Saturday, February 6, 2010

Trading in the Zone - Part 2

If you haven't read Part 1, I highly recommend reading that first.

I left you readers last time telling you how it was not trading initially yesterday that helped me get my confidence back. The Market Gods sure work in mysterious ways! Ways too convoluted for us mere mortals to comprehend. And here I was thinking naively, that it would be a series of "perfect" trades or a 10% or so winner that would help me get my feet back on the ground. No, in fact, it was not trading at all. Let me explain that a little more dear readers. If you are a regular reader of this blog, you surely know that patience is not my biggest virtue. So yesterday, the first time in the week when I really had time to properly follow the markets, I thought I would be itching to go in. But on the contrary, I was eerily calm and composed. I was going to trade on my own terms, and not let the market dictate terms to me. After some time I realized, that if I had got into the markets anytime till now, I would have surely got stopped out by now. The market was whipsawing like crazy. I had just one day trade for the week left (damn the Pattern Day Trader rule!) and if I had got stopped out, that would have pretty much been the end of the day for me.

So, I waited. I waited patiently. By now, I was feeling pretty confident because of reasons already explained above. And then I saw PAL drop to 3.45. I have been trading this stock since last December, so have developed an intuitive feel for this stock, and didn't need to see the charts to know that it had very strong support at 3.40. The market was around 70 points down at this time and I was seeing a positive divergence on the MACD. Egged on by my new found confidence, I jumped in PAL at 3.46, taking my biggest position in two weeks.

The stock never looked back. The market turned. The DOW was trying to turn green for the day with the NASDAQ already there. PAL was approaching 3.60, an important resistance level. The DOW had tried to turn positive at least a couple of times in the last few minutes but had failed to stay there. Very calmly and without a single thought about leaving profits on the table, I sold my position at 3.59 for a 3.75% gain. The market reversed and PAL went back to 3.45. If I hadn't sold earlier, I would have got stopped out at 3.52. A perfect trade! Not only in terms of execution, but more importantly, in the state of mind it was done. I had had an almost 6% gain in around 5 minutes on Monday, but that didn't feel half as good as this one did. (PAL went back to 3.45 - low for the day- before turning around when the market turned later in the day)

If you have read the first part of this post dear readers, then you know are familiar with my strategy of buying GMCR and CREE close to their support. As the market continued its decline, I took a small position in GMCR at 81.10. Small because I wanted to give it room to run. I turned off the screens pretty pleased with the day I had had. Does the story end over here? Of course not!

After a gap of an hour or so, I started seeing the markets again. All the stocks on my watchlist were way in the red. But I was also observing something strange. Now dear readers, I had many metal stocks in my watchlist as I thought that they were quite oversold. They were falling dramatically. I had a look at the gold and palladium futures. And what do I see?? They seemed to have bottomed out and were stabilizing! But the metal stocks kept on plunging! Then and there I knew it, that what we were observing now was panic selling. Its hard to describe, and now looking back, hard for me to even imagine how confident I felt. I took a position in NGD, a small-cap gold miner, at 4.03. The size of my position does not reflect the size of my confidence at that time. But I could not take as large a position as I would have liked as I was out of day trades for the week. There is a thin line between being confident and being stupid, a line I was determined not to cross.

You all know how this story ends. The markets turned. Yes Sir, turn they did, taking my stocks with them. NGD closed at 4.31, but an after hours trade changed that to 4.21. GMCR closed at 82.60.

Now, there have been days when I have made lots more money. But today was not about money. It was the ease with which I was trading. I was gliding in and out of the trades. I didn't have to "force" the trades - a concept hard to explain but I am sure all you readers know what I mean. Just for this day, trading felt like the easiest thing in the world. I am not naive enough to think that I will experience another day like this anytime soon. I might make more money Monday (I hope so!) but like I said earlier, it wasn't all about the money. Just for today, I was in the zone - I was trading in the zone.

I am sure all you experienced traders have had days like this and for the new traders, I hope you do so soon. Take care and good luck trading!


Beantowntrader said...

You are in the Zone! Just a suggestion if you keep a mental check of having 1 day trade only everyday maybe you can consistently wait it out until you are in the zone again. Awesome story man.

positiontrader said...

Thanks B.T.! I was actually postponing writing this until tomorrow but then remembered that I had promised you about getting it done today.

And thanks for the suggestion too! You are absolutely right but I wish it was that easy to implement. Maybe I should do a quick post about what I think I did different that day while its still fresh in my mind.

positiontrader said...

P.S.: Just to correct you if I may, I was in the zone rather than, am in the zone. lol. Those who know call me an eternal pessimist, though I do like to think of myself as a realist.

Expect the worst and hope for the best!