Tuesday, June 22, 2010

How to play gap ups? Part 2

So dear readers, let's continue from where I left yesterday. Yesterday, I talked about the mentality behind chasing gap ups and ultimately left buying the stock almost at the top and then watching it go down immediately afterwards. Like I had mentioned, all this was coming from my own experiences when I first started trading. If you haven't read that post, I highly recommend reading that one first. Here is the link.

Well, hopefully we are all on the same page now and I can continue. So, like I barely hinted at yesterday, the improvement in my trading came from understanding the nature of the markets. Why do we chase gap ups? Firstly, we had that stock on our watch list, so obviously we were right about that stock moving up. Yet, we were not able to get in at our intended buy point, due to the gap up. That is obviously disappointing. This feeling only gets worse once frustrating starts creeping in due to the missed profits. How do we get over these emotions? By understanding the nature of the markets. See, dear readers, the markets do not exist to make money for you or to take money from you. The market doesn't care a damn about you. That's not the market's job. The markets only exist to provide us with opportunities. And that's exactly what they do. Provide us with opportunities everyday. And the last word is very important to understand and believe in here. EVERYDAY. So, what is really the big deal if one particular stock gaps up and we miss out on potential profits? The important thing is not to get carried away in the heat of the moment and stay true to your trading plan. The next day, the market will provide us with more opportunities that we can take advantage of. The important thing is to stay true to your trading style and plan. To give due credit where it is due, I learnt a lot about market psychology and similar matters from the book shown in the beginning of the post - Trading in the Zone. Its a must read for any trader in my opinion. Check it out if you haven't read it already!

In the final part of this series, I will talk about the importance of keeping an eye on the pre-market trades and how to actually enter stocks that have gapped up with different trading strategies for momentum, swing and day traders.

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Is It Possible said...

Dear PT,

I like reading your blog but today I am giving a very frank opinion of what I am feeling lately. I do not intend to post this comment on the blog so just delete it after reading and please no hard feelings, if you do not like my comment just ignore me or just bash me with your comments....

1. Blog is becoming very boring day by day as less content and more rattling/blabbering/etc.
2. Reading the post feels like a draggggg.
3. Every time you start a sentence with "dear reader" is extremely irritating.
4. Post Titles are great but real education from the content is zero in most of the post lately.

Sorry if my comments did hurt your feelings but my intent was to just provide a feedback as I like reading your blog.


positiontrader said...

So IIP, I DID publish your comment and I am not going to either ignore you or bash you with my comments. This blog is all about honesty and transparency and your comment deserves to be published.

I do apologize if you haven't found the blog up to your expectations recently. I am not saying you are wrong, as you are certainly entitled to your opinions, but the fact of the matter is that the blog readership and membership has really increased a lot in the last few weeks due to such posts. As an experienced trader, you might not feel the need for such posts but I think there are a lot of readers, who are either new or not so successful at trading, out there who appreciate such posts. As everything else in life, the blog has certainly evolved with time, though whether in the right direction, is of course debatable.

That said, I shall certainly endeavor to live up to your expectations in the future.

Take care and good luck!

ppmoore said...

Dear Position Trader,

I, for one find your blog interesting and stimulating. Please don't take PT's comments to heart. In today's open internet, we all have the opportunity to publish our thoughts to the wider world. I look forward to reading his blog, if he would care to publish it.


positiontrader said...

Thanks for the encouraging words Paul :). And thanks for reading.

Is It Possible said...

Thx PT for taking my comments in good spirits... keep up the gr8 work... :-)