CMU: The Art of the Trade

By Jani Ziedins | Free CMU

Apr 14

Cracked.Market University

The S&P 500 bounced back from yesterday’s modest dip and the March rebound continues reclaiming lost ground. There wasn’t a definitive headline driving this strength, instead, this relief primarily comes from a moderation of the viral infection rates. We are still a long, long way from resolving this crisis, but at least for the moment, it appears like it is no longer spiraling out of control.

Last week I shared a day-trading strategy that has been working well in this market. It doesn’t matter if the market gaps higher or lower, what we are paying attention to is the market’s first move following the open. If the market rallies, we buy. If it dips, we short. Now, when I say first move, I don’t mean five seconds after the open, but in the first five or ten minutes. Identify that move, jump aboard, leave a stop near the open and see what happens. If the first move fizzles and hits your stop, get out. If you are aggressive, consider flipping directions and going the other way. Take profits in the afternoon and be ready to do it again the next day.

Easy enough, right? Well, today gave us one of the more challenging cases. To this point, the market’s been really good about going in one direction or the other. The handful of times it switched directions midday, that reversal kept on going, making a flipped trade work well. But today’s price-action caught us in the middle. The early rally dipped back to the open and then bounced higher. How this affected a person’s trade depends on the levels they got in at, the stop they picked, and if they switched directions or not.

If a person gave their stop little extra room under the open, they were probably okay and rode the afternoon rebound higher. But if they were more conservative, this midday swoon undercut their stops and knocked them out for a small loss. If they used that trigger as a signal to enter a short trade, they got washed out a few minutes later when that midday false-alarm bounced higher.

If I person got zinged twice today, there is nothing wrong with calling it quits and trying again tomorrow. These losses are measured in cents and not a big deal relative to the profits we’ve been collecting over the last few weeks. We cannot win them all and this is just part of the game. Come back tomorrow and by then today’s trade will be long forgotten.

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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM


About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.