Move the Markets

A Trade on Biomet Inc (Nasdaq: BMET)

Posted on December 4th, 2006
Written by Richard
Posted in: N/A (old archives)

Well, I woke up late, and only started watching the markets at 11:00 EST. Turns out, I missed several interesting opportunities from my watchlist (what’s that saying about birds, worms, and earliness again?). I hope some of you caught some of the good morning action. Starting when I did, I didn’t see much in the way of setups.

I did make a small trade in Biomet Inc (Nasdaq: BMET), though. I wanted to see how this stock did after seeing it on last night’s alphatrends video. Here’s the 30-minute chart, as of 11:53 EST:

I bought the stock at the open of the current candle (38.75), with an initial target of 38.99, and a stop below the previous two candles. I sold at the current price shown (38.79). What did this stock have going for it?

• Slightly higher than average volume. Always a good sign.
• Sitting right on the “magic” 5MA.
• The previous candle was “narrow” in the sense that it was a 23 or so cent candle on a $38 stock.
• Near new HOD after giving up some ground.
• Some room above it to run on the daily charts (next resistance above 39, anyway).

At the time I bought, the HOD was 38.81, so I thought one of two things would happen:

• PLAN A: It runs to 38.81 and pushes through, at which point I considered chances were good that it would test 39 (thus my target price).
• PLAN B: It runs to 38.81 and either stalls or reverses. I would bail for a small profit if at all possible.

So, why did I get out of the trade?

• Volume was higher than normal on a daily basis, but it appeared to be declining.
• When buying, I entered a limit order at the ask, and I got filled for less than the ask. Not necessarily a bad sign, but I prefer it when there’s more competition for shares than that. When the MM’s don’t even care enough to screw with me, I get extra cautious. :-)
• The nasdaq TICK was sticking in the +100 to -200 range, and the QQQQ’s were falling through their Thursday highs after bursting through them in the previous hour.
• The price had been stalled at 38.79 for 6 minutes.

So, I wasn’t seeing a lot of energy in the way the stock was trading. I decided “stalled @ .79″ was close enough to my PLAN B scenario, and got out. Was I right? Well, of course the answer is “yes, I am always right when I follow my plan” :-) It did go up some more about 40 minutes later, though. No matter!

As a trader, you can’t fret over what could have been, had your choices been different. For one thing, it is a leading cause of unhappiness. Secondly, had I sold at the top I’d be inclined to call myself a genius right now. But, forming an opinion about myself, whether the stock went up or down post-sale, is nonsense. The stock market is a probability game. Think about that! It could have gone either way. This is why I say the only way to measure the quality of a trade is if you followed your plan. In this case, it’s now 50 minutes later, and I see the stock is trading at 38.85. Still not at my target, but a bit more profit.

Well, doesn’t it mean anything that money was left on the table? All you can meaningfully do is collect data about a lot of trades, and see if you statistically leave behind unrealized profit. That might be a call to action. And I do think you need statistics, rather than a feeling like “this happens every time.” Humans have a way of selectively remembering things that we didn’t expect. When things happen as expected, they tend to fade from our memory quickly, by comparison. So, we have a skewed perception of what happens “every time“. Right now, I can’t tell whether I should change my plans, because I have not been keeping track of unrealized profits in my journal. Luckily, StockTickr keeps charts of all my trades, along with reference QQQQ SPX and DIA charts. It might be interesting to go through them and see how much profit I tend to leave behind.

So, that’s a long-winded (typical for me!) way to say: when you sell, the stock is always going to go up or down afterwards. You have no control over the direction… only opinions about the probabilities. Have a plan, and stick to it with no regrets. Only change your plans with aggregate statistical data backing up your decision.

Comments

© 2010 Richard Todd. I am not a financial advisor, and nothing on the site should be considered investment advice or actionable recommendations. I'm just an individual, saying what I think, and sharing my experiences.