Monday, December 28, 2009

Lessons From a Recent Trade

In my recent post, I walked readers through a short-term trade, explaining how I used an understanding of market context to help frame an idea. Here are a few takeaways from that post:

* Short-term trading takes considerable focus and concentration. I was completely immersed in the market through the time of that trade, watching multiple sectors, markets, and indicators and synthesizing the real-time action into updated ideas about whether the trade was working or not working;

* Short-term trading takes considerable mental flexibility. At 8:45 AM CT, I'm in the trade; at 8:47 AM CT, I'm liking the trade; at 8:49 AM CT, I'm not liking it and getting out. I don't wait to get stopped out; if the market is not doing what it's supposed to be doing, I get out proactively;

* Short-term trading means fighting for ticks. That adds up over time. I'm buying bids and selling offers, not lifting offers and hitting bids. When I decide to get out, I battle to get an extra tick from the trade; I don't just bail out. Had the market picked up volume and volatility, however, I would have been more likely to bail. Tactics are relative to market conditions;

* Short-term trading means learning from trades and moving on. The inability of the market to hit R2 told me that we were having trouble sustaining the upside and could move back into the overnight range. That's a good piece of information. I don't spend time frustrated about the trade that didn't work out or frustrated with the market's lack of volume and movement. The mindset is to learn from the last trade and factor that information into the next one;

* Short-term trading means deciding when to not play. I didn't see a good risk/reward trade after exiting my trade and I saw volume drying up. As a result, I decided to not put on any further trades in the morning. Holding onto capital in slow times is as important as making capital when conditions are favorable.