In general, I never try to have an opinion on short term market direction prior to the market open. However, I am always aware of economic data and pertinent news that might influence a particular stock. This Tuesday, Actuant Corp (ATU) was indicating an opening much lower from the previous day. ATU Opened at $53.25 and steadily sold off throughout the day and closed down $10.12 at $46.58. Needless to say, I learned a valuable lesson in ATU today. Just because a stock is down 6 points does't necessarily mean that it can't go down another 6. I continued to over trade ATU through out the day looking for the bounce that never came. In hind sight, I should have moved on and looked for other opportunities in different stocks and setups. Instead I tried to make back the money by trading a highly volatile thin stock. You could say I was a little pig headed and showed no patience or discipline. As an experienced trader, I expect more from myself. However, I will learn from this experience and move on.
As we are entering the middle of June, I am anticipating a drop off in volume as well as volatility, therefore it is extremely important to be extra attentive and disciplined. The most important discipline to follow over the course of the next few weeks is PATIENCE. Patience is the discipline that most traders have difficulty adhering to during low volume trading periods. We are approaching the Fed meeting on June 28, as well as a long holiday weekend. Due to some uncertainty in the market, it is imperative that new traders as well as experienced traders do not over trade and take opinions. We have had three months of a trader's market and I would not be surprised to see the market take a little break.
Without patience traders get pulled into an endless cycle of over trading, sub par entry points and losing trades. During low volume trading periods there is not enough follow-through to compensate for a bad entry. Most traders get drawn into trades that do not fit their trading style because they are just plain bored and looking for something to trade.
With patience, it is easier to have the courage and fortitude to execute the proper trade. Opportunity to make money in June will occur less frequently. If a trader has had the patience to stay away from less then ideal setups, he or she will be able to have the strength and focus to execute on the higher probability trades. As a trader, you have to have the inner strength to pounce on the opportunity when it presents itself. Although a certain strategy may not always work, you have to give yourself the opportunity to be in the correct trade and profit from it.
In the coming weeks, I hope for the best and expect the worst. What I mean by this is look to take your profits a little sooner. If we get an active market with increased volume then your discipline and patience will be that much more rewarding.
Mike Kestler is a full-time professional trader and managing partner for Evolution Capital LLC. Join Mike at a training seminar June 16-17, or contact him at mike@evotrading.com.
