Trader MD

Patience? What?! The market was down several percentage points across the board and you're talking about patience?

Yep. I've kind of realized over the last few weeks that I simply don't have the time to post every trade I make anymore. I've had some pretty solid trades (maybe some overconfidence played a part in today's early entry?) and in the past (before residency started), I would usually put together my daily posts right after the market closed or in the final hour of trading. But now, blogging isn't really that high on my priority list as far as importance or in things I have time to do. That being said I still do want to and do enjoy posting material my readers will actually be able to make use of instead of seeing trade example after trade example. Besides, Jamie already does a great job of that :)

While I'm at it, hopefully this recent leg down in the market hasn't really surprised anyone. The $VIX chart I posted last week gave me some indication the market wanted to head lower relatively soon and a lot of the leader stock charts I was looking at (i.e. RIMM, which has made a fantastic short recently; AAPL, etc). If that wasn't enough to convince you, then Tuesday's price action should have been another clue. When the market gaps up to the point where the Dow is up nearly 250+ points, only to end in the red... is just about as bearish as you can get.

So anyhow, back to patience and how it deals with the market action from today.

Let me start by saying I was fairly patient waiting for a setup to trigger, just not patient enough.

I've been watching the XLF for the last week or so waiting for a short entry (via going long on the SKF) and this morning I jumped the gun. I entered before I normally would have and as a result I was stopped out. At that point I called it a day because I had broken a trading rule.

Now here's what I was watching and waiting to setup:



Now this is what I did:



And this is what I should have done:



So despite being patient, and carefully stalking which trades I wanted to enter... to put it in baseball terms: I swung too early. I didn't wait for the pitch that I had planned for. As a result, not only did I get stopped out of this trade, but I also lost out on what could have been a potentially huge day.

Now I'm not even saying I would have captured the entire move. I know for a fact I would not have. As you can see by the first image in this post, that my initial target was around the 21.30 area, which correlates to about 117 on the SKF.

Patience as a trader is very important. Even with developing a watch list or having a few select trade ideas, you are constantly given the chance to enter those trades at any time. The key is having the patience to wait for the right setup. Waiting for the right setup minimizes your risk, maximizes your reward and gives you the highest probability for success. I clearly didn't do that today.

And now that we've had a huge down move, the key going forward will be having the patience to wait for the next setup :)

Hope that helps. Any feed back on this new 'feature' would be appreciated. If so I have ideas for other "Keys to Success."

Posted by Trader M.D. at 11:01 PM

Labels: Channel, Failed, Gapper, Keys To Success, XLF