So here is an example of a good trade idea gone wrong. Please note that in this example I am trading a very short-term time frame, not looking for market swings.
I noted in my post on market context that we were in a short-term uptrend. That put me in the mindset of buying weakness.
My discipline is to wait for the opening minutes of trade and get a feel for market strength/weakness and intraday sentiment. We popped up at the open in the ES futures, sold down to 1124, and then moved to new highs at 1126. The NASDAQ 100 futures (NQ) were relatively strong; the Russell 2000 Index was relatively weak (a concern); intraday advances were handily ahead of declines (but not by a phenomenal margin); and NYSE TICK was consistently positive (but not registering values > +800). All told, strength, but not great strength.
My discipline is also to wait for weakness to buy an uptrending market. I want to take advantage of weak longs and unprepared bears, rather than chase highs and have the market put me in the hole on normal countertrend movement.
So in the 8:39 AM CT minute, we come down to 1125 and then bounce higher; TICK stays positive. 8:42 and 8:43 minutes see us come down to 1125 again and hold. NQ is still strong; TICK is still positive; Russell is holding above its morning low. I bid for one unit (a quarter sized position) at 1125 and get filled in the 8:45 minute.
I immediately work a sell order at 1127.25. Why? That is my R2 level: my trade idea is that we're showing strength, we've taken out R1, and as long as TICK stays positive, we'll hit R2. (Note: my profit target levels for SPY are published every AM before the market open via Twitter; if you multiply the SPY targets by the ESf number, you'll get profit targets for the ES futures contract, front month).
My stop is at 1124, since that's where morning selling dried up at that point. Basically I'm risking a point to make two. Not my most heroic idea, but it's what I saw at the time. If the market suddenly picked up strength, I'd cancel my sell and consider riding to R3. If the market dried up, I'd also cancel that 1127.25 sell and consider getting out altogether.
That's the planning going through my head.
By the 8:47 minute, I see the Russell jump higher. We also hit 1125.50 in ES and move to a new high in NQ. I'm feeling good about the trade and the execution. In my head, I'm already thinking of moving my stop to breakeven. No sense losing money to start the week.
Lo and behold, the Russell hits selling immediately thereafter and ES goes into a low-volume stall for several minutes. The intraday advance-decline line is deteriorating and I see dollar strength and commodity weakness. My context is breaking down, short-term.
In a hurry I move my sell to 1125.50, because I want out and want the best price I can get. My stop is now 1125. I no longer like the trade. At all. Volume has petered out; the A/D line is no longer in trending mode; and too many sectors are weak from their opening price.
I get filled quickly and am out with a two-tick profit. Basically it was a scratch that I happened to execute well, which tells you something, over time, about the importance of execution.
The next thought in my head is that maybe I'll stop trading for the day; volume is dwindling. The following idea is that we've possibly seen the high for the day. I'm thinking about the next trade idea, which is selling the market for a move back toward the pivot level, which is a little north of 1120.
(Note: as of this posting, I did not take that second trade idea. I just didn't like the low relative volume; in a more active market, I would have taken the trade. The better idea was for a move back toward the day's VWAP, but I didn't like the risk/reward and passed).
That's what my early morning looked like; a psychological window on the short-term trading process, integrating morning preparation and understanding of context with real-time market dynamics.
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