A post-earnings trade review in Priceline 1nvestor

Confirmation bias and the perma-whatevers Abnormal Returns

Charting Live on CNBC Fast Money All Star Charts

Destroy Your Masters! Altucher Confidential

So You Want To Trade For A Living: An Introduction The bclund Blog

A Few Words on Executive Compensation Crossing Wall Street

A Few Good Reads Derek Hernquist

Who’s Your Daddy! – Kuroda and Abe Are Dominating the Currency Wars Dragonfly Capital

Why I Hate Breakouts Dynamic Hedge

Seasonality in GBP/USD FaithMightFX

What If The Markets are UnderValued… Howard Lindzon

I WANT To Be The Slow Money Ivanhoff Capital

Managed Assets Joe Fahmy

The Difference Between Women and Men: Dog Poop Edition Kid Dynamite’s World

The charts I am looking at right now Peter L. Brandt

Reflexivity & The Employment Numbers Phil Pearlman

Follow The Hot Money Points and Figures

MBA Head David Stevens: State of Housing (VIDEO) The Basis Point

AUD/NZD Set to Reverse? The FX Cafe

There is no script. Be in this moment. Trading is Improvising. The Minimalist Trader

Notes from the Ira Sohn Conference, Spring 2013 The Reformed Broker

The Fed Should Just Print Money & Send It To People The Armo Trader

Economic Activity Drives Employment which Drives Stock Market ValuePlays

The Mother of All Analogs (Update) Wall Street Bean

2 Early Cycle ETF’S ZorTrades

NCUA Reports 7 Credit Union Failures in 2013 Osprey Flyer

Breaking with Tradition – Why I Don’t Use Technical Analysis AlphaVN

Review: The Most Important Thing Sizemore Insights

Make sure to check out my free eBook Trading:The Best Of The Best-Top Trading Tips For Our Times  (just click the banner below).

Why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in). Check out “The Best Of bclund” to get started.

Click here to “Like” the bclund Facebook page.

As he approaches your desk, ready to ask about some redundant sales report or wishing to schedule a time to “discuss” your latest performance review, you decide that you can’t take it any more, and that’s it…..you snap! Standing up and yelling at him for all to hear, you inform your soon to be ex-boss that you have had it with his pedantic rules and procedures, that he and the company as a whole has never valued you as you deserved, and that you are through–consider this your resignation.

And with that you grab your personalized coffee mug and mouse pad and walk out the door, free at last, and ready begin your new career trading for a living.

Despite the poetic justice and dramatics of the above scene, that is exactly the wrong way to make the transition.  The decision to trade full-time and the transition from your current job or profession has to be planned out well in advance in order to give you the best chance at succeeding in your new endeavor.  In fact that preparation should begin not just months, but years ahead of time.

Ready, Set, Uh…….

Hopefully it goes without saying that you should already have been trading, and trading successfully, for some time before you quit your job.  How long? Five years minimum. Wha….wha…..WHAT..???  Yes, I know that I just popped a lot of eager beaver bubbles out there, but there is a logic to that time frame.

Think of starting to trade full-time like starting a new relationship.  Say you meet what you think is the love of your life and after only two weeks of dating you head out to Vegas and get hitched.  Chances are you’re going to find out over time that you have incompatibilities with your partner, at least one of which will probably be deal a breaker, causing your marriage to end, and end badly.

But what if you were to give the relationship more time before the nuptials?  Time to experience the ups and downs that new couples inevitably have and to see if you could adapt to them, survive them, and ultimately create a relationship that will flourish no matter what is thrown at it?  It’s the same concept with trading for a living. Five years gives you enough time to experience different types of markets, to see if you can adapt and evolve your trading as they change, and stay profitable in the process.

