Gap down in the QQQ made for a great 5 minute short!

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I did not expect much from this 2nd to the last day of 2014 in the market but the QQQ opened the day gapping well below the last prior pivot low of 104.87 to open the day @ 104.73 where by breaking the 60 minute uptrend in the QQQ.  When this happens you must take the first 5 minute sell setup the triggers in the market.  Now nothing is 100%, but the odds are in your favor, so when the QQQ triggered the first 5 minute sell I was all over it and entered my play at 104.82.  I was a little cautious, but price action soon confirmed the 5 minute sell and price sold off in a flurry lower.  For 2015 I’ve decided that I’m not allowed to take profits until three risk units of profit have been made, for example, if I’m risking $100, I must be up $300 in order to take any profits.  I had a $.19 cent stop on my Q’s play and so I was looking for .57 cents of profit before I would sell a 1/3rd of my shares.  Just after lunch my play in the QQQ’s hit 3 risk units and I covered 1/3rd of my shares @ 104.24.  I covered another 3rd about 20 minutes later as the market seemed a bit tired selling off.  I soon covered most of my shares at 104.24 but I left a few on for the next 5 minute pivot for a possible Add and Reduce play.  30 minutes later I found myself adding more shares short and reducing my stop to 104.47.  For a while it looked like price may roll over again and head lower but this was not going to be the case as my stop was hit at 104.47.  Wow, a great 3 R play…

qqq 12302014

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6 Responses to Gap down in the QQQ made for a great 5 minute short!

  1. S-Trader says:

    Happy New Year, and congrats on a nice trade!

    The 3R change is interesting. Just the fact that you’re changing to that is extremely impressive in itself, because it seems to suggest that you are frequently getting to 3R to begin with. I don’t even think I’ve seen any of the Pristine mods consistently getting to 3R so often that their plans do not take involve taking partials prior to that.

    One thing I’m wondering, and guessing you’ve looked into: how would going AON at 3R (for a guaranteed +3R, and then maybe a BBB trail beyond that) compare historically to your only taking 1/3 (= +1R) there, and then possibly having to “work” (via management/add & reduce) for the remaining +2R (or more) that you could’ve gotten just by taking AON @3R?

    (I’m assuming that you’re not gonna be moving your stop right up to 3R when you take that first 1/3, since add & reduce — which you seem to have wired — would suggest that you’re willing to let it pull back from that 3R and pivot — correct?)

    • TraderHank says:

      I’ve discovered the Holy Grail of trading and that is to have a batting average above or near 50% which I do and the next is to take only 1 R stops. The last item is that you have to be able to win multiple “R”isk units. Basically, trading is just a math problem and once I figured this out my profitability has just soared. You have to have a larger than a 3 R void to move into to begin with, after 3 R’s is reached I’m going to take a 1/3rd off the table, and I’ll only lower my stop if a proper pivot forms on the 5 minute time frame. I’m not trading AON, so if a pivot forms before 3 R’s are reached, I’ll still lower my stop to the pivot area +- .05 cents. So the only thing that I’ve improved upon here is that I cannot take any profits until 3 risk units have been reached but I’m still managing on 5 minute pivots, looking to add and reduce where I can or just reduce if the pivot sets up before reaching my 3 R target.

      • S-Trader says:

        Ah, think I’ve got it, makes a ton of sense. So even though you only take 1/3rd @+3R, it’s likely that you’ve often pivot-trailed your stop down (/up) by then anyway… and have therefore effectively guaranteed additional profits beyond the +1R. So you’re locking in a small (but decent) amount, while still trying to keep most of your size (2/3) on and essentially letting your winner run (“risk-free” relative to your initial risk).

        I agree about the “math problem” observation — when I did a simple spreadsheet comp of various management styles, it was really eye-opening. The tough part has been back-testing it against a sufficient number of trades to optimize it — not just $-wise, but also relative to my own personality. (You seem to be a very patient person, which is a quality that I still would like to cultivate.) Most of the management styles I’ve seen make sense to me — the tough part has been finding the best one for me.

        It sounds like you only use one style of management for all of your trades. Have you ever tried varying the management approach relative to type of trade/setup, overall environment, or any other factors? Or does that just get too complicated? You seem to take quite a few different setups, but maybe your personal setup requirements (e.g., requiring a minimum 3R void) still make them similar enough such that a single management approach will work for all of them.

        Also — how many trades do you average per day?

        Sorry for barraging you with questions — but this site and your direct feedback have been extremely valuable to me. Really appreciate it!

        • TraderHank says:

          Yes, I had to come up with something that made me happy but allowed for multiple risk units to be made without limitations that did not make sense to me. The struggle is to keep a larger shares size to your target without selling/covering your shares. I’ve found it easy to take a full stop but how often would I sell early and not take a full risk unit of profit or 3 risk units of profit, this was the problem. Finding the best management styles is the journey and time in the chair. At the end of a losing day, I’ve found that I must be able to look at myself in the mirror and be able to feel that I did everything right, then I can live with myself. The day’s I did not follow my plan and I ended the day down are the day’s, overtime, that I could no longer allow. It became too painful not to follow my plan so now I just follow it. As far as using different management styles the only variance is the time frame that I use to manage the trade on. If it is a gap play or a momentum type play first thing in the morning I may choose to manage on the 1, 2, or 3 minute chart because of the rapid move in price. I just pick the time frame that makes the price action look clean and obvious. I basically have only two types of plays that I focus on, in the morning I’m looking for gap plays and if I have no gapping stocks then I want a 60 minute buy or sell setup. That’s it, same management style on both to keep it simple… As far as the number of trades per day, since we have been in Holiday mode, I’ve been just looking for 1-2 at the most. Come February, I’ll be a bit more active taking 2-3 trades per day, but I’m finding that less is better. I’m achieving greater profitability just working on one play at a time and attempting to add and reduce on all of my plays. I hope this has been helpful, let me know if you have any more questions…

  2. S-Trader says:

    *Very* helpful — thanks, TraderHank. You’re filling in a lot of blanks and got my brain whirring.

    I’d already been planning to go thru all 430-something of your posts (!), and will end up printing (to PDF) a bunch of them to save for easier future reference. Already created a page in my e-notebook for “Trader Hank Notes” as well. So much to do, so little time… but when you’re learning a lot and actually looking forward to it, it ain’t “work.”

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