The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Focus on Preparation, Luck Will Follow
09/26/2013 6:00 am EST
If you are well prepared, there will be times when you will get “lucky” by participating in a large move in a stock, says Jake Huska of SMB Capital.
There is a quote by Seneca, a first-century Roman philosopher, that says, “Luck is where the crossroads of opportunity and preparation meet.” While the idea of luck as it relates to trading may seem like gambler’s term, the fact is that sometimes you just get lucky. Clearly over the long run, the losses that you will incur from trading without a plan or a detailed understanding of your risk tolerance will outweigh the couple of times that you do get lucky. With that said, if you approach the market with a clear methodology for your particular timeframe, occasionally the market will reward you with a little bit of luck.
The example I wanted to share was a trade I made intraday in Joy Global (JOY) on August 28. I was watching JOY, along with some other names, as it had reported better-than-expected earnings and was in play. I was watching $48-$48.20 level, as this was a technical level of support.
I had two simple scenarios planned out that I would look to trade:
- A push below $48 followed by a meager bounce, I would look to short.
- A hold above $48-$48.20, I’d look to get long for some kind of gap fill up towards $50.
My initial instinct favored the long, as I thought the general market was due for some kind of short-term bounce. A little after 10:00 am, I got long some @ $48.20 and then bought a little more @ $48.11 for an average of $48.16. This was still only a ½ lot, as I would look to add on a higher consolidation. At 11:00 am, JOY pushed above $48.70 and then began to consolidate. This was where I was looking to add. I wanted to see a bit more consolidation via time before I added though. Unfortunately, that never happened. Apparently, they came out with some “news” intraday that they would see improvement in Q4, which caused the stock to see a quick pop up to $50.48.
I got flat into the quick momentum move. I did think about fading the move for a short scalp after I had gotten flat, but I never did.
Daily Chart of JOY Highlighting 8/28 Earnings Day:
Five-Minute, Intraday Chart of JOY:
The moral of the story is that if you are well prepared, there will be times when you will get “lucky” by participating in a large move in a stock (think AAPL/Ichan move). But remember, this is not a game of luck, so any type of long-term success can’t be dependent on it.
By Jake Huska of SMB Capital
Related Articles on STRATEGIES
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...
Has Mr. Market (S&P 500/Equities) priced into too much positivity, while inflation remains at ba...