The Part-Time Trader (13 page)

That could not be closer to the truth, either. You are dedicated, for Pete's sake. You start work every day at 5 A.M. while boss man over there is still probably reading his
Wall Street Journal
or more likely pressing the snooze button on his alarm clock.

I know this section is going to make some people irate, and in particular, those who are “green sensitive.” That is not who I am, so they'll just have to be tolerant of me and my indifference to their ‘Do-It-My-Way-or-Else Platform.”

Most companies have automatic lights that literally drove me bonkers. I could be working steadfastly at my computer, and those darn light sensors would shut my lights off because I was not active enough physically behind the computer desk. So I would have to raise my hand in the air or have some kind of muscle twitch to get those lights to turn back on. Sometimes, I just did not care, though, and worked in the dark, since all I really needed in the first place was the monitor I was working off of. It is imperative that you know whether you have automatic lights. If you do not, then always leave your light on. If work has commenced and you are late to the scene, the office lights being shut off will sell you out every time. So leave them on.

If the lights turn off automatically, there are a couple of tricks that can fix this for you so that they will never turn off again. First, take two paper clips and connect them with a 12-inch string. Take some scotch tape and tape it around one of the paper clips after you have attached it to the string. Then take one end of the string with the paper clip and slide it into a ceiling tile next to an air vent. What this will do is create movement on that string from the air coming out of the vent. The tape serves as a surface area for the air to blow against and get the string moving, allowing for the lights to always stay on (that is as scientific as I will get in this book). Other tricks include leaving a rotating fan running in the way of the light sensor, which will constantly leave the lights on as well.

I had about 10 different trading screens that I would run in the morning before I got to work, though since then, the number of screens I go through each day is a lot less (due to technology and efficiency), despite my being a full-time trader. I would wake up and get my morning dose of caffeine in the form of a soft drink. I would mosey over to my computer and starting looking through the charts.

I would start with my trading plan first, by looking over the S&P 500 and SPY charts, which is still the index I use to this day for gauging market sentiment. This chart defined the direction I would trade. If we were in a strong bullish market, I would, of course, trade long and avoid the short positions altogether. If we were in a bearish market, I would stay net short with my positions, and often hedge myself for the dead-cat bounces that would eventually take place, and then ultimately reload and add new short positions once the market decided to move lower again.

The key to doing this and knowing which direction to trade in was becoming intimately familiar with my preferred index, which was the S&P 500. Some people track four or five indices and even dabble in foreign markets, and overlay them with multiple indicators and fancy oscillators. Do not do that unless there is a proven system you have unearthed that requires this. Just keep it simple. You can go to SharePlanner.com and see exactly how simple my trading plan is and how simple the charts are within that guide for the trading session ahead. I post it each day for free.

My main goal is to be concise and actionable. If I don't do that, why bother with the research? Now is not the time for a part-time trader to be philosophical about the economy or what he thinks the market should be doing. Instead, use this first morning task to determine what the index chart is telling you. Nothing more, nothing less. I recommend that you start off by becoming intimately familiar with just one index, whether you are a beginning or advanced trader. It is my opinion that if you study just one index up front, you'll find that is all you need to really track and gauge market sentiment.

The one index I would avoid making your primary chart is the Dow Jones Industrial Average. This is the index that everyone at the water cooler likes to report and talk about. But it is derived of the dollar movements of the actual stocks themselves. That means companies like 3M (MMM) have far more weight on the ups and downs of the Dow simply because it typically trades over $100 per share. It has almost four times as much influence as Microsoft (MSFT), which typically trades in the $20s. That means Microsoft would have to go up 4 percent in one day to have as much pull on the Dow as 3M's move of 1 percent, even though Microsoft is three times the market cap of 3M.

I used to carry a notebook everywhere I went—to lunch, to the office, to meetings, and when I traveled. Most people did not know what that book was for, but it was small in nature, only 7.5-by-5, or just a shade bigger than a note card. Everything I did was for simplicity. Nothing was complex—how could I do it differently? I was a part-time trader. I would use only one page out of this book for each day of trading.

A typical page looked like the one in
Figure 6.1
, though it can look any way that you want it to be, to keep your trading simple and understandable to you.

Figure 6.1
My Notebook of Trade Setups

Notice how simple I make it. I trust my analysis and know that if I write it down on the page, unless some unexpected new event transpires, I can trust my original thesis; therefore, I do not write the reasons for why I am trading the stock. That can be documented somewhere else, but not for the purposes of trading during the day. I am simply concerned with my entry, stop loss, target, and, of course, the stock that I am actually trading in.

You can do this horizontally on a notecard if you want, but the main thing here is that I did not put a lot of sentences or descriptions on the text, because if I happened to make a mistake and leave it out in plain view for others to read—and I did that plenty of times by mistake—I did not want someone coming into my office without my knowledge and seeing everything that was on that piece of paper or note card, nor did I want them to know what it meant. Because I kept it understandable only to me, they would just assume that it was a part of my job and that they just did not understand its meaning.

