Thursday, March 3, 2011

03/03/11: Day Trading Review: A Few New Rules

2 days ago I added a few new rules to my list:

2 Don'ts

1. Don't buy in the first 15 minutes *with the exception of opening drive setups. This rule is a no-brainer for the SMB trained but when you're from the school of erudite hard knocks like myself you need to burn yourself repeatedly (defining insanity/stupidity) before you adapt. A good example is ZAGG today which I bought at the open around 8.07 ask me why? Because the P/M tape looked strong and there were buyers not willing to drop the 80c level.  See that circle below that's me getting ripped. Getting stopped out around 7.8. Ouch almost a 30c loss on a $8 stock. Reviewing my trades for the past few weeks I keep getting caught being over-anxious. *On a side note that loss made me cautious to re-enter ZAGG when it hit the VWAP & upper TL around 11AM which in hindsight cost me about 40c.

2. Don't try to actively swing & day trade. I learned this valuable lesson during this most recent pullback (the one that preceded today's rally remember that one? Probably not after today's HUGE reversal) when I get clobbered holding too many longs & being too heavy. Watching my swings just sink deeper into the red was shell-shocking and threw my game way off. I began to blur the 2 styles hitting day trades with weight & then turning them into swings so I could rationalize holding them beyond my stops. Hello? "Losing"

2 Do's

1. Wait for triggers off key levels & confirmation & avoid "No Man's Land" trades. Because I'm a little hyper-active (blame my parents for giving me too much sugar as a child so my Pediatrician had to restrict my diet as a child) I tend to want to trade all day long. Patience is something I often struggle with especially when I'm in a hole and I engage in revenge trading. So now I make sure to identify "no man's land" where just because something looks set up if it's not near an intraday or long-term level then I need to set an alert and wait for the trigger. I need to review Mike Bellafiore's reasons to buy in his "One Good Trade" if I could remember where I packed it when I moved.

2.   Stay consistent with tier size. One pattern I've noticed is that when I'm doing well I tend to decrease my tier size because I don't want to give up my gains and yet when I'm down I am more apt to increase my size to erase losses. Hello? "Losing". Take for instance this most recent spanking when I went heavy and dug a nice .05% P&L loss for the year now I know that sting will inhibit me psychologically and as a result I'll use less size for fear of blowing up. Because I've identified this pattern I can deal with it and not shy away from adjusting my tier size. 

To end this on a positive note. Here's 1 trade that I managed well but given today's incredible rally can't give myself too much credit. DLB had some news about providing an audio accessory for AAPL's iPad 2.  

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