Trader’s Narrative

Yesterday Ugly posted a trade in AMR that he had missed by a hair’s breadth. By his own admission, he had been penny wise but pound foolish. I don’t think it’s wise to beat yourself up over something like that because in the end all that matters is whether you played out your gameplan as you were supposed to.

A more positive response would be to quickly find a correlated stock which is following or sypmathizing with the stock you missed, and enter a trade on it instead. This is not that difficult because most stocks in the same sector follow each other, more or less. Especially on an intraday basis (this is how pair traders make coin).

For example, take a look at UAL’s price action for yesterday:

UAL did not gap down as AMR did, but it was nevertheless crushed in an avalanche of aggressive selling in the morning. The 11:30 am candle was an inside candle and a hammer. Also notice that it was sitting right at the intraday support (and round number) $30. Once it broke that, the price action continued to expand to the downside.

You might be asking, why UAL? Was this a cherry picked example? Well, since we were looking for a short, obviously it would be to our advantage to pick a weak stock within the airlines sector. Looking at UAL on the daily, it is clear that it has low relative strength compared to the sector and to AMR. Whereas AMR was above the recent April swing low, UAL was below it’s April swing low.