In order to be ready for when the market opens each day, you have to have your trading strategy and setups ready up front. If you are on Pacific Time, the market opens up at 6:30 A.M., which definitely has its advantages and disadvantages. First, unless you are a glutton for early mornings and little sleep, you will more than likely need to do your research at night, which would not be a problem for me, but some folks like to spend their evening winding down after a long, hard day—not taxing their brain until they go to sleep at night.

As I've said all along, though, you have to work your trading within the parameters of your job. However, one advantage to having the first couple of hours of trading at home is that you can, in the comfort of your home surroundings, get into your trade. When I would travel out West, I would always stay on East Coast time and wake up at 2 A.M. local time (which was really like waking up at 5 A.M. for me) and be able to trade the first few hours of each trading session before having to meet in the lobby with the rest of team I was traveling with. That is a huge advantage to have.

For me, though, living on the East Coast, I had to account for a 9:30 A.M. opening bell, but had the advantage of doing my research in the morning and being able to account for the activity in the European and Asian market as well as knowing what the futures did overnight.

As a part-time trader, you do not have the luxury of being able to watch multiple markets, hundreds of stocks, intraday screening, and analysis. So do not prepare like one who can. Notice on the snapshot I provided from one of my days in Corporate America that I did not list 40 or 50 stocks. Instead, I have a handful of about 10 to 12 stocks. A number of those listed were carryovers from previous days of research where the setup did not trigger a buy or short action, but the trade setup was nonetheless still valid.

The last thing you want to be doing is going through pages of trade setups trying to find the ones that work for you. When you get to work, your trading should consist of acting on your morning's preparation. Have just a handful of stocks—no more than five to seven stocks that are your cream of the crop and worth taking action on. You can have others like I did, just in case price action warrants a trade in them, but keep your list of stocks that you follow to a minimum.

If you have too many trade setups that you are trying to act on, ask yourself what is the underlying, motivating factor for doing so. Often, it is out of a need to trade, and when that is the case, there is usually a horrible consequence that comes with it because when you are not going solely off of the top setups that you have, you will have fewer quality trade setups that you will be acting on, which means you are less likely to succeed consistently in the stock market.

Avoid taking your list and modifying stop losses, targets, and, most important, the entry price once you are at work. If there is significant news released that day that is driving one of the stocks you are watching higher or lower and affecting your predetermined entry price, do not adjust that entry. Just scrap that setup and move on. It is far too difficult to be doing your job like you are supposed to while having to do secondary research on a given stock because of an outlier event affecting the trade setup you came to work with. As a full-time trader, you can do that. As a part-time trader—forget about it! Besides, that is why you have multiple setups on your watch list because if one does not work out, there are still five or six other setups that you can still take advantage of and profit off of.

Be methodical; follow your prework and premarket research that you woke up early to do. Trading on the job off of modified research is likely going to throw you into an emotional roller coaster, and the ultimate victim will be not only the capital you are trading with but your job as well. Like I said, keep it simple, and do not force the trade or follow some deep-seated need to trade. That means being willing to go through an entire set of days and not trading if that is what the market dictates.

When I finally left the corporate desk to run SharePlanner.com and trade full-time, the transition was somewhat difficult for me, mainly because I felt that I could suddenly be more aware of my trading environment. You could say I got hyper about it. I had one screen that had a quadrant setup with the 1-minute, 5-minute, 30-minute, and the daily chart on the S&P 500. Because I could sit in front my monitors full-time without having to do some other job, I could watch 1-minute charts like they were going out of style.

I also tried to trade anything and everything that I saw. This was in direct contradiction to what had made me a successful swing trader for years on end. It was not that I thought I was suddenly becoming undisciplined in my trading—I just felt liberated to do so. In a way, that was detrimental to my trading success at first. I began trading far too often and incorporating far too many trading strategies to the point that I could not remember some of the positions I had on at times or the orders that were still active.

I bring this up because it is imperative that the manner in which you trade on a given day is tailored around your workload. If you are going to be loaded to the gills with meetings during the day, with very little downtime or the opportunity to simply be at your desk, then your focus should probably be on managing your existing positions and not adding to them. As we discussed earlier, smartphones are absolutely a requirement in today's technology-driven trading environment, and when you are going to have regular meetings throughout the time that the market is open, it is necessary to have a smartphone in hand or laptop access so that you can keep tabs on your position, and even more so if you decide to add a new position.

Remember, though—and this is important—to not trade regardless of consideration for what lies ahead in the day. Trading is serious business, and you do not want to approach it like a Las Vegas gambling addict who gets his thrills from pulling the lever. Do not be that trader. When your schedule does not give you a good opportunity to trade, do not force it—just step aside. It is the same concept as not forcing trades that do not have the right reward-to-risk setup. It is foolishness, and you need to avoid engaging in it.