One of the mistakes that thousands of people made in the late 90′s was to assume that because they had been trading profitably for a couple of years that they were ready to make the move to full-time trading.  What they didn’t realize was that they had only been profitable because the market was in the middle of a massive bull move.  When that move ended in 2000 those new full-time traders did not know what to do because they had never seen this “new” type of trading environment.   Eventually the vast majority of them lost all their money and had to go back to their day jobs

Location, Location, Location

Another thing you want to think about ahead of time is where you are going to trade; at home or at an office.  Now I know this seems like a no brainer to most,  the assumption being that because of advances in technology trading out of your house is the answer; but you want to think long and hard about this.  Sure, a home office saves money and affords you the added bonus of being able to roll out of bed and start your trading day unshaven and in pajamas, but there can be some major drawbacks to this arrangement.

Trading on your own means you are your own boss; nobody tells you when to start working or when to stop, and if you are someone who needs structure, this can be a problem.  I remember my first month of college, when I realized that unlike in high school, nobody cared if I showed up or not; it was completely up to me to create my own structure in order to make sure I got to class on time, studied the appropriate number of hours, and showed up for exams.  And for me it wasn’t long until I was cutting class, missing tests, and ultimately dropping out.

Having an office to go to every morning forces you to get up, take a shower, put some clothes on, and mentally get in the mood of “going to work,” which is what you may need in order to stay sharp and focused in your trading.  Going to an office also eliminates the issue of being interrupted by kids, your spouse, solicitors, the phone, the gardeners who are cutting the neighbor’s tree down, and a host of other distractions.

And trust me, if you are married and/or have kids, don’t fool yourself into thinking that you can just go into your home office, shut the door, and act as if you are not home. They know you are in there, and you’ll be interrupted “just for a second,” on numerous occasions during the trading day, one of which will surely coincide with the next flash-crash.

If you live alone, distractions don’t bother you, and you don’t have a problem saying “no,” then definitely give trading from home a try, but if not, you can usually lease an individual private office for $300-$600 per month, which might be the best investment you ever make towards you trading career.

Track You Trading History

Another important thing that you must do to prepare for your move into full-time trading is to begin journaling, logging, and auditing your trades.  Every day after the market is closed you should be reviewing each and every one of your trades and creating a spreadsheet that includes entry/exit prices, profit/loss, both in dollars and percent, percentage of overall capital used, and notes relating to each specific trade. Then based on those numbers you should generate an overview report which can easily display your percent return and drawdown for any given period of time.

This process has a number of benefits and it is crucial for two reason that you have at least a years worth of your trading history documented (though the more history you have the better).  First off it will tell you if there is consistency and method to your trading, something you may think you already have, but may be shocked to learn you don’t when the raw numbers are reviewed.  Second, it will help you when it comes to deciding how much money you will need to start, something I will cover in more depth in the next post in this series.

Your First 30 Days

Let’s assume that you have done all your preparation, decided on your location, and (gracefully) exited from your job on a Friday afternoon.  You are now free to pursue your dreams and begin trading full-time, so what is the first thing you should do when the opening bell rings on Monday morning?  The answer is nothing, because you are not going to be at your trading desk.  You are going to be far away from the markets, ideally doing something you have always wanted to do but never had the time to.

Look, chances are that the job you just left barely three days before was one that required you to work a full eight hours.  In fact in today’s fast paced world you might have worked ten, twelve, or fourteen hours per day.  Maybe even six days a week. And all those hours were probably filled to the brim with phone calls, emails, presentations, meetings, seminars, webinars, and any number of other things that make up the corporate world today.  You have been conditioned for years, perhaps decades to always be doing something.  Go, go, go….don’t let one hour, one minute go to waste.

Once that bell rings your instinct will be to “do something.”  You won’t feel right if you aren’t “doing something” at all times.  But that is not what trading is about.  Most successful traders spend the majority of their time “sitting on their hands” not trading.

You are going to need some time to decompress and learn the art of “not doing something” and that is going to take some time.  The best thing to do once you’ve quit your job is to take the next two weeks off.  Do anything you want, just don’t watch the markets, and try to relax.

When you return then spend the next two weeks just watching the markets.  Don’t trade, just watch.  Learn how it actually feels to “not trade” while the market is open. Use that time to figure out what you will be doing in between the times you are trading, such as reviewing charts, creating scans, or communicating with other traders.

