It's been clear that the market has been quite excitable lately and today was no different. The better than expectations Pending Home Sales report led to some strong upside moves but really the trend was clear to us well before release. This is one of the reasons we don't focus too much on the news (aka fundamentals) while day trading here at Samurai Trading Academy.
The TV pundits will always attribute any small move to whatever scrap of news they can find but most of the time it's completely unnecessary to search for an exact explanation. While the Pending Home Sales release today was a fairly big one and is at least partially responsible for the extension of the move up today, we can easily trade it without actually knowing much about the release itself.
We trade the market action, not the news. As Bob Barker would say, the price is right. The price is always going to reflect all the information at a specific point in time and the market reaction will tell us what we need to know about the current market sentiment. So instead of trying to anticipate or guess based on the news release, why not just analyze the reaction from the market itself and follow along? When day trading it's much easier to join a moving train than it is to jump on the tracks without looking and hope you don't get hit.
Maybe you won't seem quite as clever as you would if you tried to predict the future, but you will probably be on the winning side a lot more often.
As I mentioned earlier the move immediately after the market open gave us a very clear signal of what the future market action was likely to be. I actually did attempt a trade in here but didn't come within a tick of my order. It's always a little painful to see a run like this get away from you but you need to clear your head and move on so you'll be ready for the next one.
That next opportunity came quickly and my focus shifted to potential targets. As you can see in the posted chart, the prior move up created some very interesting possibilities for where the market might go. These are not guaranteed to be reached but by doing quick analysis like this we can at least have a plan for our current and future day trading targets.
When day trading it's absolutely crucial that you have a trade management plan that can adapt to the market conditions.
As you can see I did try to hold the first trade for our target area around 1501.50 but price stalled and the risks were quickly becoming much too high. Why? Because in about 5 minutes we were going to see the release of news and Ben Bernanke was scheduled to testify. You never know if something might get leaked in advance so the closer you get to news the riskier holding a trade becomes. While there are rare cases where it makes sense to hold through a release, on a day like this where they were so likely to be high impact it was best to take the points and step aside for the time being.
After a bit of indecision we then had another opportunity which quickly reached our target area. I didn't get filled for the 2 points on the first touch but did on the second. For a moment I thought I might have been out too early and we were going to have a stronger upside break but I got lucky and we had a nice pullback. Time to go long again!
I probably could have managed the third trade better with some tighter management. Things were moving so well that I admittedly got a bit greedy looking for even more upside. I trailed my stop which meant giving up more than a point of potential profit but I still managed to bank 2.75 points on the trade.
On the next pullback I tried two more times to get in but to no avail. I even got extra aggressive on one of the attempts and still couldn't join the market. Oh well, sometimes it happens while day trading and there's simply not much you can do if you're following your plan.
The bottom line is that your day trading plan is everything, so if you miss out but are sticking to your rules then there should be no regrets!
Trade four was a quick loss that probably could have been minimized. I was feeling aggressive based on the market action so I was willing to give the trade more room to breathe. That's part of how we adapt to the market at Samurai Trading Academy and I don't mind taking a bigger loss when the market has been moving well.
Trade five is without a doubt my favourite of the day and not just because it was the most profitable. It was a more advanced trade opportunity but when specific conditions are present in the market these can be excellent trades. All the factors we look for in the long and short term were filled so we were able to get in here with exceptionally low risk (3-4 ticks) and very high reward (15 ticks). Now that's the kind of risk/reward we love to see while day trading here at STA!