This is Day 15 of an ongoing Day Trading Diary as described in the Balance and Excess FAQ. If you have any questions about the terms used here, you can probably find the definition here in James Dalton’s trading glossary.
Days like today demonstrate why day trading is so difficult- you have imperfect information and prizes are only doled out to the few who can parse that information better then their many astute competitors. Around 10:40 AM I was presented with the following profile and conflicting information:
S and P 500 ($ES_F)
Click to Enlarge
Arguments to make a long trade:
1. The market has broken out of balance and has spent significant time there (about 10 minutes) without being rejected.
2. Despite the light volume on recent days, this type of setup has recently typically resulted in a listless grind higher.
Arguments not to make the trade:
1. The volume up to this point had been extremely light, even by the standards of recent days.
2. After eclipsing Friday’s high of 1314.5 the market showed even less conviction than usual and just barely moved above it, making its high at 1315.25.
So what’s it going to be? After considerable contemplation, not surprisingly, I erred on the side of trading. And also not surprisingly, based on recent results, the market proceeded to rotate lower and I took a 7 tick loss. This is certainly not a disaster, because it is easy to imagine that on another day, with very similar circumstances, taking the trade could have been profitable. Nonetheless, taking a loss is in a frustrating feeling, because when one is in a slump, one starts to get the feeling that whichever choice is taken it will be wrong.
So is there a lesson from today’s action, or was this just a tiny meaningless ripple in the ocean of choices the market presents its participants each day? Should I attribute meaning to this particular action on this particular day? Or perhaps I should frame it proudly as a trade where I managed my risk well but did not happen to get paid. There is no way to know what the true grade should be on a tiny meaningless trade like this one. So the only lesson I can draw from this trade is that at this stage of my development, when I am faced with a marginal decision, it is better to err on the side of not trading. I ended the day with a balance of $46,655.
After listless grinding the somnambulant market finally showed some signs of life in the last 15 minutes of trading, when some motivated longer time frame sellers emerged. In the sea of conflicting information, this places a check in the bear column to carry forward to tomorrow’s action. Here is what the profile looked like at the end of the day:
Click to Enlarge
Account balance after Day 15: $46, 655
In cases like this, you may find it helpful to have a filter in place keeping you from taking continuation trades after a certain swing leg has occurred. For example, coming into today we had been above the 5 day ma all 5 of the prior days and 90% of stocks were above the 10 day ma…tough levels from which to extend.
Or you could just keep sharing the way you are and tell me to f-off. Really enjoying your depiction of profile and your trades, thanks.
Hey Derek,
That’s a good idea. I will think about what other contextual variables I can introduce in marginal situations like that one. Something like what you suggest is good because it is very concrete. ( I didn’t actually THINK the market had much upside at all today, but I am trying not to trade based on my opinion) As for your comments, I’m thrilled to have them, don’t ever bite your tongue. Obviously, I am not getting the results I want, so it’s a great help to get feedback from experienced players like you.
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We opened inside of balance which favored a rotational type day
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