There are lots of trading education websites out there with traders posting how they never lose or have a bad day. This is a pretty big lie, and it ultimately undermines the success of people learning markets because they believe some holy grail is out there when in fact there is not. Trading is like any other meaningful business, it’s hard and there are no easy wins. So, in an attempt at full transparency I thought I’d show you a glimpse into my worst trading day of the year so far in one of my accounts and what I plan to do next.
Here’s the set-up. So, I came into the day short with a cost basis of -1×4456 in Nasdaq Futures and we opened at 4387 or 69pts in profit. My target to take take the trade off was 4314 or lower. We had no less than 3 Fed speakers on deck with everyone eyeing rises in interest rates. Expected range for the day (based on implied volatility) was 48pts.
We opened and could not press new lows. This was the first hint. Then we traded above a large area of auction acceptance at 4394ish. This was the second hint. Then Aunt Janet starting speaking and for the bulls there was much rejoicing…..yeah!!!
Here’s the rest of the story for me:
Throughout the day I leveraged into increasing short size. I was strategic about where I added. Structure on the day was poor and I sold at profile reference points. Typically, a trend day will balance a bit at the end of the day allowing you get out at break even or a little profit. By the time I added the 57s to my position I was at -8x my max position size of -10 at 12:45pm MST. Given the blast off today, it would be unwise to be that large past the close (Asian & European margin calls took us higher overnight). So, I planned to take off 6 if we traded above 61. We hit 63 at 12:45pm…lots of time left in the day to go higher. I knew we had 74 (profile reference) above as a possibility. So, I covered +6x at 62. Ouch.
I resold -2x at 60, which I covered at 54, giving me 12pts back.
I covered another 1 at 59, which left me with -1×4299. Remember, I started the day at -1×4456. Sheesh!
I sold another at 56 to get me back to -2x making my new cost basis -2×4377.5
We had a 2SD+ move today. Not likely (probabilities) we get another one tomorrow, but if we do, I’m sized well to absorb and resell higher. Expected move for the week is 105pts. That gives us 4479 for a 1SD move. I think we’re going to exceed that. I’m back to working a core position. I’ll trade in and around this core until it’s healthy and in profit. Not a problem. It just might take a while.
At this point in the NQ we’ve appreciated 15+% in 6 weeks without a pullback of more than 3%. This broader context keeps me stalking shorts until we get a balance on inventory and I can redetermine bias from there.
Key takeaways from the day:
- Trend days suck when they’re going against you. One of the hardest things to do when you are facing a trend day is to recognize it as such and trade accordingly. The profile helped me recognize the structure and know what to expect throughout the day and the following day. So, I wasn’t naive to think I could just keep adding and eventually turn it around. Trend days lead to predictable behavior. One of which is a close on the extreme with continuation into the electronic session.
- I built into size, but I was also wise about when to take it off and preserve capital. I can always add back later.
- Even with the rigged markets, the auction does what it’s supposed to do. We were in an area of balance. We tried to look below and found buyers. So, as auctions do, we head higher until the last buyer is in.
- Staying small is a key to this business. Get over-leveraged and you will be out. Hold size you can maneuver with and you will be fine. If you do want to work in size, have much tighter stops.
- Knowing what timeframe you trade in is very helpful. If I was an intraday trader, I would gone flat when the trend was against me, or flipped long. I also would not have added to the short. I would have put some size on with tight stops. Right or right out.
This is some of the stuff that Matt and I cover in our 2-Day workshop and our one-on-one mentoring. Thought you’d enjoy some of the process.
Trade Well!
Josh