Chapter 3: Going From Strikeouts To Daily Profits
They call it the golden sombrero. The not-so-glorious feat of managing to strike out four times in a single game. Reggie Jackson managed this feat 23 times, beaten only by Ron Howard who is still active and very likely could relieve Jackson of his spot at the top of all-time strikeouts.
Pick any side of the analogy that you like… being the hitter swinging for the fences… or the pitcher trying to sit batters down. If you’re spending too much time confirming trades in the S&P, you’re going to lose.
Just like baseball, there is no shortage of gadgets, indicators or newfangled ways to confirm a trade.
Here’s a secret the pros know: You don’t have to use expensive indicators and waste time doing confirmations. Or worse yet, confirmations of confirmations.
Waiting for the perfect confirmation to pull the trigger only makes things worse.
Here are three simple reasons why:
We’re willing to bet that if you took your current strategy… and traded for a month only taking entries with multiple confirmations… your results would be about the same if you went with the ‘run-and-gun’ approach.
Let’s be clear. The issue isn’t the confirmation. It’s the paralysis by analysis that kills profits. The second guessing. The bad timing.
If we’re being honest? The need for confirmation isn’t about better trading process. It’s the scars of prior losses that are coming back to haunt you. And it’s those scars that are holding you back.
So, let’s set aside the need for constant confirmation and zero in on a process for higher daily S&P 500 profits. The formula is shockingly simple. We’re really looking for a few basics.
Let’s look at a basic example that every trader will encounter.
Non-Farm Payroll: One of the biggest trading events on the calendar - and a terrific way to ruin a weekend. The retail traders? They trade the initial price action at the announcement. That strategy loses as much as it wins - if not way, way more.
No, in this instance, we’re looking for the fade and the prevailing trend. The sort of setup that the rest of the market would point out for us.
Check out the market reaction to a recent report. The following three steps can be followed over and over.
Note how Price action tested an identified area of support before making its move. A good reference point for an entry - but we’re looking for an early indicator.
>> Key Action Item: Watch the initial market reaction - but steer clear of the volatility in the first 15 minutes.
Monitor the Outside Indicators: Yes, there are some fantastic indicators that will scan the thousands of stocks that are simultaneously responding to this market event (or not). But for purposes of this example, let’s simply monitor the big three indexes - DJ, NYSE and Nasdaq.
Despite the initial downward move in the S&P there’s an important detail that markets outside the S&P (and the thousands of stocks within) picked up on. The overall economic news was good, DESPITE the miss.
As a result, if you look at the DJA, NYSE and Nasdaq composites - you can immediately see that they were already moving up.
AT THE SAME TIME that the S&P was violently swinging back and forth.
>> Key Action Item: Check the direction of the major indexes outside the S&P in the following 30-60 minutes after the initial reaction.
Exit & Monitor the Off Hours: Unless you’re taking a long-term position trade, or you love playing roulette with your account - exit and take your profits before close.
While doing so, keep an eye on the other composites for pull-back corrections and continuations of the trend.
These are golden opportunities to take advantage of pre-market steam that blows off before the open and grab early ticks before the opening bell. Many times you’ll see the overwhelming trend from the prior day pick back up after the pull-back, and you can enter for additional profits.
>> Key Action Item: Wait for pull-back in the off hours and then resume the trend with the rest of the market before the open.
Whatever happens. Leave the guessing, the chop and the losses for the other retail traders out there. Why take wild guesses when you can simply monitor the driving forces behind each S&P move?
So, what’s holding you back? If you’re like any other red-blooded trader on this planet we call Earth… it’s the thought of losses. Especially if you’ve encountered them before.
Let’s get rid of that mentality now.