K, first things first, today pretty much sucked. I started the day shorting things based on the assumption that the fall in the Asian markets would translate to a downturn on the NYSE... it didn't. After I took a number of small hits, I was all set to turn things around when the market basically fell flat. Eventually I turned to Sprint, which historically has been pretty hit or miss for me but lately has been repeating a pattern. For quite a long time Sprint has been trading below 23.00 and in the past few days has been repeatedly bouncing off this level and heading south anywhere from 5 to 30 cents. Once again, Sprint headed up to the 23.00 mark and hovered just below. I averaged in and out at various prices but piled up and prepared for the plummet as it hovered below 23.00. Sadly... today was the day it would finally break it. I managed to get out with only a 4c hit - just as it broke 23.00 - but there was no shorting it after that and I had gone far too deep and was basically at my stop. Blah. Not a great start to June here so far.
I came home today and have basically spent the last 4.5 hours thinking about trading. Thinking about as much as I could... and especially how badly I want to succeed at this job.
I thought a lot about strategy, because I've been at this long enough to have noticed that I have particular strengths and weaknesses. I am quite strong on anything that is highly liquid, regardless of how volatile it is. I've learned a few ways to be safe and profitable on high volatility but also how to take advantage of fluctuating channels. My weakness is the opposite: thick stocks with tight ranges - which typically move very very quickly but only for short jumps.... ie: poor liquidity.
The latter tends to bore me. ETFs, and many very large-volume stocks trade like this. They don't move that much, so to trade them profitably you need to take very large positions. but when they move, they move damn fast so you better well be right. And if you're wrong, you have to either have the cajones to sit offside for long periods of time, or take a hit, reverse the position, and hope it keeps going the way it just went.
The former is very fast paced so it's easy to keep focus. But it still requires a lot of patience, just of a different kind. With a fast moving highly liquid stock, you have to keep watching for that perfect opportunity, which can take a while.
Up until now, I have largely flopped back and forth between these two types of stocks. This is largely because the training and business model my boss prefers is more based on the latter. Our stops and goals are largely based on trading higher and higher volumes in a single trade. Mathematically, this is more risky since you are risking more on each trade. But really, the difference is mostly just in the particular psychology of the traders. At any rate, this flip-flopping has, i believe, really prolonged my training period and cost me considerable profitability. So thinking about EVERYthing after work today, I came to the conclusion that I absolutely MUST commit to either one or the other. And since my strengths are very clearly with low share volumes on highly liquid and volatile stocks (called "momentum trading" for the uninitiated who may be reading this) then that is where I should focus, regardless of the various stops and goals.
So... thinking about this more, I decided I needed to set some rules. Reading through various blogs of momentum traders and just sittin thinking I came up with a few. So here they are:
1)
Have absolute focus and absolute intent. I am either:
a) buying with the intent of selling very soon afterward... as in a Punch-for-a-Penny or playing an unstable channel, or;
b) buying with the intent of holding onto the position for a long time to see how far it goes
2) If the intent is...
a) ...to hold, ONLY buy once the stock has momentum in that direction.
b) ...to sell fast, do not hold offside; reverse or exit if the stock struggles to go in the desired direction.
3) Let the intention of the position determine the attention paid to it. A long hold bought on an upswing can be ignored once reasonably onside. A short hold must have full attention.
4) Don't get hung up on certain stocks. Every day is different. Look for stocks with unusual volume, and watch them to ensure high liquidity and a smooth continuity. Liquidity and continuity are ALWAYS more important than range or volume.
5) NEVER begin ANY position with more than 100 shares. Buying into a WINNING position is sometimes good, but NEVER buy into a losing one.
I am going to strictly adhere to these rules for the next 4 days and let the dice fall as they may. My boss may not totally like it, but I am not the only one in the office who has fought with him over this, and if I prove to myself and him that I am more consistent and more profitable at it, then my goal will be achieved regardless.
If it proves to be unsuccessful, then next week I will give it my all on the low-liquidity, tight-range stocks. If that fails... then and only then am I going to give in.
