Locked it up today with DAY 41! Green is good, though today I didn’t hit my goal I was still able to finish green thanks to a strong start on AQXP and TROV. It’s all about building that cushion on low risk setups and that’s what I did today. I tried to take the cushion to catch a few bigger moves but they all fell short. Some days are like that. Good news is that if slow days are still green you must be doing something right!
We’ll be back at it tomorrow, Friday, to wrap up the week.
1. The Discipline to Only Trade A Quality Setups
I look for 3-5 trades/day that I feel have a 90% chance of being successful. The setups I have the strongest confidence in are the Momentum and the Gap and Go strategies. The first couple of trades are the most important because this is where I’ll get the cushion I can use for the rest of the day. If I can’t get a $300-400 cushion in the first 30min I usually stop trading. Once I have a cushion, I’ll feel comfortable risking 1/2 the cushion on an A quality setup. That means if I’m up $400 I’ll risk $200, if I’m right I should walk away with $400 profit on that trade and be up $800 on the day (2:1 profit loss ratios = $200 risk for $400 profit). By biggest winner during the hot streak was +$2500 on $MBLY which I shorted when Citron came out with a negative headline on the company. My biggest loss was -$1000 on $KBIO.
2. Don’t Over Trade, Despite The Urge
I don’t over trade. You will rarely see me trade more than 10 times in a day. Occasionally I will if we have really good momentum, but average trading days will be 5-8 trades. LESS IS MORE. By focusing on only the best trades I improve my odds for success and reduce the risk of getting in a so-so trade that ends up being a big loser. Remember, even the BEST setups don’t always work, so taking anything less than a A quality setup is a waste of my time. By not over trading I have to remind myself to simply walk away when the market doesn’t feel right. I’ve had several days that I walked away with sub $100 in profits, but was happy to be green and live to trade another day.
3. Always Know Your Risk
I’ve become increasingly aware of the risk that I take in each trade. There was a time I used to swing for the fences with 10k shares but I’ve really reined myself in. If you swing hard you also risk striking out. I am the type of trader that prefers daily base hits to weekly home runs. To get a base hit I can’t start the day with monster size. I often start with 1-2k shares and add if it’s working or sell breakeven or -10 cents if it’s not. My average losses in the last 40 trading days is 15 cents, and that includes a couple of massive losses trading higher priced stocks with small share size. If a setup isn’t working immediately, I almost always get out. Base hits is how I hit over $1600 today. I never had more than 2k shares and I wasn’t swinging for the fences. I just got into good setups that worked really well.