There comes a time when it'd be foolish not to take profits. I'm covering TNA and others here and now.

TNA

Points to remember.

Here's a few points to remember on days like today when the markets are crashing hard:

1. New lows make newer lows - fear has a grip on a lot of the market participants. The dummies who averaged down from last week are getting their accounts brutalized. And their emotional state is in one of questioning why they didn't take profits instead. You can capitalize on that force driving the market when you trade from a detached emotional view. It's much easier to make money by going short instead or trade the inverse ETFs .

2. It's time to trade larger size- push the volumes you normally trade because the momentum is telling you it's definitely on the short side.

3. Focus on only a couple of plays at the same time, don't spread yourself and your focus amongst too many stocks. You want to be able to react and take profits and not be befuddled by having to make too many decisions.

4. Nothing lasts forever. Take profits when they are offered up to you after a good run or candle. There will be bounces and pullbacks and you want to take advantages of those as well. Trade well. Follow your plan.

Days like these are what we are here for. It's why we practice and do the visualizations, fine tune the trading plans and concentration exercises. Grab the opportunity with both hands.

Trade accordingly...

Nice down day, shorts are the order of the day...until it bounces. Show no mercy in either direction.

Reader Q & A. Defining your edge.

How would you define your edge? How would you suggest a beginning momo trader go about defining their own?

Define an edge?

A favorable margin, An advantage, Exploiting the conditions, Recognizing opportunity from weakness or strength, The time at which chance, conditions and your skills come together. An edge is all these things. It’s also something you know and trust in 100%. It’s the basis of momentum trading. Still after all that – what is it? Only knowledge I can’t clearly define other than it’s your foot in the door of opportunity. Chart parameters.

How do you get an edge?

Through seat time watching, trial and error, learning, observing yourself and the markets, recognizing the smallest connections between supply and demand.

I have become a specialist is recognizing and acting on the starts and finishes of momentum. That is one of my edges. And to take advantage of these opportunities I can apply my 2^nd edge – a clear trading plan and system for managing the trade, profits or losses that works with my mental strength and personality. One without the other is useless.

I outlined one set of trading parameters that I recognize as an edge here: http://fearandgreedtrader.blogspot.com/2010/03/fngs-free-strategy-of-week-finger.html#links

A simple (all the best edges for anything are simple) way to trade that doesn’t require thought or opinion only observation. Managing the trade like that comes down to common sense as in I will sell and take profits when it stops going in the direction it’s going.

Another part that comprises an edge is keeping your goals in the forefront of your mind. Cut those losers, let the winners tell you when to sell them, never risk so much that it affects you, - trade your plan. All these things can be like a broken record in your subconscious that can spur you on. That is why concentration is vital as the foundation of your success. It is an edge in itself.

Another part is reading basic human emotion and under what conditions they typically occur. When you can trade in a manner that is detached from the emotion driving the markets and trade to take advantage of them instead you are in the drivers seat to profits instead of a passenger in control of nothing. Not even your own emotions.

AS you can see there are many different aspects that can make up an edge without hardly touching on the myriad of charting parameters that could initiate it.

Take the VECO trade shown here from today. 1st chart is short entry 2nd chart is exit. VECO is on my watchlist because it is a good mover with the things that are important to me, a small spread, good volume, good daily trading range.

AS VECO makes a new daily low it pops up on my making new lows list. Opportunity knocks. EDGE.

The previous low was the opening candle of the morning. So looking at the chart, some traders might say it’s already dropped .80 in the last 25 minutes how much lower is it going to go. I’m not thinking of that, instead I’m thinking it has just hit fresh lows and traders who bought it at the open and didn’t take profits are now seeing losses, fear or disgust. EDGE.

Experience also lets me wait for when just before the new five minute candle will appear to start my short trade based on what it did during 2 of the previous 3 candles. Look and you will see it retraced to the change of candles then dropped right away. I like those odds. EDGE.

So those were the chart parameters of the trade. Then it is a function of managing the trade. Set the stop(define the risk). EDGE.

Wait for the momentum to stop. In this case it didn’t so 5 minutes before the end of the day it is time to take A $1 run in profits. EDGE.

Every trade is not as clinical as this but hopefully you can see how it all fits together.

Reader Q & A

How do you stop the nervous feeling or anxiety created by having the positions fluctuate? Or do you not really experience those emotions. Everytime I have a good trade going, I try not exit so quickly. I tell myself work with the 5 min chart. Yet, I always get out early due to wanting to end that emotional feeling of nervousness. Once the position is closed, I am not nervous anymore. I am thinking about changing my stops to trailing stops, so they move along with the profit, but I have never used these before. -Joshua

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I think the unhelpful feelings you have when you put on a trade have to do with thinking about money too much. Yes I know this business is about making money but the trick is to think about the application of your edge and trading plan/system instead. Remain ambivalent about the trade you are in.

Any one single trade simply is not important. Whether you win or lose on that single trade is not important. Being right or wrong on that single trade is not important. What is important is sticking to your trading plan so that your edge (you must have an edge that works) can manifest itself through the endless stream of probabilities that present themselves during the day, weeks, and months. When you have nothing riding on the outcome of a trade it is easy to let it go to wherever it’s going to go and trade it accordingly. Like flipping a coin.

You might say that is easy to write and hard to put into practice, but the reality is that when you make a fundamental shift in your thinking so that you can view your trading as purely taking advantage of probabilities via your edge with complete disinterest in any individual outcome then you will have an easy time of it.

To me it comes down to mental preparation. Rehearsing in my mind what steps I need to take to implement my edge/system/plan before the day begins. Control what I can control – risk/losses with stop levels – I can control nothing else market related. Everything else though is taken care of by putting my system into practice exactly as I visualized and rehearsed it regardless of rising or falling markets. This singleness of purpose doesn’t have room to let any other emotions intrude. It is what it is. The charts tell the story. There is no room for hoping, wishing, fear, greed. Only the application of the system.

Start working with the market instead of viewing it as an adversary. It will tell you when to buy and when to sell. It provides you with the opportunities. The money that you gain or lose is only a byproduct of your edge and the proficiency of your application of it.

On a side note, are there any trading questions out there as I’ve about run out of things to write about on this blog and by now my system of trading is plain to see and getting to be a bit of a bore posting the same charts.

PPT in action

On weak days I've been watching for evidence of the PPT(Plunge Protection Team) getting actively involved.

When things look ready to drop bigtime I watch for a slowing and then upside reversal on low volume. It's exactly what we had today so I bot GS, TNA and shorted FAZ at the same time with the same result. By raising the market enough so that the weak shorts can't take the pain and start to cover it becomes a self fulfilling prophesy.

1st chart shows the QQQQ begin the run up on no volume.

GS long

sold GS

The art of profit taking

Since the markets have stopped their incessant march upwards at the moment, lots of shorting opportunities abound. New lows make newer lows and it's easy to catch some nice profits. The art of profit taking can be easy to apply if you employ a couple basic rules:

1. Have no profit target. Since you or no one else know for sure where a stock will rise or fall to, free your mind to only watch when it and the markets stop the current momentum. And,

2. Take profits when you'd be an bloody idiot not to.

A few examples today:

1st chart is LULU short

2nd chart is LULU profit taking

TNA short

TNA profit taking

VECO short