Today’s Trading Lesson | 7-22-16
How many positions do you trade at the same time?
When I started trading in 2000 I was taught to find a good trade and get size. “It’s better to have one big position…”
I believed it, the guy sounded smart and he was persuasive. It’s bullshit. Here’s why-
Trading is about probabilities, not whale hunting. Sure it sounds great to hit a big trade, and then brag about it. The problem with this advice is risk and sample size.
You are accepting incredible risk on a one-shot trade. This guys focus was on the profit side, and how much we could potentially earn if that one trade worked out. It was basically all-in.
A huge problem with this concept, especially for new traders, is that you don’t have enough experience to make that decision. How is a new trader supposed to know what a great trade looks like? At that stage we are still learning how to read the tape and place orders.
The second dimension to this BS advice is sample size and experience. New traders should seek experience and feedback, not profits. I know that sounds counter-intuitive but hear me out.
A few years back I started using a software that forced you to build a list of stocks before you ran scans. You needed to actually create a fake position, so I bought 100 shares of every stocks to build the “portfolio.” Within a month the 100 share positions showed a positive $4,375.
I have to be honest, I wasn’t paying attention to the P&L because that wasn’t the reason I built the portfolio but I was stunned. My mind started to race. “How is this possible?”
The deeper I looked in to the positions I saw there were winners and losers, but the total was positive. My only thought was WTF…
So I wrote in my journal, “If trading is about probabilities, let’s purposefully trade to a large sample size, of my best trades. Let’s take every trade that matches my criteria, for only 100 shares.”
The results were mind-blowing, but not in the way you are thinking. Yes I made money, but my stress level was gone. I no longer felt naked watching one position. No longer was every uptick or down tick life-or-death.
I was managing the aggregate of the positions, not the one trade. It was bliss, but it got better, my negative days became dramatically smaller because I was accelerating my sample size of good trades. The odds were in my favor (because I understood tape reading and order flow) so I was speeding up my probability cycle by executing ten perfect trades in batches.
I hate to use gambling analogies for trading but in this case it’s spot on. Why do casinos have thousands of tables and slot machines? They have an edge and they want the edge to play out as often as possible!
I am not saying you should start trading 6-10 positions at once today, but once I started to embrace this concept everything changed.
Think about this advice. You will be glad you did.
On the Tape Today...
$AMGN resistance at $165 is solid. Sell short with a tight stop. $160 target. (see chart)
$PSX relative weakness, head and shoulders top a sell short below $75.
$MS inside day consolidation. Look for an increase in volatility today. If the break is lower, let it go.
$TRV big bottoming tail. Strong close on a weak day. $118.25 target for a new long.
$AMGN 7-22-16 (Click to Enlarge)
Opinion: This is the absolute worst reason to be bullish on stocks right now
Don’t count on higher prices just because interest rates are low
Here’s my pick for the worst reason to be bullish right now: The argument that stock prices will go up because the market’s earnings yield is so much higher than the 10-year Treasury yield.
I know, I know — it’s really saying something to call this the worst. After all, Wall Street is swamped every day by hundreds of theories that cannot stand up to even minimal statistical scrutiny.
But this particular argument is perhaps the most widely repeated of any nowadays. As so often happens on Wall Street, traders even have started using an acronym to refer to it: T.I.N.A., for “There Is No Alternative.”
Fact is, this argument has no historical support. None.
Stock Market Today: Heatmap of the S&P 500
Stock Trading Today 7-22-16 | $EBAY Gaps Higher
Stocks Take Break As Earnings Roll In; How Did Chipotle, Starbucks Fare?
The stock market took a breather Thursday as earnings results continued to drive big moves in both directions ahead of reports from Chipotle (CMG), Starbucks (SBUX) and Visa (V). EBay (EBAY) soared, while Intel (INTC) sank during the regular trading session.
The S&P 500 and Dow Jones industrial average shed 0.4% each; the Nasdaq gave up 0.3%. Volume was higher on the NYSE and Nasdaq vs. Wednesday, according to early figures. After the close, Starbucks fell 4% on a revenue miss.
Chipotle missed earnings views, but shares were slightly higher in extended trading. Software, automakers and airlines led the downside during the regular session in the stock market today, while gold miners, medical and leisure stocks represented the upside. EBay gapped up and soared 11% to a new high, clearing a 29.93 buy point in fast turnover.
The stock has now advanced in 11 of the past 12 sessions. After the close Wednesday, the online marketplace reported Q2 results that topped views and guided its full-year outlook above forecasts.
Tape Reading the SPY ETF
$SPY day of profit-taking was overdue.
Expect price action to retrace to the $214 area before finding buyers again. A light volume pause this week implies higher prices. The glow of earnings season will need to be absorbed before a meaningful push to new highs.
This means a focus on stock-picking. When the general market is obvious, finding relative strength plays is the correct game plan, but for now the tape says neutral price action ahead.
Scroll down and choose from today’s list to find some new trading ideas.
Stocks in Play: $EBAY research on finviz.com
$EBAY NEWS: EBay Stock Hits Record High As Earnings Hint At ‘Cash Cougar’
EBay (EBAY) stock hit a record high Thursday, and the e-commerce company’s stock received multiple price-target hikes, following a quarterly earnings report that beat expectations.
After the close Wednesday, eBay reported second-quarter earnings results that included a 6% year-over-year rise in revenue to $2.2 billion. It also issued full-year guidance above the Wall Street consensus estimates, though its Q3 guidance was light.
EBay stock jumped 10.9% to close at 29.93 in the stock market today, surpassing its high last set in December and hitting a buy point.
EBay Rewards Investors Following 2Q Earnings and Upbeat Guidance
Shares of eBay (EBAY) are up more than 11% Thursday, following the company’s second-quarter earnings release.
The stock’s spike begs the question of whether eBay is overpriced. Should investors buy the stock, or are there better growth opportunities?
Stocks to Trade 7-22-16 | Friday Edition
Short-Term Trading Momentum:
Positive the last 20 and 5 trading days | closed 2% higher from the open: CHTR, DISH, HRI, STX
Negative last 20 and 5 trading days | closed 2% lower from the open: luv, mur, prgo, rrc, clr, dlr, acn, bhi, hes, trgp, apa, nflx, nbl, oke
Quarterly Order Flow:
Bullish Stocks to Trade: KMX, CHTR, VMW, AMGN, MBLY, CAT, UNH, AMZN, CVX, IBM, COST, HD, FB, SLCA, LRCX
Bearish Stocks to Trade: cop, nflx, psx, prgo, vlo, bidu,
2x Normal Volume: RLYP, QCOM, LUV, JOY, AET, EA
Inside days: msft, abx, ms, vrx, pypl, pten dow, csx, mos, wdc, cf, gs, hbi, twlo, dfs, nwl, mbly, hfc, stt