Back at it today.
Time and Event Pressures on a Trade
Not all market moments are created equal.
There will be "good" times to be trading long and there will be "poor" times to be initiating open positions. There are all kinds of situations that warrant some attention be paid when trading stocks. The purpose of this post is to go over some of those situations as well as a live example from this week.
The three key factors to consider when looking to open a position are:
Where is the overall market in terms of the current cycle?
Depending on what kind of oscillator you use, you know that markets tend to go through the overbought/oversold cycles. A big mistake I made last year was starting new positions near overbought signals (I use iBC PPT Hybrid score) and I think you remember how things went last year at sentiment highs. Buying when markets overall or the sector you are looking at are extended tends to limit your upside on any remaining move.
The rally in 2012 so far has been able to keep markets from getting overheated, and turns at overbought levels have not had anywhere near the teeth they did last year. All this can change, but for now it's the reality on the ground.
When I am using my long term account I obviously do not move in and out of the names I hold. That's a different game and not the target of this post. When I am using my trading account I am usually looking for near term moves measured in days to maybe 2-3 weeks tops. Earnings season can mess with that.
Knowing when a company you own will report earnings is both huge and will bite you at least a few times if you do this long enough. It gets lost sometimes, just finds a way to escape attention. Waking up to or finding out that a position you opened just gapped way past your stop on an earnings miss is a great way to get aggravated. Some times this can even apply to the "big" names in your stock's sector reporting and that reaction finding it's way to your stock.
Everyone I know has been really sick all through January. If you are very ill (I don't mean the usual cold and the like) it's never a good idea to try and force some work. Corners will be cut and your usual sharpness will not be the same.
Going on vacation? When I go I take nothing to be dialed in with and will not even look at a paper. If I am holding something right up to my departure date, I tend to get more jumpy and reactionary because I know I need to close the position before I leave. Take a break, market will be here later on.
If you are one of the soldiers that works all day, a stacked week of meetings at the real job may preclude you from being able to watch the market or pull triggers except on short breaks. Know your schedule and how it will allow for activity.
(Feel free to add others in the comments section.)
With this all in mind I wanted to discuss a trade I could not make this week with The Scotts Miracle-Gro Company (SMG).
The stock came up on a screen I use in the iBC PPT late last week and I worked up a chart showing the pressure building on the stock as it approached the $49.70 price area. The accumulation volume was really coming in and I was looking forward to an entry early this week.
So what were the problems?
1- A "Me" event in that I was off from work Monday after the Patriots Superbowl loss and I just wanted to chill out.
2- SMG earnings were set for this morning before market open.
In light of these reasons I did not buy. The accumulation was for a reason as SMG had earnings it seems everybody liked, rising almost 8% just today:
As things go, with a little recharge here SMG may be worth another look soon with an eye on the $59 level. Stinks to miss one like this but sticking to a plan and a set of rules will save you much more than it will cost you in lost opportunities.
Have a good night.