Timing is Everything, I Mean EVERYTHING!

My trade in DIA today is a perfect example by what I mean when I say that timing is crucial. Some would say that trading with the market is key, and that you have to first have a feel for where the market is going, but I would say that they are dead wrong. If your timing is right, you can be wrong on the market direction but right on timing, and benefit in the very short-term from a move that goes against the general direction of the market. Then there is others, including myself, that will often trade contrary to the market direction for the very purpose of taking advantage of overbought and oversold conditions. So market direction isn’t everything – Timing Is!

With that said, my trade in DIA wasn’t so hot today. I had the market direction right, but my timing was off. The market gaped up strongly in the early AM, followed by back-to-back hammer candles, that are often a good indicator of bullishness ahead. Knowing that the market was on a tear, I didn’t want to let this opportunity go by. But looking back on the trade, the market, with the huge run the market had been on as of late, it was bound to close the gap, and the action that we got out of those first two candles didn’t quite do the job at closing it.

It wasn’t until the 1pm candle formed, making a nice spinning top, with a long shadow on the bottom, did we get the ideal setup. In fact if you saw my twit, you’ll realize that I noticed it right then and there, but unfortunately, I wasn’t going to make another trade on the day.Why didn’t I trade on that particular candle, well read my article on When I Stop Trading and you’ll see why I hung it up for the day. When I lose 1R on the day – I’m done! 1R is the dollar amount I’m willing to lose on a single trade, and its the same across the board, regardless of what stock or ETF that I am buying.

So I lost a full 1R on the DIA trade and I had to hang it up for the day unfortunately. Sure I could have made up for the losses with the setup I’ve already described, but had I been wrong on that, then I would be down 2R on the day, and the last thing I want to do is get in the “desperate” mode, where I start swinging for the fences. I can recover easily from a 1R down day, or a couple of days of 1R, but what I can’t recover from is losing capital that goes beyond my zone of risk, and then I start getting antsy and begin throwing down the cash in hopes for a “big-gainer”.

It takes discipline to trade as I do, and years of making stupid decisions to come to grips with one’s own  weakness, but in the long run, I will remain profitable regardless of what the market does, so I’m not going to sweat on missing out on a one-time trade.

As always tomorrow is a new day, I’ll have a fresh perspective on the market, today will be gone, and it will be time to rock-n-roll.

Major props to the folks who are trading with Matt and I in the Apple (AAPL) swing-trade; it posted solid numbers after the bell and is trading over $158 after-hours! Woo-hoo!