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    Tuesday, May 20, 2008

    Aggressive


    A trader needs to know when to pull back, and when to get aggressive. Readers know I'm always looking for "traction" in my positions, before I add units. Traction is simply action supportive of my positions, often including a good mark (unrealized profit). Traders should note I already have more size than I did on my string of small losses. This is the true key to profitability, as most traders are right only 55% of the time. Although nothing is guaranteed in the trading world, I'll look to get aggressive by adding to my positions with consistent size. Granted, a few things could throw a wrench in my plans, like the inflation number being released in about an hour from now. The plan stays the same in any case, because the trader has to learn to operate with most, but not all, the pieces of the puzzle. That's not to say I'll rush out and add right at the open. All the same rules apply as when I initially take a trade, just that this one already has me in twice my starting amount, and looking to get to 4x my initial amounts.

    These decisions are not being made on the spur of the moment. I decided before I entered the stocks short, that I'd add if I saw this type action. Had stocks continued higher, as it looked they might yesterday, I would not have added more. We can't know when stocks head lower, exactly, but we can be there for the move. The key is consistency in all your actions. Have a plan that works, and stick to the plan. This is the fun part of the trade for me, no matter the eventual outcome, as I can easily ignore CNBC, headlines, rumors, and blogs. At this stage, I am in control of as much as is possible. I know how I will respond to each possible variable. This allows me to trade from a position of strength, which should be the goal of every trader, on every trade, as it minimizes anxiety. I'm exactly where I want to be on this trade, and I know it.

    It's important to note that at this stage, it's tempting to complicate the process by reassessing, or looking to different signals to confirm. All the trader can know is the numbers, which are supportive of my trade idea. Earlier in my career, I would feel that the "hard work" that got me into this trade should be continued, and I often would throw more analysis into the mix, mid-trade. I strongly caution against this, if you feel the urge. Remember to keep it simple.


    Whatever analysis I used to get into the trade, I'll use to exit the trade. For example, if an MACD setup triggered the entry, I should only exit (and not miss the exit) on the MACD signal to sell, and nothing else. Not news, developments, or opinions should cause action.


    So I have my plan. I'll add to my winning shorts after 10 am, and preferably before 11:30 am, on any signals. I can be more aggressive as long as I'm consistent, and don't risk more of the portfolio (1%) than my initial risk. Now, I'll sit back and let the markets present me with only 3 outcomes. Stocks either stop me out, work straight out of the gate for nice gains on the size I already have, or stocks bounce around giving me the opportunity to add and win bigger over the next several days. I can't say for sure that Tuesday is the big payday, but I feel it's close. I'll still take partial profits into strong moves lower, adding back those shares on sharp bounces, but always staying on the "short side" for this next several week move.


    Do you have a specific plan? Remind yourself that you trade against people who take this very seriously. Trading is a zero sum game, so profits have to come at the expense of others. Although I might eventually lose on these trades, I would not want to be on the other side, with me as an opponent, at this stage. Please have a plan, and stick with it!


    Regarding a longer term setup I've mentioned a few times, I discovered 2 new bond etfs that might be useful down the road. I trade the ZB (30 year Treasury futures), and will continue with those, as they're highly liquid with great fills. Some prefer etfs, but the bond etfs out there move very slow. There are new etfs that are 2x inverse bonds, similar to how SRS is 2x inverse IYR. The symbols are PST and TBT, and they debuted the beginning of May. am not recommending them at this point, rather just bringing them to your attention.


    Some great sites to check out are Toro's (great fundamental analysis)

    Tim Knight's "Slope of Hope" for excellent charts (way better than I can do myself) And for a quick technical take, updated several times a day check out The Shark Report

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