Previous Post – So You Want To Trade For A Living: An Introduction

Up Next Week – So You Want To Trade For A Living: How Much Money Do You Really Need

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“Do you know anyone who is making a living trading full-time?”

“Who do you know that I can talk to that can prove that they are making money trading full-time?”

These were the questions I was being peppered with on two separate, successive phone calls recently.  One was from a gentleman whose day job was in financial services, but had been trading part-time for thirteen years.  He was tired of the “rat race” as he put it and was working up the nerve to follow his dream and trade for a living full-time.

The other was from a young man who called me asking a question regarding real estate, having thought I was an active agent (I have a license but have never used it), and once realizing his mistake, inquired as to what in fact I did do.  I was tempted to give my pat answer, “I work in an ice cream shop,” but his voice sounded very sincere and enthusiastic and I decided that I would divulge the truth.

The first question I asked myself after I put the phone down was, “why don’t more (hot) women call me about trading?” but I digress…

The second thing that came to mind was how peculiar it was that two different people, at opposite ends of age, career, and experience were both asking essentially the same questions.  There was a difference in the tone of the questions; the first caller inquiring with an uneasy insistence, a slight quality of desperation in his voice, and the second, greener of the two, with a lively and somewhat naive curiosity.  But the questions were the same.

Out of the all the questions I get asked in bars or airports,  meet-ups or seminars, on social media or at social gatherings, the most frequent one is some derivation of the ones these two callers asked, in essence, “Is it possible for me to trade for a living?”  I have spent a lot of time thinking about the answers to this question, and not in an abstract sense.  I am very familiar with the pros and cons and potential pitfalls of this endeavor.  After selling my company in early 2005 I spent nearly four years doing just that, trading for a living, until I stopped in order to co-found Ditto Trade.

Trading for a living is the ultimate fantasy for anybody who has ever invested their own money in the market; it’s the musician’s version of being a rock star, the scribe’s version of being a best seller, bringing with it the potential financial freedoms of both, the difference with trading is that your success is not determined by the fickle tastes of your fan base; it is all within your power.

Perhaps the allure is best summed up by something Eric Bolling wrote a few years back in a piece entitled The Benefits of Trading….

I am lucky to have spent a career trading so that I can find the busy market and trade it. I can trade from my office, my beach house and even my car. I don’t have to be in Manhattan to work.

I can trade from Miami, Spain or wherever the phone and Internet work. It is a gift given to me and I appreciate it every day. I respect it and that keeps me a viable trader.

That is the reason it is so important to be able to trade. Look, I am no smarter than most of you readers. I just made the decision to learn how to trade and just do it.

Sure there are bumps in the road and the trading landscape changes daily. But with diligent homework, a desire to make it work and a definitive fear of losing, almost anyone can make a career out of trading — anyone with the discipline to cut a losing trade that is.

My goal in this series is to inform you of what I know and what I lived, what I did right and what I did terribly wrong, so that you can, with complete lucidity and of your own volition, decide if taking this step is right for you.  I am approaching it from the point of view of a retail trader, which is what I, and what most of the people who read this blog are. That doesn’t mean that you can’t eventually end up running the Goldman Sachs trading floor or your own eponymous hedge fund, but I want to speak in terms of people who want to start with making a living first.

What I will not be doing in this series is telling how to become a successful trader; there is enough information, free or otherwise, out there that deals with that topic (including about 400+ posts on this very blog), and frankly, at the end of the day that is a job that ultimately you can only do yourself.

I would love to get your feedback and/or questions on this series so feel free to leave them in the comments section below.

Up Next Time – So You Want To Trade For A Living: Making The Transition

Make sure to check out my free eBook Trading:The Best Of The Best-Top Trading Tips For Our Times  (just click the banner below).

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What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in). Check out “The Best Of bclund” to get started.

