I’ve discussed my methodology for exiting winning trades in this space in previous posts, but particularly in the last 3-6 months when I see people taking lots of small losses, I want to denote what I feel is the “right” time to exit a loser if using a timeframe of 1-10 minutes for doing a trade. There are certain distinct behaviors to trades which account for obvious exits (to me). First is the failed trade. For instance, say AAPL is in a general range of 222.50 to 222.95 for about 20 minutes, up 1 ½ to 2 points with a steady market. Suddenly, the market begins rallying. AAPL ticks to 223 with 100,000 shares on the offer. The offer begins to whittle down. I buy, say, 2000 at 223. A few seconds later, the 100,000 offer comes back and the market begins to downtick. I exit absolutely immediately for a 3-5 cent loss, no questions asked. I would have expected the stock to rally and it didn’t so I leave. A second type is the near success trade. Same AAPL example. I buy 2,000 AAPL at 223. It goes to 223.03 and pauses. It goes 223 bid again. I sell half. Suddenly, resistance is now support so I know it could still go, but it failed initially so I want to make sure. If it goes 223 offer again, I revert back to the previous example and I am out. A third type of situation is one that is totally different. It is one whereby someone cannot make 20 cents easily. If you aim to trade in a 1-10 minute time horizon, don’t expect to make any real money if you trade things that cannot move fast. If you do anyway every now and again, the thing to do is actually give it more breathing room. Oftentimes, a stock like an MBI will start and stop fairly quickly. Thus, it needs time and space to work. Ergo, if MBI is in a range of 6.57 to 6.60 for 15 minutes and you buy 6.61, you have to give it to 6.56 to fail. This is where most people mess up (certainly me in the past). If it goes 6.59 bid and I am long, say, 7,500 shares, I exit and lose m $150 rapidly. However, it is so slow to move, I have to give it time. This is precisely why I do not trade these types of stocks. I am terrified of it going to 6.55 and losing several hundred dollars so I accept the smaller loss- but one much more likely to occur. Bottom line, if you’re gonna trade 1-3 minute time horizons, you cannot trade stocks like this. Period. Finally, there’s the “buying/shorting on news” trade. Before doing this, you have to truly have a full feel for the news and let common sense dictate where a stock should be. For instance, Sprint (S) announced the roll out of a new 3G/4G Android phone on Tuesday afternoon. I loaded up on the stock at 3.87 (up 4 cents from the close when the news hit). I bought the stock around 4:58PM ET. I knew this would get positive buzz from the 5PM news and business shows. Yet the stock failed to initially launch and I questioned my own hypothesis. So, when the panelists on “Fast Money” began talking about it, I began to exit at the first whiff of buying in exiting for a 1 cent profit (which after tickets was a small loss). I let my own inane fears get in the way of the story and watched it rally 16 cents in the next few minutes- would have been decent money on 6,000 shares at 5:01PM. So, basically, be careful but not overly cautious. Trade things that can move. Be nimble. And if something begins moving against you in a manner in which you didn’t expect, just get out. It’s better to watch it snap back than to lose a week’s worth of work.
Markets in Asia were up nicely overnight with Tokyo ahead 1.6% and Hong Kong up
1.3%. European bourses are actually down modestly (about 0.2% on average). The commodities have bounced back a bit from yesterday’s sell-off in trading higher by about ½% to ¾%. The main impetus at this moment for Europe much less our rebound happens to be a deal reached last night at a meeting of European leaders to address the Greek debt crisis. It was good enough for short covering in the euro and futures are now higher because of it. Techs are particularly strong. Look for a quieter session than yesterday with a focus on techs and commodities stocks. The upside bias will likely be maintained pending the euro’s performance.
Reiterating-
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
TIBX- decent earnings
FINL- good earnings
SMOD- great earnings
TRIT- closed near a high after posting earnings
VIT- closed on a high after a brokerage upgrade
CPWM- good earnings
CKEC- closed near a high after an upgrade from Merriman
FHN- featured on “Mad Money” last night
HTHT- 9 million share IPO priced at 12.25 at upper end of 10.25-12.25 expected range
RSH- exploring sale and share buyback options according to “New York Post”
RIMM- upgraded by JP Morgan
EAT- raised earnings guidance and increased stock buyback program
Bad-The following stocks have bad news and/or a weak technical pattern
ORCL- lukewarm earnings
A.CN- poor earnings
ATAC- terrible earnings
GENZ- closed near a low after a brokerage downgrade
CLF- closed near a low in an intra-day reversal
FCX- closed near a low in an intra-day reversal
TIE- closed near a low in an intra-day reversal
POT- closed near a low in an intra-day reversal
MON- closed near a low in an intra-day reversal
BBY- closed near a low in an intra-day reversal after posting earnings
RDN- closed near a low in an intra-day reversal
WYNN, LVS- closed near a low in an intra-day reversal
WLT- closed near a low in an intra-day reversal
X- closed near a low in an intra-day reversal
AAPL- closed near a low in an intra-day reversal
SLXP- closed near a low in an intra-day reversal after posting positive drug news
APP- poor earnings
PVG- share offering
VITC, VSI- featured in “Sell Block” on “Mad Money” last night
TRGL- closed near a low
OSG- closed near a low
CNX- closed near a low; 38.5 million share offering priced at 42.50
BTM/C- closed near a low
SOMX- 6 million share offering price at 8.25
Earnings:
FRI MAR 26 BEFORE
FUQI
Good luck today.
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
Joseph R. McCandless- Managing Partner
D. Timothy Seaquist- Managing Partner
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