The Best Trader I Have Ever Known – Part II

Most less experienced traders think that it is important to watch every tick as a stock trades while intently focusing on the numerous possible chart pattern permutations on the 1-minute chart. The folly of this micro managing quickly becomes evident when the trader realizes that markets are full of noise and that one will always be able to conjure up plenty of reasons up to exit a position early. The truly skilled trader cuts through the noise and unimportant information in order to hone in on what is relevant to him and his positions.

Mark had many memorable trades which could make for great blog post material, however, one trade in particular still stands out in my mind to this day: Disney ($DIS) had reported strong earnings results and the stock was in play that morning, DIS was gapping higher which often leads to elevated volatility. However, with elevated volatility comes more opportunity for the expert trader. During the first 30 minutes Mark was able to identify DIS as being under accumulation and that there was a strong possibility the stock could remain in an uptrend throughout the entire session. By 10am he had accumulated a 12,500 share long position and by 10:30 he had left the office after trimming the position down (locking in profits) to 7,500 shares and putting in stop loss/take profit orders.

That’s right, he left the office and said he would check in around lunchtime. To most this sounds like reckless behavior – most will ask how someone can be long 7,500 shares of a stock and not be focused on every tick and chart permutation? The simple answer is that from his experience there were certain trades in which it paid better to remove oneself from the action in order to maximize the potential for allowing the trade to work. How many times have you been in a profitable trade with a great entry only to find a reason to close out your position early and drastically cut your profits short? We’ve all done it because it is the nature of the market, there will ALWAYS be reasons one can come up with to exit a position, there will always be dips within larger uptrends, there will always be “breaking news” banners on TV that turn out to be meaningless – Mark had come to the realization over a large sample size of trades that it was better to work on finding the best setups and put oneself in a strong position to catch a much larger move than to focus on the minute-by-minute minutia and noise of the market.

At around noon Mark checked in to see where DIS was trading (this was early 2006 and he had one of those old Nokia flip phones), I went over to check his account and saw that DIS was .60 higher from where it was when he left – his P&L was +$5,800. He told me to move up his stop losses (to levels at which he would still be +$2,000 for the day) and that he would be back in the office around 2pm. Like clockwork he strolled in at 2pm, sat down at his desk, checked the charts and by 2:30pm he was down to 2,500 shares of DIS – he exited the rest at the close for a tidy one day profit of +$11,000. I bring up the DIS trade example because it was exceptional and illustrates perfectly the process and calm unemotional style for which all market participants should strive. There will be tough days – one cannot participate in the market without experiencing drawdowns and rough patches. Much the same way a boxer cannot reasonably expect to not suffer a few black eyes or broken noses during his career. However, the master traders roll with the punches and remain calm and collected even during times of extreme turmoil.

Successful trading is all about putting oneself in optimal situations in which risk is defined and upside has the potential to be considerable, once the trader is in such a position the key is to maximize profit. Mark’s ‘technique’ of regularly leaving the office for several hours in the middle of a trade was something that he had developed over the years and which he knew was the best thing to do in certain trading environments. I believe that less experienced traders who find themselves regularly being fooled by sudden downticks in their positions or other market related noise can learn a lot from Mark’s “leave the office” technique.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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