An NYSE Scalper's Tale - A Trader's Diary

Tuesday, February 21, 2006

The Perils of Trading in a Trendless Market

Gross: + $27.60
Net: - $22.05
Loss from Top: $177.27
Trades: 42
Shares Traded: 48800

Stocks Traded Today (net profit/loss):
Seagate Tech (STX): +$153.13
Home Depot (HD): +$136.50
JP Morgan (JPM): -$7.33
Hewlett Packard (HPQ): -$25.22
Disney (DIS): -$54.73
Pfizer (PFE): -$98.50
Walmart (WMT): -$125.89

A tough trading day today as many of the other traders ended up in the red. Aside from the morning movements, the rest of the day was rather trendless.

Which brings me to one of my personal trading rules: Never trade when the overall market is trendless. Unfortunately I broke that rule many times today. After a quick start in the morning, I eventually lost it all to end the day down $22. For my trading style, nothing will kill me faster than trading when there is no trend. I guess coming off a long weekend, I felt the need to trade and once the morning moves were over, I guess I couldn't bear myself to simply watch the market go by.

But today clearly shows why I should not trade when the overall market is trendless. Prices are simply too random to be profitable unless you get in and out for penny winners. The way I trade, I like to hold and scale out of my position in an attempt to capture as much of a move as possible, which simply will not work as this afternoon shows. Today I simply got in and got out for a penny loser here, a two-penny loser there whenever I traded without a trend.

My biggest winners today:
Home Depot (HD): +$136.50 (net)
Seagate (STX): +$153.13 (net)

My biggest loser today:
Walmart (WMT): -$125.89 (net)

For the Home Depot trade, a huge SuperMontage order appeared on the offer (about 1000 size) and made it's way down. I shorted only 2000 shares and got out for a 7-cent winner (though I could have taken at least another 10-cents). I should have scaled out of my position on that trade.

For the Seagate trade I saw a nice support level with about 500 size on the bid. It attempted to break that level several times, but could not. I scaled into the trade until I was long 3000 shares. I then proceeded to scale out of the trade as follows: 4-cent winner (1500 shares), 5-cent winner (500 shares), 7-cent winner (500 shares), and 10-cent winner (500 shares).

The Walmart trade was done when the market was trendless. There was a support level at $45.50 that was about to break, so I shorted 3000 shares at $45.50. Unfortunately, the overall market was going nowhere and so Walmart wandered around a bit, then it decided to go up. Scaled out of my position as follows: 2-cent loser (2000 shares), 8-cent loser (1000 shares). I had many opportunities to get my last 1000 shares out at a better price, but again, I broke one of my rules (once a trade has become a 2-cent or more loser, exit ASAP), and as a result I ended up losing 8-cents.