Some days it seems so easy to make money trading that it almost makes you forget the days where you have to really work for it. It probably helps that today saw the Dow Jones put in a record high at 14286! I'm not a very big fan of using a 30 company index as a proxy for market health, but we've really seen some great movement across all markets lately and the Emini S&P 500 was along for the ride.
The funny thing about a day like today is that for a lot of traders it actually does present some major problems. Many traders have trouble with trends because they always see the market as putting in a possible top or bottom. While it's true that this can happen at any time, you need to have confidence in the trend until it gives you a very compelling reason to think otherwise.
Today is a good example of how trading can be as easy as you make it.
If you are trying to be clever and want to outsmart the market by getting in counter-trend on the extremes you might run into trouble but if you are willing to put the ego away and just follow the price action it's almost impossible not to make some good profits.
The chart above shows how things looked as we got started just before 9:30 EST today. The market had been on a strong run through yesterday afternoon and in the overnight session without showing any signs of slowing down. Why would we even consider shorts looking at that? It also becomes quite clear looking at this price action that if we want to get a bit more aggressive on our profit targets it will most likely pay off.
Things got going with a dead simple long just after the open. The target was quickly adjusted and although I had hoped to hold this for more the market began giving us some strong clues that a pullback was likely and I took 3.25 points (13 ticks) on the trade.
After one more move higher we did get our pullback and I was filled again. This is where things got kind of interesting as we needed to have faith in the strength of our trend. With a 1.25 point (5 tick) stop here I was only a tick from being taken out for a full loss and we weren't seeing much upside pressure. Sometimes traders panic in these situations and exit early to try to minimize their loss and this really hurts their results in the long term.
A trader must have a plan and has to stick to it until the trading setup is invalidated.
With such a strong trend a trader has to be willing to possibly take a loss in order to give the trading setup room to breathe. In this situation it was definitely a good idea as we soon broke to the upside. Now we were presented with another problem - news. While I don't recommend that any novice trader holds through news, in specific situations the experienced trader can reduce their risk and hold if they have reason to believe the odds are strongly in their favour. Though a number of factors went into it, my thinking could be summarized as:
Surprises usually happen with the trend.
I wasn't quick enough to get in on the initial pullback but then got filled for a trade that turned into a full loss. What was I recently saying about being willing to take the loss if needed? I can't say I love a loss but I can completely accept them as part of my plan and quickly move on.
I was then filled right on the edge for yet another long and had to wait patiently for the trade to develop. We were seeing price struggle a bit with the 1538.00 level so I felt that if we could break it we would likely see a nice run. Once again it was all about reading the market conditions and the overall momentum of the day to maximize the trade potential.
Not every day gives you the opportunity so take advantage when you can.