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Using the Weekly time-frame to assess the damage in Cognizant Technology 1nvestor

Being early and not knowing what you have Abnormal Returns

Two Underperforming Ratios To Watch All Star Charts

How To Be a Superhero Altucher Confidential

Drugs And Trading The bclund Blog

CWS Market Review – May 3, 2013 Crossing Wall Street

Fold’em, Roll’em or Spread’em – Which Is Right Dragonfly Capital

Do Struggle Markets Deserve Respect? Dynamic Hedge

Sterling Digest, April 30 2013: April rallies bring May selloffs FaithMightFX

The Greatest Boom of All Time…and @Warren Buffett or @Warren Buffitt Howard Lindzon

3D-Printing Stocks Are Setting Up Again Ivanhoff Capital

Learn To Think For Yourself Joe Fahmy

On The Markets With JC Parets & Ryan Detrick Phil Pearlman

HFT and Exploiting a Loophole Points and Figures

BUILD YOUR OWN FED STATEMENT! (5/1/2013 edition) The Basis Point

Why I’ve Been Repeating Myself Every Morning… It’s a Bull Market, You Know! The Minimalist Trader

The Perfect Business Model for Facebook The Reformed Broker

Why The Jobs Report Is The Most & Least Important Economic Data Release The Armo Trader

What Does Gold and Apple Have In Common? The Upside Trader

Architecture Billing Index Backs Continued Expansion ValuePlays

What’s Your Best Guess ZorTrades

The Biggest Mistake of Warren Buffett’s Career Sizemore Insights

Make sure to check out my free eBook Trading:The Best Of The Best-Top Trading Tips For Our Times  (just click the banner below).

Why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in). Check out “The Best Of bclund” to get started.

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$AAPL Logo 1976-2007

Hat tip to Brain Pickings

Make sure to check out my free eBook Trading:The Best Of The Best-Top Trading Tips For Our Times  (just click the banner below).

Why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in). Check out “The Best Of bclund” to get started.

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Most traders use charts as part of their methodology to determine when to enter or exit trades.

We think of charts as being very objective, built on price and volume, technical data that is not open to interpretation. But no matter how much we try to convince ourselves of that, we have to understand and acknowledge that charts are ultimately a visual media, and as with everything that we use our eyes to analyze, there are ways that our perceptions can be altered.

Take for example this 5-minute chart of Cree Inc. ($CREE) from earlier this week.

$CREE

In a “post-opportunity” analysis it looks like a very clear set up, one that we surely would have taken if seen in real-time.

THE ACTION

$CREE gaps ups, pulls back slightly, and then rockets up to a resistance area. Price pulls back in and forms a nice green hammer right off the 20-period exponential moving average (ema) and above the opening range high (based on the first 15 minutes that the market is open). That hammer provides a good risk/reward entry with a reasonable target of the morning pivot high.

DIFFERENT PERSPECTIVE

But let’s look at that same chart at the moment that the green hammer formed and with a little bit more back data.

$CREE

Now the trade doesn’t seem so obvious. The pullback seems steeper and there is no clear reason to assume it would make it to the morning pivot high.

ANOTHER EXAMPLE

Let’s look at another example, also from earlier this week, in Coach, Inc. ($COH)

$COH

MARKET RECAP

$COH gaps up and gets rejected at a daily resistance level. Price pulls back, but then reverses and makes a strong run back to that same resistance level, pausing to print a tight inside bar, before breaking out and running to new highs.

Once again, after the opportunity that tight inside bar looks like a no-brainer, creating an optimal risk/reward entry that of course all of us would have taken if caught in real-time.

DIFFERENT VIEW

Now let’s look at the same chart but at the time of possible entry.

$COH

That chart doesn’t look so obvious. Price is extended from the 9-ema and 20-ema and it appears as if the daily resistance has stopped its progress for a second time, creating a potential intraday double top.

DEVELOP OBJECTIVE CRITERIA

These examples show how important it is to review charts not only from an end- of-day viewpoint, but from one that is contemporaneous to the time of the potential trade. It also illustrates how important it is to have objective criteria to get you in and out of positions so that you don’t get fooled by the differing perspectives charts can show depending on the time and amount of data being used.

Make sure to check out my free eBook Trading:The Best Of The Best-Top Trading Tips For Our Times  (just click the banner below).

Why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in). Check out “The Best Of bclund” to get started.

