Swing Trading With A Day Trading Mentality – Don’t Do It!

This post hurts.  I mean it really hurts.

I have been pounding the table for a few weeks in my Monday “Trade Ideas” posts about $TEX.  Everything about the setup looked great from a swing trade standpoint.

And if you have followed me for any amount of time, you know I have written about how traditional patterns in the market can be distorted and that you have to account for that in your trading (see “How To Place More Effective Stops”).

So why is it that I got shaken out of my $TEX trade last Thursday and missed the move that I had been predicting would come?

Because I was swing trading with a day trader’s mentality.

At the risk of putting too many links in the first 150 words of my post; I recently wrote about how I am transitioning back from a day trading style to more of a swing trade style, but I obviously haven’t completed that process yet.  Let’s go to the tape.

Here is the setup I was looking at; $TEX coming out of a nice large down channel, where I got long.  Then it even got better as a small consolidation area formed, which gave me an objective stop level.

But the trouble began when the stock tried to break out above that resistance and was turned back, creating an inverted hammer.  This was a potential “failed breakout” and I waited til the next day to get confirmation.

Confirmation did come the next day, however here is where I made my mistake.  I sold when the stock was at the low of the day, instead of letting the day finish out.  Of course price came right back up and formed a red hammer, just below the breakout point.

And thus the painful part.  $TEX broke out the next day and continued with a beautiful picture perfect follow through today.  Ouch!

The problem with this trade is that I reacted too quickly, a la day trading.

Even at the low of the day when I sold out I was just a hair below break even.  Now if the stock had been at that low going into the close I would have probably been justified in selling out there, wanting to avoid a possible gap down the next morning.

But intraday I could have, should have given it more room.

Normally  I would inset some sage advice to myself here, but this time I think I will skip it, as I need to find a fiscal cliff to jump off.

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  • Question sir bclund… I’m assuming you’ve probably done this or do do this, however I wanted to provide something I do for these types of scenarios.

    Whenever I feel my emotions getting the better of me on swing trades or I get that day trade mentality creep, I immediately switch to a lower timeframe chart than the one I’m using for entry/exit. So for daily’s, I prefer to switch down to the 30min so I can see if momentum is actually deteriorating under the surface. Same concept in using 30 min for entry/exit. Basically, keeping one lower and at times one higher time frame view provides more clarity when emotions creep in.

    • That is actually a very good concept. I had not thought of it myself. Good stuff.

  • That happens to me all the time too – I’ve now got a rule that I never exit mid-candle. I always have a hard stop in place to make sure it doesn’t get out of hand, but now I always wait for a full candle to form rather than getting panicked out.

    Funny how the panic point is invariably at the extreme point of the day 😉

    • Yes, it is funny about that Mrs. “possibly-in-an-alternate-universe” bclund.

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  • great post, thanks. Something i am constantly struggling with as well.

    • Glad to know I am not alone 🙂

  • This is exactly the kind of psychological muck that pithy little behavioral investing aphorisms don’t begin to trudge through. I’ve done “this” more than a few times in my career, and each time, sure enough: it resulted from the day/swing trade blur you describe. This switch isn’t so much a move between timeframes as it is changing up personae/identities: pulling anchor on one doesn’t mean you’re immediately moored in the other. The distinction is slippery enough, anyway; and transitioning can be almost like retraining muscle memory.

    I’ve found creating and using very basic but concrete day and swing rubrics to be really helpful with this: enough to delineate boundaries without being overwrought. Making the above mistake a few times has given me the opportunity to refine exactly what that means. Mostly they’re just a reminder that effectively says “Hey, you: you’re over here now”. That works for me; but anything that induces some self-reflectivity, giving enough pause to stimulate that ‘wait: what the hell am I doing here, exactly?” reflex will work.

    Thanks for the post!

    • Glad you liked it. Thanks for reading.

  • mars10p

    I’m a systematic swing trader and (other than my first few months of trading 15 years ago), I’ve always used intraday targets (i.e., actual limit orders), and end-of-day stops. This lets me benefit from random intraday volatility in my favor, but not get burned when it goes against me, or by stop-fishing at obvious levels. Of course, this also implies a different approach to position sizing, where I focus less on trade-specific risk, and more on the aggregate statistics of the system.

  • The bell rang last Thursday 🙂

    • “I don’t know WHAT that was……”

  • the rang last Thursday 🙂

    • Jeff Watson

      One should identify what they consider a swing trade to be. Is it where you buy 3 million bushels of March corn and sit on it for 3 months, or is it holding a couple hundred shares of AAPL for a week hoping for a $30 move?. Like Joe DiMaggio in baseball, one should employ the same economy of motion in their trading. Going in and out of markets, picking up nickels and dimes, scratching out like a hen is going to allow gambler’s ruin put you away with all the vig, transaction costs, market friction, bid/ask etc. Cut down on the number of trades and it might improve your P&L;

      • Good point, but I think Ted Williams was the most economical in motion 🙂

      • Jeff Watson

        Well, Williams hitting was much better and he had a longer career,, but I’d argue the economy of motion. Furthermore, they never wrote songs about Williams(who I liked a lot). http://www.youtube.com/watch?v=FtA_w0HtvR8

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Brian C. Lund

Brian C. Lund

Great father. Good friend. Decent trader/writer. Lacking husband. Solid drummer. Sometimes funny. Often A-hole. Terrible poker player. Too smart. Punk rock. Work in an ice cream shop.

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