Trade selection — bad swing trades
BPA trading room Q&A: July 27, 2016
Question 1: I bought the open for a swing up. Sold the B4 high, for a swing down, and then bought above B6 for a swing up. After which I was too upset to continue. Can you comment on these trades?
Video duration: 6min 17sec
Patience – wait for information
Okay, so he bought the open, a breakout above yesterday’s high for a swing up. My first thought is on the open, a lot of times, usually, it’s better to get information and buying bar one is not enough information for me to buy. As soon as I see the close of B1, if I did buy the open of B1, I’m going to get out below B1. And then he sold the B4 high for a swing down. I don’t know if you were in the room at the time. I was talking about B4 being a buy setup for an opening reversal and I talked about all of the opening reversals that we’ve had over the past month. That so many days, we’ve had strong sell offs and then a quick early low of the day, despite a strong sell off. So, I personally would have not bought the open of the day. This is a weak rally and there’s just no way that I’m going to be buying high after a weak rally, at resistance — the all-time high. So, there’s zero chance I would take that buy. So I think that’s not a good buy.
Obviously, the markets up there so the traders bought. For every seller there has to be a buyer, but not an individual trader—an institution maybe. Trade selection, I would not have taken that buy. This [above B4] is a buy setup more than a sell setup. And then [the trader] bought above bar B6 for a swing up. I think it’s okay to buy the B6 close. I think it’s okay to buy it above B6. But if you do, you’ve got to be aware that you’re buying right at resistance. The B3 high, and the high of the day, and yesterday’s high. So, you’re got to be pretty quick to get out. So if you buy the B6 high, where do you get out? Do you get out below B6? Maybe. Do you get out on a second pullback bar — bar 8 falling below B7? More and more bulls were exiting through here [B7-9]. That’s why we’re getting the series of bear bars and ultimately, the final bulls gave up on bar 11.
What’s your objective — swing or scalp?
It depends on what your objective is. If you are trading for a swing, you have to use swing stops. The swing stop for the bulls buying the B1 open, the swing stop is below B1. The swing stop for the bears selling the B4 high is still above B1. Selling that B4 high, my stop is up here [above B1 or B3]. And for the bulls buying above B7, you’re buying at the top of a developing range. I talked a few times early on, if you read my post at the beginning of the day. I said it looked like a trading range open, so if you’re buying above B6, you’re buying at the top of a trading range. In general, that’s a bad thing to do.
Low probability trades
I think trade selection is the issue. It sounds like you’re very eager to trade, and very eager to trade breakouts in a market, where the market has been sideways for 10 days. If the market is sideways for 10 days, in general, you want to buy low and sell high, not buy high and hope that this is going to be the start of a breakout. So you bought the B1 open and you bought the B6 high. Both times you were betting on a breakout, and the rally is just not all that strong, and we’re at the top of a 10-day trading range. By definition, you’re taking a low probability bet, and if you’re taking a low probability bet, you’re betting on a swing. If it’s going to be a swing, it will become clear. I think it’s not yet clear on the open of B1. It’s not yet clear on the close of B6. Although the close of B6 is hopeful for the bulls.
Getting ‘upset’ is a problem
You’re taking swing trades that are just not high probability and if you take them for the next 100 trades, I think you may end up making money. However, you are going to be losing 60% or more of the time, maybe 70% of the time. And it’s just not fun to lose that much. Like you said in your question, I was too upset to continue, right? So, if you’re taking low probability trades, you’re going to be too upset to continue. Like you said in your question. And the problem is, the only way you can make money, taking low probability trades, is by continuing to take them, and you get occasional winners that more than offset all of the losses. However, really difficult to do, because you used the word “upset”. That is the problem.
Wait for high probability setups
You’re a person, and I’m a person, and if we’re upset we cannot do what we need to do. And then if you’re losing too much of the time, it’s really hard to manage the occasional big winner well enough to make up for all of the losses. So for me, my comment is trade selection. I would be much more patient and wait for more information, and wait until it’s clearly bullish or bearish. The B11 close, probably bearish. B13 close, high probability we’re going down for some kind of a measured move. So wait for that, and it’s much easier to make money.
Question 2: Would you talk about the two or three best swing trades of the day?
Maybe selling the B10 close, stop above here [B7], and then getting out above B22. Selling the B13 close, stop would go above B13 or above B11, or above here [B7]. I think you’d still get out above B22. Then buying above B22, that’s not a swing. Buying above B36, theoretically it’s a swing because it makes sense that the bulls had a chance of converting a spike-and-channel into a trading range. I’m not sure the probability is high enough for a scalp. Then finally, buying above B56, or buying the B58 close, B59 low, or the B61 high, and you end up getting out below B73, making about a point. So some days you get really big swing trades; other days are days where you’re going to get a lot of reversals and not much follow through.
Hope everybody has a good night.