45 minutes we chop around and usually by 10:30 have made back most of the losses on the day.  For the last month the higher probability setups have been to the downside so I have been trading these moves with very little expectations if at all.  I am trying to trade setups that make sense to me and this move on the open didn’t fit my pre-market plan.  The trade I have been making the most money on lately is waiting for the market to settle in then identifying weakness after the move to the upside.  The stocks that I am looking for weakness in are the stocks that I have identified before the market opened as being weak.  The trade is to get short on the first swing high with an initial profit target of the low of the day.  If I get some momentum in the market I will have higher expectations on the trade and look for the stock to trade through the low of the day.  This trade worked across the board today and I was able to take advantage of it in Best Buy(BBY) and Western Digital (WDC).

The key to these trades is first coming into the day with a trading plan.  The next part is seeing how this plan fits in with how the market is going to open.  I knew we were going to gap down but also knew that chasing a short on the open has not been working.  As traders we need to know what has been working and trade those plays.  Hope this helps you in your trading and best of luck. 

Kyle