Has this market been great the last few weeks or what?! We had to wait for Summer to end to finally see some action. Who knew? Nobody of course…
When the market starts behaving like it has the past few weeks, I’m constantly reminding myself and everyone in chat that it’s time to “step on the gas”. What do I mean when I say this? What exactly am I doing? Let’s discuss.
Before we do, I feel it’s worth mentioning that this blog is somewhat of a follow-up piece to my blog on adapting. If you haven’t read it, check it out here.
In short, I’m being more aggressive with my trading. I’m seeing more of my A+ Setups materialize and getting more follow through on the trades. While this is happening (and it won’t last forever), I want to take full advantage it. How? Three ways:
I trade MORE.
I look for reasons to stay in trades.
I increase my share size.
There are times when the market just isn’t cooperating. It just isn’t giving you your A+ Setups and/or they just aren’t following through. Anyone who follows along in chat has heard us talk about the gap plays during earnings seasons in this respect. During these uncooperative times, I look for reasons NOT to take a trade. I do everything possible to talk myself out of a trade. If one of the boxes is only slightly checked, I probably will not take the trade and just move on to looking for the next.
In the market we’ve seen the last couple of weeks, I quickly flip my thinking around. I look for reasons TO TAKE THE TRADE. Now, if one of the boxes in only slightly checked, I’m still hitting the buy button.
An example of this is INFI from Thursday. I had already missed an awesome trade idea from @GreatStockPix on this one. However, it was approaching the high of the day which just happened to be a whole number and Level2 looked great. How could I possibly pass this trade up in the current market when we’re seeing stocks run like crazy? Here’s what it looked like when I was getting ready to push my buy button:
Sure, I felt a little late (did I mention Mike was in almost .25 ago?) as it was extended intraday. Mike probably sold me some of his shares. But in this market, my entry still worked. It checked all my boxes. I would have been breaking a rule if I hadn't taken the trade.
Another example was HMNY (what a crazy stock!) on Friday. As I like to say it was “super duper tough” and ridiculously over extended on many timeframes, but it just looked too good to pass up. I’d be breaking rules by NOT taking this one too! Here’s what it looked like as I was pushing my buy button:
A month ago, and all summer long, I never would have taken either one of those trades. They probably wouldn’t have worked in that market. However, they are working now so I'm trading them now.
Staying in a trade:
Almost the entire summer I was in scalp mode. Sure, there were a few runners here and there but it seemed like nothing followed through for months. When stocks are acting like that I respect the action and trade accordingly. I scalp more. (Why not, there's nothing wrong with scalping.) I sell more sooner. When a stock would go up and hit the next resistance level (also the next catalyst) I would sell most, if not all. Why? Because stocks just weren’t moving. There weren’t enough buyers around to push them to the next level. The “next catalysts” were almost always resistance that just couldn’t be taken out.
Now, the market is completely different. We’re seeing CRAZY moves in stocks. More follow through than we’ve seen in months. The next catalyst is exactly that, a catalyst. It doesn’t turn into resistance. When a stock comes up to a resistance level rather than selling everything or most of my shares like I would have over the summer, I use the potential break of that resistance as my motivation to stay in some shares. Not all, just some. Why? Because stocks are moving right now. They are following through. They’re hitting resistance levels, consolidating for a while and then moving higher. In some cases, MUCH higher. Identifying when catalysts act like catalysts versus turning into resistance is a key part of being consistently profitable over the long haul.
Whenever I’ve talked about “stepping on the gas” in the past, this is the first thing that most traders listening to me thought I meant and was doing. Many assumed that I was taking crazy share size, doubling my share size, going “all in”, etc.
I never take crazy share size. I never double my position and I certainly never go “all in”.
Defense first. Always. My #1 rule as a Day Trader is to always manage my risk. I can’t emphasize this enough.
So, what do I do? I take a few more shares. Example: over the summer if I was trading an ORB Play on a stock around $5, most time I would take 2200 shares. Right now, same set-up on a similarly priced stock, I’ll be trading 3100 shares. A decent bump up in my opinion without throwing all of my risk parameters out the freakin’ window. Sure, I’m risking more with the 3100 shares, but I’m expecting more follow through. My overall “R” will be in-line if not better with the increase in share size. Never let your “R” get out of whack!
I want to make one more important point on increasing my share size. This one, of the three, has the SMALLEST impact on my overall P&L. Most would assume the opposite. For increasing share size to have the BIGGEST impact, I would have to ignore my risk parameters and become a gambler. I’m not a gambler. I’m a Day Trader.
So if you read this and go out Monday and start trading more shares, you’re doing it wrong. This should be the LAST thing you do. Too many traders think that all they need to do is increase their size to make more $$$. Want to bet on that? MORE size is rarely the answer. As the saying goes, it’s what you do with the size you have that matters most. Some will get my innuendo. In case you don’t, my point is learning to stay in the trade (holding more shares for longer) is what will have the largest impact on your overall P&L.
Let me emphasize this one more time: If you’re struggling a bit, spinning your wheels and/or aren’t consistently profitable, increasing your share size is NOT the answer. Neither is setting up speed keys and/or using a new scan some guru is talking about or offering you for free. Blog coming soon on this topic. It may be more like a rant.
Let’s wrap this up…
I have no idea how long these fantastic market conditions will last. It could end Monday. It could end a week from now when earning season really starts to pick up. I have no idea. All I know is that while stocks are behaving this way I’m pushing on the gas and taking advantage of every possible move I can. My job is to take my little piece of the market every day. Right now, my piece is a bit bigger than it has been all year:
I’m not getting greedy and trying to take the entire pie, just a bigger piece. As soon as the market changes, I will quickly adapt by taking my foot of the gas.
A quick note: Like I’ve mentioned in previous blogs, this one of the reasons why I don’t have a daily monetary goal. My daily goal is to trade well by following all my A+ Setups and rules. There are days when the market keeps giving and giving. Those are the days when I’m going to keep taking and taking.
Thanks for reading!
Questions? Comments? Reach out and/or leave a comment below.