Anatomy Of A Trade – My Trading On StockTwits 12/09/2009

Thought I would write a post about the trades I tweeted live on StockTwits on 12/09/2009 taking you through my thought process as I entered, managed, and exited the trades. Hopefully this will be helpful to some subscribers and blog readers. It might be beneficial to right click on the charts and open them in a new window on another screen so you can follow along.

The first thing I noticed in the morning and what I tweeted was this:

TraderSmarts Dec. 09 at 10:50 AM # $TRIN nice and bullish today

Those that follow me know that I like to use the TRIN. Granted it doesn't work as well as it did pre fall 2008 but I still watch it. With a bullish TRIN reading I knew I wanted to look for longs. At 7:50 when I tweeted the above the market was breaking out (A). It went up and tested the key 10313 level I have been talking about and then failed and started retracing. Notice how it couldn't close over 10313 on the 4 min chart the first time up (B). The opportunity was there to fade the 10313 area but with a bullish TRIN I wanted to be long. The first TraderSmarts Number below was 10285. This also happened to be in line with the waist of the last 30 and 60 minute big bodied candles that had just closed (WAIST on the middle chart). Looked like a good spot to me to go long first time down if we got a retrace which we did (C):

TraderSmarts Dec. 09 at 11:38 AM # Long $YM_F TraderSmarts 10285

The YM made an initial low at 10283 and as is customary I quickly booked some profits (D):

TraderSmarts Dec. 09 at 11:44 AM # Out 1/3 +11 at 10296 $YM_F

I then noted that the CL was banging the lows. Lately oil and the market have been in sync so I knew it would be hard for the market to get traction long with oil plunging (didn't spell banging right but you get the point):

TraderSmarts Dec. 09 at 12:03 PM # $CL_F baning lows

Then I noticed the same potential bullish pattern I had tweeted the other day and tweeted it again:

TraderSmarts Dec. 09 at 12:33 PM # Another potential Rising Three Methods on 30 min $YM_F

The YM then made a lower low while the TRIN had ticked up quite a bit. I decided to lighten up a little bit on the next pop (E):

TraderSmarts Dec. 09 at 12:35 PM # Lightening up a lil bit sold half of 2nd 1/3 + 7 at 10292 $YM_F Want a push UP right here....

Didn't get the push up I was looking for and instead got failure. We then made a third new low (F) and attempted to pop again. The TRIN was fluctuating between bullish and bearish readings. I tweeted that I was still expecting this down channel to snap up:

TraderSmarts Dec. 09 at 1:30 PM #Expecting this down channel to snap up here eventually. We shall see if patience pays. $YM_F

After the third low of the downtrend I knew that the next low was either likely to be the low of the move or it was going to get flushed and we were likely to dump through the morning lows probing for stops. By this point the trade was going against me however I had already booked profits on half of the 10285 long. The initial premise of the trade (long 10285 on retrace and then push back through highs with a bullish TRIN) was not working out and we were now in a controlled down channel with the TRIN fluctuating from bearish to bullish. I was comfortable adding to the position to better my cost basis but needed a hard stop in place knowing a push to new lows was possible. The next TraderSmarts Number below was 10258. I looked at the chart and saw the back to back big bodied candles (G) with high volume. The waist of those candles was right in line with TraderSmarts 10258. More confluence and a great place to add to the position. I noticed the low on the previous day's open was 10240 (Z on the middle chart) and that it was the highest volume 30 min candle since. If we got under that I wanted to be out. I added a full position at 10258 (H) and tweeted this:

TraderSmarts Dec. 09 at 1:43 PM # Added TraderSmarts 10258. 10268 C/B now on current position. Will stop out under 10240 area $YM_F

This left me with a full position at 10258 and a half position left from 10285. I answered a subscriber's tweet asking when I was expecting the controlled downtrend to snap:

TraderSmarts Dec. 09 at 1:47 PM # @bkkumar Time will tell. $TRIN has reverted to bearish and price is going against me. Still in a controlled downtrend though. $YM_F

The YM put in a low at 10255 (H) and started to bounce. We made a move for the top of the downtrend channel again and I quickly took a -9 point loss on the second half left long from 10285 (I). This was a net scratch on the 10285 long leaving me with the long from 10258 to work with:

TraderSmarts Dec. 09 at 2:04 PM # Sold the 2nd half from 10285 for - 9 at 10276 for a scratch on the 10285 position. Still have the 10258 long $YM_F

TraderSmarts Dec. 09 at 2:05 PM # At the downtrend line right here. This is CRITICAL. $YM_F

At this point we were either going to break the downtrend and pop or fail. I moved my hard stop up to 1 tick below the 10255 low for a very manageable -4 pt stop if we failed and put in some staggered orders to scale out at profits and walked away for a bit. Sometimes the best thing to do is stop watching. The market is going to do what it wants to do regardless of if you are watching every tick or not:

TraderSmarts Dec. 09 at 2:08 PM # Hard stop at 10254 now on the 10258 position. Tired of watching this be back in a bit. Staggered orders to scale 10258 long higher $YM_F

TraderSmarts Dec. 09 at 2:10 PM # To me trading is about first defining and then managing risk. If you do that profits will take care of themselves. $YM_F

The YM snapped up out of the controlled downtrend (finally) and then made a PERFECT test of the downtrend line (J) and popped NICELY. I scaled out 1/3 of the 10258 long at 10293 (K) which was right in the thick of the price action from earlier in the session:

TraderSmarts Dec. 09 at 2:38 PM # Sold 1/3 + 36 at 10294 from 10258 $YM_F

I tweeted that I was targeting 10308 on the 2nd 1/3 but forgot to put the $YM_F symbol. 10308 was also right in the thick of the morning range when 10313 failed on the initial morning pop. When we took out 10300 (L) I took profits on the 2nd 1/3 position:

TraderSmarts Dec. 09 at 3:04 PM # Sold 2nd 1/3 + 50 at 10308. 1/3 Left from 10258 long and riding. $YM_F RT @TraderSmarts: Targeting 10308 for 2nd 1/3

We blasted through 10313 to 10320 and I tweeted my targets for the last 1/3 position:

TraderSmarts Dec. 09 at 3:10 PM # Over 10313 and holding and targeting new HOD on last 1/3 long. 10331, 10348, and 10395 the next $YM_F TraderSmarts Numbers

When we blasted over 10330 I sold half of the last 1/3 on the test of 10330 (M). 10331 was the next TraderSmarts Number on the day over 10285:

TraderSmarts Dec. 09 at 3:26 PM # Sold 1/2 of last 1/3 + 72 at 10330 $YM_F 16.6% of position left from 10258. Targeting 10348 + on remaining.

As the cash session closed I closed out half of the 16.6% remaining (N) still leaving 8.3% on for a chance at the 10348 TraderSmarts Number:

TraderSmarts Dec. 09 at 3:59 PM # Out half of the 16.6 remaining + 67 at 10325. 8.3% left see if we can hit 10348 in next 15 min $YM_F

Anything can happen in the last 15 minutes and the market gets less liquid as time goes on so I just locked in profits as we started to dump (O):

TraderSmarts Dec. 09 at 4:05 PM # Out last 8.3% + 64 at 10322. Trade closed. .$YM_F

Having a plan, defining your risk ahead of time, and then managing that risk is the key to me. I always know before I enter a trade what my maximum loss will be if the worst case scenario plays out (defining your risk) and what areas I want to scale out at if the trade moves in my favor. If you are comfortable with both it makes trading much easier. Hope you enjoyed the anatomy of my trade. As always trade smart and trade well!