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No pot, tea, weed, Mary Jane…

No uppers, downers, bennies, dexies, black beauties, yellow jackets……

No crack, boom, ice, POW…..

I haven’t even done coke…….

Don’t get me wrong, I understand why people do drugs.  Usually they want to alter their reality, even if it is just for a little while.  To forget about their job, the bills, bad break-ups, missed opportunities, children who never call them, parents who never loved them, shame, disappointment, war, or the cancer that is slowly eating their body up from the inside out.

My abstention in this area is not due to a pious desire to take some sort of moral high ground; looking down and judging those of “lesser character.”   In fact I myself have been known to take proactive steps to alter my reality from time to time, the only difference being that a magical mixture of hops, barley, and artisanal spring water constitute the vice of my choice.  No, I have failed to “partake” in these substances that I feel should be legalized and regulated for two simple reasons; one based on fear and one based on pragmatism.

In my early 20’s it seemed like everyone I knew had snorted a line at some point, usually off a stripper’s ass in Vegas.  Now believe me, I have nothing against strippers, but my fear was that I would snort my first ever line, ass based or not, and immediately do a “Len Bias.”

My second fear was that I would like it.  Like it a whole bunch.  I don’t have an addictive personality, but at times I can get hyper-focused on certain things.  Sometimes those things are good and sometimes those things are bad; or let’s just say, not productive.  The idea that my life would begin to revolve around figuring out how and where to get my next “bump” seemed like a real and terrifying possibility to me.  It’s the same reason I never got into computer gaming or knitting.  Of course that doesn’t mean I don’t have experience with drugs.

On three separate occasions I have I have journeyed into that Valhalla of drugs known as Amsterdam.  One of those times didn’t count as I was with my wife who doesn’t even drink (lucky me, huh?).  But on two other occasions I was there with friends who liked to dip their toes into some of the substances that the town is famous for.

On the first occasion I traveled there with my ganga-loving friend who was on a quest to find the best pot the town could offer.  He wasn’t intimidated in the least, having dual citizenship in two of the best growing areas of the world; California and Hawaii.  He smoked skunk like other people smoked cigarettes and on his twice yearly trips to the islands would always return with exotic sounding strains like Maui Wowie, Kona Gold, or Pakalolo, any of which would place him into a “chill session,” as he liked to refer to it, when smoked.

As we scurried down the back streets and alleyways searching for what was rumored to be the best “brown cafe” in the city, a tattered copy of “Lonely Planet Amsterdam” as our only guide, I could hear the excitement building in his voice as he kept asking at each successive storefront, “is it this one?  Is it this one?”  When we finally found our desired location, we entered and waded through the crowd of locals, navigating the smoky haze until we reached the “bar” at the back of the room.  Even a novice like me knew that the menu, the scale, and the microscope on the counter meant this place was the real deal.

Two library style oak filing cabinets stood behind the counter; each drawer filled with different types of pot, all nicely categorized and bundled up in plastic bags.  It was clear from the glazed look on my buddy’s face that he judged himself to have found the mother-lode of bud-dom, a virtual cornucopia of weed.  If there was a Disneyland for stoners, this was it.

“And you are sure this is all legal?” he asked.

“Absolutely,” I replied, and it was “game on.”

Two hours later I found him curled up in the corner of a porn shop in the middle of the red light district.

“They’re after me man, THEY…..ARE…. AFTER…..ME!”

“Who’s after you?” I asked.

“The cops!  The Dutch cops!  Two of them followed me down the street.  They had machine guns and they were coming up right behind me.  They almost got me but I ducked in here and lost them.”

By this time the matronly looking middle-aged lady who ran the shop had come over to see what all the commotion was about.  As she spied my glassy-eyed friend huddled between the bestiality videos and the inflatable vaginas, furtively trying to suck the last bits of life out of a now fully extinguished joint, she gave me a look that I’m pretty sure translated to “great, another Yank who can’t handle his drugs!”

My friend who was normally cool, and chill, and oh so laid back when he smoked was now a sweaty paranoid mess.  His reality had definitely been “altered.”

