September 21 2009 Overlay, Trades, and Commentary

A little irritated at myself today = insightful post.

I had a small loss today. Less than 1 unit (1 unit = average loss on 1 trade).

There was a Midday Log that I posted earlier today. It sums up what happened this morning in detail.

When I look at this sequence in hindsight it is like deconstructing a hand of poker. I can narrow the "wrong" move down to the 1/2 position pre-market.

The low tick stop out 1052.00 @ 9:57 EST was sloppy. I had no business placing a stop there.

However, it never would have gotten to that point had I put on a full position pre-market. The breakout entry with the other 1/2 of the position put me at a much worse average cost.

There is nothing wrong with this in itself. It is better to average up than to martingale but I have to be willing to take full heat in a situation like today. Instead I half-assed it.

Had I entered a full position at the premium price, the retest of that area after a 4 point excursion would have led to a break even at worse. Likely, I would have taken heat and had a stop well below the lows.

The market would have had to really do something IE- push to new lows after shallow pullback. This is a 3% to 5% probability event. Not likely. **New readers do not assume that I play probabilities because they are are fairly meaningless when looking at an individual trade.

I actually tend to take the oddball trades at good areas because others do not see them.

In conclusion:

Hesitation early on a Monday led to missing the move up. I do not care about the small loss but not capitalizing on my read is a mistake.

Often trying to be defensive puts me into a more defensive and less favorable position later in the sequence.

Much like poker, position and sequence is crucial to trading.

Observation:

Has anybody noticed that I rarely speak of specific technical aspects of my failing trades? This is because it rarely happens. The problem usually lies within myself. The most difficult part of trading is the execution of the method.

Did one line cross the other? Which direction was the momentum? Sorry but this stuff is garbage.

Most methods do not work, but most frequently it is the trader and not the method that fails.

Quick Lesson On Structure:

The long this morning before the market opened was a premium entry. This is because the downward leg of the price was stretched.

It hit 1052.00 overnight, bounced, then failed to make a significant new low. What is the next natural thing for the auction to do? Test the originating point (area of Friday's close and this has nothing to do with the term "gap"). The 3rd test at 10:00 AM EST was nothing more than a washout of retail traders who would not take the heat (including me today). It was nothing but noise. Large money taking out small money before the true move.

You do not have to over-complicate the technical side much more than that in this particular situation. What is complicated is dealing with yourself along with your "positioning" and "sequence" on the market.

Note To Myself:

The first move and premise is always going to be the most correct and natural. Do not put yourself into a defensive position later in sequence because you cannot commit to the aggressive nature of a proper execution.