Discussion about shallow pull backs tonight. Check out the overlay.
The prep was extremely well visualized this morning.
The only divergence between the outcome and my visualization was the depth of the pull back just after the open.
This brings up a good topic. I do not like trading shallow pull backs. I tend to hit them after I have hesitated on hitting premium trade at a better price. Thus, many shallow pull backs I execute lose. Even if they are the right trade in the right direction.
The long off 1177.50 yesterday was a good example of this. I did not have the courage to buy the news driven avalanche into support so I hit the shallow pullback.
I would not put my stop 6 points below my entry which is where it needed to be so I lost 2.5 then the market pushed .5 point further and reversed for a big winner. I had it right and lost.
Today was a similar situation. However, I did take a couple shots at hitting the long. I covered because the price was not moving and I again had 4-5 points risk in the trade.
Some are probably asking why so much. The answer is because if I used a 1.5 or even 3 point stop, it would be likely that the price would come back and fill my stop then move in the direction of my trade.
A tight stop in this situation turn a good trade into a guess. You will never be able to project exactly where the market will pull back to if it is between a low and a key support.
A larger stop ensures that the market will have to change premise in order to stop me out. This means I will have to be wrong to lose.
Yesterday's comment
Another trader posted a good link for reading under yesterday's post. I have added the link to both blogs below. This trader is also the only other that I have found who is actually posting consistent executions.
It is good to see others showing actual trades. Regardless of how much time I put into writing and explaining I feel that the actual executions are the most helpful part of the blog. Even if they are bad.
The concept of the market having to change premise to stop me out is a powerful one and fits in with the exact premise of Mark Minervini's post about winning the loser's game.
My goal is for the market to have to beat me with a winner of it's own when I am wrong. Not for the market to cause me to make an unforced error or for me to beat myself.
Mark Minervini's post on Winning The Loser's Game
http://markminerviniblog.blogspot.com/2010/04/winning-losers-game_21.html
My Trading Edge is another blog posting actual executions
http://www.mytradingedge.net/
Shallow pullbacks are a sign of strength
I stated I do not like shallow pull backs and I often lose on them as I am sure many traders have the same issue.
I think the root cause of this is due to the fact that many traders, including myself, get caught missing the trade we wanted to hit so we enter later sequence on a shallow pull back after the move has happened.
This is a much lower probability trade and a more "retail" price. I do not like talking in terms of retail and wholesale prices because you do not know what the retail price is until after the sequence is over.
It is the best way to describe the event in this case.
The shallow pull back this morning is a different situation then chasing a move. It was a sign a great strength.
The reason it is so shallow is that prices were so good that buyers would not wait to get in. I was thinking that as I was watching the grind and debating my third long attempt just after the open.
Hopefully next time, I will remember this occurrence and have the confidence the jump back in and give the trade room. It would have made the difference between a good day and a great day today.
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