My second visit to the land of windmills and wooden shoes was with another friend, this one less into the “organic” types of recreational products, but more so the “chemical” based ones.  Which made it even more surprising to me when he decided that he had to try mushrooms.

After leaving the “Shroom Shop” (yes, that was the name of the place), with a small baggy, the contents of which had been hand selected by the shop’s owner and guaranteed to “make him see colors,” we sat down at an outdoor cafe.  I ordered a rather high-capacity glass of beer but my buddy opted for a screwdriver, explaining to me using what I can best describe as “druggie science” how the acids in the orange juice would break down the mushrooms more completely, giving him a longer and more intense trip.  Yeah……Woodstock man!

In Bill Cosby’s famous comedy special “Himself” he talks about asking a cocaine user what it is about the drug that is so great.  The response is that it “intensifies your personality.”  To which Cosby asks, “but what if you are an asshole?”  My friend was not an asshole, but not unlike me, he has that gear in reserve if he ever needs to pull it out.  The shrooms, along with the effects of the orange juice I was led to believe, now began intensifying that part of his personality, much to the chagrin of a way too sober moi.

Everything suddenly became super important and deep to him.  The street signs, the pebbles in the road, the sound of a passing car’s motor, or the way I was breathing weren’t just normal everyday objects, sounds, or actions; no, instead they were complex and multi-leveled, necessitating a penetrating and probing intellect, of which he apparently felt he currently possessed, in order to decipher their hidden and mystical meaning.

This went on for the rest of the day and well into the night.  At one point we decided to go to one of those avant-garde euro discos that Amsterdam is famous for, and upon entering were confronted with artistic renditions of headless and skinless cow torsos hanging from the ceiling high above the dance floor.  My still tripping and now intensely annoying friend stared straight up at them and then stunned, turned his beady eyes to mine and said in a shaky voice….

“Dude, I am freaking out.  I’m seeing bloody cow bodies coming out of the ceiling.”

In my forty-five years on this planet it is a rare occasion where I have missed out on an opportunity to gently shiv or turn the screws on someone who though I love them, deserved at that moment to be fucked with.  This, to my eternal regret, was one of those moments.  The reactionary nice-guy-buddy-pal inside of me without thinking responded….

“Hey man relax.  There ARE bloody cow bodies coming out of the ceiling!”

Perhaps even after his extended run of “assholishness” I just felt that his reality had already been altered enough for one day.

In the world of trading we are constantly bombarded with things that have the potential to alter our reality.  Breaking news, earnings reports, company calls, analysts comments, macro politics, fundamentals, P/E ratios and any number of financial “drugs” are there for the taking.  Each one in their own subtle way has the ability to change our perception, manage our expectations, lower our discipline, and send us down the path to financial ruin.

Because the only reality that there is in the markets is price.  Price doesn’t exist in different strains, it has no “colors” associated with it, and drinking orange juice won’t change it.  Price is that objective antithesis to all the Carlos Castaneda cum Don Juan type subjectivity that surrounds you each day.  Price tells you to sell a stock even though the company’s CEO is on CNBC bragging about forward earnings and how his company is “poised for tremendous growth.”

Life requires us to temporarily alter our reality at times.   The act in itself is a necessity, a survival tactic if you will.  Sometimes all it takes is a good book, a great meal, or the embrace of a child to get to that better place, that altered state.  Or sometimes it’s a darker, more intense course of action that you need to take as Sam Kinison famously illustrated when he said to his annoying, soon to be ex-girlfriend, “I come home at night and have to drink a six-pack of Heineken to keep from cutting your fucking head off and sticking it in the camera bag.”

But either way, the market allows for no such luxury.  All mental bongs,  lines, and shrooms have to be done away with.   There is no debate, no philosophical differences, nor any moral issues to weigh.  Price is the only reality and you must obey it dogmatically any time you have money at risk.

Make sure to check out my free eBook Trading:The Best Of The Best-Top Trading Tips For Our Times  (just click the banner below).

Why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in). Check out “The Best Of bclund” to get started.

Click here to “Like” the bclund Facebook page.

