Glimpse of a Stock Trader’s Mind

The team at High Chart Patterns, a stock picking newsletter, wrote in with their thoughts on trading.

When I woke up this morning I realized I had dreamt about my set-ups last night. Or I think I did anyway. It’s drizzling a bit but I quickly take my dog out for a walk to clear my head before starting the day. It’s still dark here as it’s 5:30AM – the life of a West-Coast trader (also the rain of course). I enter my office and am actually looking forward to the trading day today. Last night my trading partners and I finally found some decent set-ups after a mini-drought of having very few that we liked all week. Usually, when we find a few set-ups we like the night before for our readers, it means that the next day will be a busy one. The Nasdaq is opening up weak – and we’re looking at 3 longs and 1 short for the day. Great. I hate going against the trend but I always trust the charts first, and everything else second. I sit down and see that my trading buddies are all on IM conference and busy chatting away. I don’t really read the news in the morning and CNBC is never on; in fact, I moved the TV out of my office last year because I found it too distracting. We don’t trade off news anyway, so it’s not too relevant. Not that you could trade off the news from CNBC anyway – by the time they cover it the move is usually over.

I, like my partners, almost always only trade from the lists that our subscribers receive. This includes stocks with set-ups, stocks that are forming, and leader momentum stocks that are always on our lists (like GOOG AAPL SNDK GRMN NTRI SHLD for example). STLD is coming close to our alert price of 49.5. We IM that to each other almost at the same time. The whole sector looks weak. STLD makes me nervous, she’s a commodity stock, after all, and they don’t always trade off the charts. What I mean is that she can be much less predictable than my favorites like NTRI or GRMN. Volume is good, and we’re all going to take the trade if she breaks. I set my order up, usual size, and watch my screens. The IM conference goes quiet as we’re all stalking our stocks. STLD breaks 49.5, and confirms our number 49.42 short. We’re all in — and the market hasn’t even been open for 30 minutes yet. We ask each other where we filled and we tease the one with the worst fill (that’s me unfortunately). She’s acting great, hovering right around our number. I set my hard-stop in (different places but around 49.7 for the most part) and try to relax a bit. She touches 49.51 but quickly heads back to the lower range. I don’t like it when they poke their head above the pivot price, but she’s acting pretty well and I try to relax. I get an IM from a guy I haven’t talked to for months asking me what I’m up to – I really should try those stealth settings Yahoo has…

STLD sure is taking her sweet time breaking, isn’t she? Hmmm… the steel sector seems to be bouncing. For a second I contemplate just covering break-even. Just stay in the trade and let it unfold, I tell myself. Stop acting like a hummingbird. I need some coffee.

STLD dips down and I’ve got over 1% profit from my entry. I cover some and move down my stop now to 49.5. Another one of our selections is coming close to our number. FMCN alert is 60.5 which already went off at the open. She acted wild right after but she’s calmed down a lot. “Volume is really good,” I type to my buddies. I set my order and soon enough she fills. It’s now 10:30AM EST and I’ve got two positions on. I set my hard stop in FMCN. They’re both acting great. FMCN is showing really impressive relative strength as she keeps hovering around the high of day while the Nasdaq keeps hitting new lows. Being in FMCN long and STLD short is not my idea of fun, as I don’t like either of these stocks but so far so good. Neither am I crazy about being in a long and a short simultaneously. I tell myself it’s tempting just to exit everything here for a nice profit and start the weekend early. I let myself think these thoughts – kind of an escape mechanism – but I rarely act on them. Every day I want to be the most disciplined I can be. I want to trade the way Data would. Who’s Data? As my trading buddies know too well, he’s the android from Star Trek. Cool guy.

STLD is bouncing a bit. That POS. I try to send it “Down baby down” thoughts. PCLN now is getting close to our spot. Great, nice red day in the Nasdaq and I’m going to have more longs than shorts. I type to my buddies, “is that volume correct?” I’m showing massive volume on PCLN, like 800% of its 90d average already. Yes, they write back. This is a nice set-up on PCLN. She seems to care less about the Nasdaq tanking. On volume like this she can do whatever she wants, I guess. I set up my order for PCLN. Why isn’t FMCN ripping? “I want two points already in her,” I write to my buddies and they laugh since we’re all actually a bit red in the trade – but she’s acting really well and not even close to my stop. I try to relax. I buy PCLN through 34.36 and put my stop in (34.1). Man, when’s the last time I traded PCLN? This little has-been stock is baaaack. PCLN is going up quickly. “Sweet,” writes one of my partners. I exit for 1%. That was nice. STLD is behaving and FMCN is finally lifting up a bit. I know I shouldn’t but I let go some FMCN and cover some STLD. So much for trading like Data. As a rule, we tell each other everything, so I have no choice but to tell my buddies. They call me names which I can’t repeat in this public forum (my mother reads this blog after all). Why do we tell each other? Probably a check mechanism. If we are thinking of doing something really stupid, the possibility of the others ridiculing us keeps us in check.

It’s so easy to find excuses and justify everything. Too easy in this career. So now I have half FMCN and just a little bit less than half STLD left. I’m going to put up some orders and walk away for a bit. My eyes are tired and my back aches and it’s not even 12PM my time. I’ve put a piece of tape on my screen to mask my p/l. Of course I keep taking it off and looking.

I come back after 10 minutes. I can never stay away too long when I have positions on – not sure whether that’s a good thing or a bad thing. FMCN is dipping with the market. Wonder if she’ll stop me out. STLD is acting great. Almost have a point on her now. Why the hell did I cover so much already? Data. Data. Trade like Data. Nothing to do now but let the trade unroll towards its destiny. I start the newsletter for Sunday and tell my buddies what I want to write. Lazy buggers just agree to everything and let me do all the work. I think one of them has fallen asleep. So far it’s been a good, smooth day and we’re all in a good mood, joking around a lot.

I look at PCLN and see that she has sold off and has gone below my entry price. Ha – great exit I tell myself. Nice exit I write to my buddies. “So far,” one of them responds. Right he is, as later on she rallies another point. I don’t mind – I would have been stopped out anyway before she started ripping. You can never get them all – just follow your rules and you’ll still carve out a good career. I cover the rest of my STLD for over a point and sell the rest of FMCN. I’m pretty happy – nice easy trade to manage. I’m wondering how many of our readers were involved with these trades. Were we too negative in the newsletter last night? Lots of thoughts going through my brain.

Of course I realize that I covered too soon as STLD keeps falling and falling. But it’s Friday, I’m tired but happy, and greed definitely is not my middle name. Three triggers, three wins. Like most traders we’re all pretty superstitious, and we rarely get cocky. Trading gods wouldn’t like that. Good day though. Looking forward to the weekend. I say good-bye to my partners, and shut off my computer.