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

Sunday, June 18, 2006

Bounce? What Bounce? (Fri Jun 16 Results)

Gross: +$426.28
Net: +$241.22
Loss From Top: $217.21
Trades: 96
Shares Traded: 166022

Stocks Traded Today (net profit/loss):
Hewlett Packard (HPQ): +$404.30
Walmart (WMT): +$213.53
Home Depot (HD): +$92.38
JP Morgan (JPM): +$55.14
Citigroup (C): +$19.96
General Electric (GE): -$145.75
Micron Tech (MU): -$398.15

Whoa! I barely survived Friday's quadruple witching and believe me, there were lots of games being played!

As mentioned in my previous blog posts, I historically do very badly on any witching day (when options expire, 3rd Friday of every month) and even worse on quadruple witching days (when options expire for stocks, Futures, stock index, and futures for individual stocks).

Micron Tech (MU) played me like a violin on Friday. There were so many times I was fooled by the games being played on this stock that I refused to trade this stock during the last two hours of trade. Huge size would suddenly appear (I'm talking like 2000 size showing up on the bid) and would scare prices up - then just as suddenly, the size would disappear, then there would be an even bigger size show up on the offer (like 3000 size) and would scare prices back down.

There were also times where big size (500+ size) on the offer would get hit and get smaller and smaller, when it looked like it was going to break, another 500 size would show up at the same price. When it looked like it was going to break again, it would refill to 500 size again!

The last few days have not been particularly good for me. And on Friday, I think I realized why. After a big losing trade on Friday, I stopped to think what I was doing wrong. And it all had to do with the "bounce" play I recently incorporated.

My "official" definition of a bounce play is to take a position opposite to a strong move made by the Futures. This was created due to the great volatility that hampered my trading strategy the last few weeks. If, for example, the Futures start tanking (going down hard), I would wait for an opportunity to go long immediately after the hard move down.

What I have been doing the last 3 trading days was I was simply taking a position that was opposite of the overall trend and NOT actually trading on a bounce. Basically, I was using the "bounce" play as an excuse to put on a trade that breaks almost all my trading rules (make sure the Futures are trending in the same direction, make sure the stock is trending in the same direction, make sure there is a good move in the Futures before taking a position).

I came to this realization when I was trading Micron Tech (MU) and lost $269 on it. In my mind, I was thinking that I was trading a "bounce" trade, when in fact it was not. At the time, the Futures and Micron Tech (MU) were downtrending. There was no strong move to the downside before I went long.

And so, here are more things I must do to get myself out of this little mini slump:
  • If I intend to put on a bounce trade, I must make sure it is put on immediately following a strong move by the Futures
  • Avoid trading during market lulls (when Futures are trading in a narrow range); instead I'll wait for a breakout on the Futures
  • I will only record trades that profit/lose more than $100; lately, I've noticed that by recording every trade, I was missing out on opportunities (because I was busy trying to write everything down). I also found that I was trying to figure out how much I was up/down on the day by constantly reviewing the trades done so far (since I'm no longer looking at my net profit) - this is simply another distraction that is best ignored
Looks like the learning never stops for me!
P.S. Check out the new blog I'm working on...check the "Links" section on the right. It's called "Mandarin Immersion".

Good Trades
10:30AM - Walmart (WMT) and the Futures were downtrending. Some size on the bid broke when the Futures tanked, so I got short 4000 shares. Got out as follows: 5-cent winner (1000 shares), 7-cent winner (2000 shares), 8-cent winner (1000 shares) ($270 profit before fees)

3:05PM - Hewlett Packard (HPQ) was uptrending strongly and the Futures were uptrending. HPQ reached the $33.00 level (which had huge size on it - about 2000 size on the offer). The level started to break, so I got long 8000 shares. I got out as follows: 1-cent winner (2100 shares), 2-cent winner (200 shares), 3-cent winner (1000 shares), 4-cent winner (700 shares), 6-cent winner (2000 shares), 8-cent winner (1000 shares), 9-cent winner (1000 shares) ($373 profit before fees)

Bad Trades
10:17AM - Micron Tech (MU) and the Futures were downtrending. I saw some size on the offer break and under the guise of a bounce trade, I went long 4000 shares. Well the Futures tanked and I had to get out as follows: 1-cent winner (100 shares), 6-cent loser (2100 shares), 7-cent loser (200 shares), 8-cent loser (1600 shares) ($269 loser before fees)
  • This was the wake-up call to all the things I've been doing wrong lately - in my trading journal, I wrote this in as a bounce play, but there was no strong move on the Futures (well there was one, but it was after I was in a position)
  • As I stated earlier, I've been using the excuse "bounce" trade to get into a position that goes against my trading rules - the result of this is reflected in my performance the last 3 trading days
  • If I had followed my trading strategy and if I had followed the true definition of a bounce play, this trade would not have happened
3:37PM - General Electric (GE) and the Futures were moving upwards. GE reached the $34.00 level (which had huge size on it). Well, the size started to break, so I went long 10,000 shares. It was a mistake - I got out as follows: even (6000 shares), 4-cent loser (4000 shares) ($160 loser before fees)
  • This kind of set-up always seems to kill me: a huge level that breaks, but goes nowhere
  • My trading strategy specifically states that I am NOT supposed to get into this kind of trade because there was no strong move made by the Futures. At the time, the Futures were kind of flat; this trade would have been OK IF the Futures had ripped up
  • Most times I'm pretty good in NOT taking a position, but I figured that since it was quadruple witching and there were huge sizes and huge orders being thrown around during the last hour of trade, I decided to take a risk - needless to say, I was the one who ended up on the losing side of this trade


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