How a Collar can help starring Cirrus Logic 1nvestor

Sell in May and Go Away? All Star Charts

How to be Rich – THE PUSH Altucher Confidential

Insider Trading The bclund Blog

Financials Want to be the New Leaders Dragonfly Capital

Marketview: Rough Patch Dynamic Hedge

Sterling Digest, April 23 2013: bears in bulls’ clothing FaithMightFX

Who Really Caused The Flash Crash of 2013…Twitter? AP? Hackers? Howard Lindzon

Where Do We Go From Here? Joe Fahmy

WYNN Q1 2013 Earnings Call Tidbits Kid Dynamite’s Blog

Flags flying at half mast in Gold and Silver Peter L. Brandt

One Point No One Is Making About The Flash Crash Phil Pearlman

How To Kill Economic Development Points and Figures

What Kind of Improvements Are Homeowners Making? (INFOGRAPHIC) The Basis Point

Living in a High Frequency World The Minimalist Trader

I Survived the Flash Crash of ’13 The Reformed Broker

The Hyperinflation Bet Never Made Sense The Armo Trader

Gold’s Rebound Uncovers Junior Buying Opportunity AlphaVN

Are Coke and Pepsi the New Big Tobacco? Sizemore Insights

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Perhaps you have heard the term “inside baseball” before. It indicates information, conversation, or an attitude about a topic that only would be relevant to “insiders.”

Like if a group of air conditioning salesmen were standing in the middle of a party discussing the merits of the Emerson 3560 Turbo Express heat exchange core and how it was revolutionizing the industry. Anyone overhearing the conversation would get the passion and the intensity, but not an understanding of the underlying subject.

IT’S LIKE TRADING

As traders we often get waaaaaayyyy inside baseball in our views of the market. We forget that there is a whole investing public out there that doesn’t know anything about MACD’s, or Fibonacci’s, support and resistance levels, reversal days, doji’s, dark cloud covers, or how to short against the box.

JUST LOOK AT APPLE

I was reminded of this by the action in AAPL the past two days.
When AAPL announced their earnings after the bell rang on Tuesday the stock was up as much as seventeen points in the after-hours session, but by the time it finally closed it was negative two points.

To me that was a very bad sign for AAPL bulls, as a stock that gives up that much of a pop, especially after a “good” earnings report, is ripe to be shorted. When the stock opened down twelve points on Wednesday morning it seems like my suspicions were confirmed. But then something strange happened.

Right from the open AAPL started to rally, showing green bar after green bar, pretty quickly erasing the gap down. I was genuinely puzzled by this as the action from the previous day’s after-hours session seemed like a very clear indicator of what traders thought of the stock. But I had forgotten about something; something “insider baseball-ish.”

THE PUBLIC

It seemed as if the buys of the gap down on AAPL were retail buyers, which in retrospect made perfect sense to me. The vast majority of retail buyers don’t pay attention to after-hours (or pre-market) sessions. For them the only time that matters for the market is the time between 9:30 a.m. and 4:00 p.m. Eastern time. That meant that the after-hours action was not a part of their AAPL strategy. It literally was a missing piece of the puzzle that they never knew existed.

When AAPL gapped down all they knew was that the company had a strong earnings call and they were getting a huge buying opportunity with a twelve point discount, so they bid it up.

IMPORTANT REMINDER

There was no short setup for AAPL at the open so I didn’t have any skin in the game, but, it was a very good reminder that no matter how much we think we know about the markets, scenarios, scripts, and story lines of what a stock should do are subjective. It also reminded me that there are other participants in the market besides those of us who live, eat, and breathe by each tick, and that their dollars can be equally as powerful, if not more so, than us “insiders” from time to time.

Make sure to check out my free eBook Trading:The Best Of The Best-Top Trading Tips For Our Times  (just click the banner below).

Why not subscribe to bclund.com for free  Via E-mail or Via RSS and follow me on StockTwits and Twitter?

What bclund is, is the intersection of markets, trading, and life (with some punk rock, pop culture, and off-beat humor mixed in). Check out “The Best Of bclund” to get started.

Click here to “Like” the bclund Facebook page.