Lesson of the Day: Trust the Chart

So, today was partially frustrating. but where there is frustration there is likely a lesson to be learned. The lesson today, always trust the chart and logic.

My SPY calls lost about 500 of value overnight so I sold at the open anticipating a big down day due to both Amazon and Merril Lynch earnings. This ended up being correct overall, with the S&P rallying only at the end of the day and the options barely getting back to where I sold, obviously I don't know if that will happen so I sold.

So back to the issue. Today I was bearish on all of tech with amazon coming out, combined with such a large run up the previous day I assumed there would be profit taking. I was watching AAPL and GOOG for some price action to exploit to the downside since that seemed like the logical path of least resistance for the day.

The above picture is of AAPL at the begininning of the day, forming a PERFECT ascending triangle, with support at 185, if this broke I assumed we would go down decently partly because the pattern shows a 2 point move, which was then my target of 183. So I sat there waiting for the break with my order filled out on Ameritrade waiting to hit "submit". It breaks and the option price goes up above what I currently had, I have to scramble to change and as I do it starts to break hard and I sit there and don't want to chase it. I could have entered about 1 min before the break for my limit price but didn't take the anticipatory trade. As you can see once that support broke it moved even farther than I thought going all the way down to 179. Even waiting for my original target I would have made a quick 5,000 on my 50 contracts.

In retrospect, I should have take the anticipatory trade, the pattenr was setting up perfect, I had a bearish stance and I would exit if it moved out of the triangle so risk was defined. Once it broke and I didn't want to chase it I think I let emotions of ego get to me, not wanting to break my "winning streak" being 5/5, which is stupid. Obviously that is great but I am going to be wrong many times, it is just a matter of limiting those losses. So as a result I missed that trade and a similar trade to get into AAPL calls as I figured there would be a bounce off 180 but again my order lagged the option price movement and I ended up sitting out all day.

The only positives are I didn't lose money today, which is one of the first things you want to try and achieve, as well as I kept in mind that there will always be other opportunities and didn't chase trades, and I got to see how short term patterns and price action again can be used to my advantage.

After the big recovery at the end of the day, I bought 20 calls of the Nov 52 QQQQ's in anticipation of MSFT earnings. This ended up being wrong because they report after the close tomorrow, however almost all the tech names that reported after the close were positive and Microsoft announced a deal with Facebook. In General, I think tech is the place to be in this economic climate and if we can manage to finally break and finish over 2800 that clears the way for all new highs. So far the Q's are up in afterhours so hopefully it will follow through tomorrow.

We shall see...