Tuesday, September 15, 2009

Preparation: The Key to Executing Trade Ideas

Shortly after the market open I sold the S&P 500 Index for a move back to the pivot area from the previous two day's trade. Following the logic of my tweets, I saw that intermarket themes were not supporting the upside breakout in stocks on the retail sales news. Knowing that at least 70% of all trading days touch their prior day's pivot made that a natural trade idea.

We did indeed dip below the overnight low and pivot, but at the time that occurred, we could not make a new low in NYSE TICK, and we could not make a morning low in the NQ futures. At that point, I waited for a bit, saw the TICK firm up and stocks bounce, and exited the trade for about 4 S&P points of profit.

The key to making the trade was knowing the target and also knowing key price levels. It was the inability to sustain downside momentum as we got to the overnight lows that alerted me to the possibility that we would stay in the morning range.

Much of the success of a trade, I find, is a function of the preparation--market and mental--that goes into its execution.

For more on execution, check out this post.