Archive for March, 2009

Bad Gap Trade

March 25, 2009 Leave a comment

This is a picture perfect example of how not to do a gap trade.  The vertical line on the chart indicates the 5 minute bar just prior to the market opening.  What you don’t see is that the market is open with a +6 point gap.  Although most gaps close, and this one eventually did, this was not the best opportunity speculate for a gap close.  You’ll see that it essentially is just pulling back to the 8 EMA.  This is NOT a good short!  My favorite gap trade is when the 9:25 – 9:30 bar is in the opposite direction of the gap.  This is not the case here either.  It is not necessary to have an opposite direction bar, however you do not want to short into support.

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3/9 Trading


1.  9:45 am Short – Entry 682.50, Exit 685.50, Result -$300

2. 10:00 am Long – Entry 684, Exit 689, Result +$500

3. 11:00 am Long – Entry 683.50, Exit 683.50, Result +$0

4.  12:20 pm Short – Entry 688.00, Exit 683.00, Result +$500

5.  1:35 pm Short – Entry 679.25, Exit 682.25, Result -$300

6.  2:05 pm Short – Entry 683.50, Exit 678.50, Result +$500

7. 3:30 pm Short – Entry 676.00, Exit 676.00, Result +$0

Excluding Commissions, Results should have been +$900.

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Great Quotes from first half of TDT

  1. One of the most important lessons to becoming a successful trader:  how to”accept” a loss without any negative consequences.  No guilt, anger, shame,or self-punishment.
  2. Trading looks so simple, when in fact most people will find it to be the most difficult endeavor they undertake.  Success will always seem so close, and yet always so elusive.
  3. Believing that trading is easy is the reason for the unrealistic expectations.  And they are probably the single biggest reason why most traders never make it beyond the initial levels of development before they lose all there money.
  4. Regardless of how long it may take any individual to admit that he’s not making it, the experience is painful and invariably generates feelings of inadequacy, guilt, and even shame.
  5. As a trader, you have to decide what is more important — being right or making money — because the two are not always compatible with one another.
  6. In an unstructured and unlimited environment (like the market), it is essential that you establish rules to guide your behavior.
  7. The typical trader will do most anything to avoid creating definitions and rules because he does not want take responsibility for the results of his trading……the only way to learn how to trade effectively is to make oneself accountable by creating structure, but , with accountability comes responsibility.
  8. If you can’t define your own behavior and that of the markets, you can’t learn how to repeat your wins or prevent your losses.
  9. Consider that the markets can’t do anything to any trader who completely trusts himself to act appropriately, in his best interests under all market conditions.
  10. Creating definition and rules to make yourself accountable is but a first step on the road to lasting success.  You could acknowledge their necessity and establish them, but then find to your dismay, it is extremely difficult to abide by them.
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