“I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.”
“Men who can be right and sit tight are uncommon.”
One of the hardest things for a trader is selectivity. There are lots of setups to choose from the scans I go over after the close every day.
There are many setups being created intraday.
A trader’s job is to narrow one’s field of vision and cull for the very best setups: the more one tries to see, the less one sees.
In this game, there is so much going on that it’s easy to get overwhelmed. As the old saw goes, less is more.
The patience Jesse Livermore banged the table about is not just in letting a position play out; It entails waiting for the right pitch.
In my book, Hit & Run Trading I tell the following story:
There is a story about legendary hitter Ted Williams. Apparently, he seldom responded to fan mail, but when he received a letter asking him who he modeled his hitting after, Babe Ruth or Lou Gehrig, Mr. Williams felt compelled to write back: Neither. His hero was Rogers Hornsby, whose strength was the patience to wait for the right ball. Whereas the Babe swung at nearly everything that moved, and though he did hit more homeruns than anyone of his era, he also struck out more than anyone. Lou Gehrig was simply able to overpower pitchers with sheer force. But, for Ted Williams, Rogers Hornsby was the man. It wasn’t so much the stance or the swing, but his willingness to wait for the right pitch that made all the difference.
Once you stalk a stock for a while, you learn its personality. And after a while, it paints a picture for you.
Let’s take a look at a long swing setup in FMSA that I initiated 10 days ago.
Going into late August FMSA was 180 days/degrees from its late January high at 13.
At the same time, 3 is 360 degrees down from 13 on my Square of 9 Wheel.
So there was a time/price setup on the table with FMSA being a geometrical 360 degrees down in a geometrical 180 days.
(Click here to enlarge)
The important thing to understand is that FMSA traded to 3 on July 24, but didn’t turn up until ‘time was up’ 6 months from the high.
Notice that FMSA slid somewhat below 3: the market is not a fine Swiss watch.
Nevertheless, FMSA was at the intersection of Time & Price late this summer.
In fact, on July 24, FMSA installed a Selling Climax. July 24 was a large-range decline on an expansion of volume that saw no follow-through, suggesting a possible Selling Climax.
The ensuing month saw FMSA trace out a Slim Jim or flat base.
On August 30, FMSA broke out above a 6 month trendline and quickly extended above its 50 day moving average. This was the first time FMSA was above its 50 day line since the February high.
On Friday, FMSA backtested the breakout. Checkbacks to a breakout are common. On Tuesday, it followed through above its 50 day with authority.
There is a DNA to this pattern that is worth putting in your memory bank.
As the Bruce Lee quote above offers, repeating the same stance or kick over and over will make you a dangerous competitor — more so than trying to master a multitude of setups in a large universe of stocks.
In trading, stalking the best setups and recognizing a pattern as it unfolds will make you a fiercely successful speculator.
The other edge of the sword is that even when things set up picture-perfect, the market can do anything at any time.
You have to be willing to abandon the best setup when it doesn’t act well.
This means not confusing your position with your best interest.
Some traders are in the game for validation, to be right. This can be the kiss of death.
“Soros is the best loss taker I’ve ever seen. He doesn’t care whether he wins or loses on a trade. If a trade doesn’t work, he’s confident enough about his ability to win on other trades that he can easily walk away from the position. There are a lot of shoes on the shelf; wear only the ones that fit. If your extremely confident, taking a loss doesn’t bother you.”
As to FMSA, essentially after the big picture set up comes into focus based on the Square of 9 and the breakout over a long declining trendline, then there is a ‘3 Point Kick’ that is the action point:
1) The breakout
2) The backtest
3) The follow through
The successful backtest in tandem with upside follow through over the 50 day moving average represents a bullish change in character.
What is behind the breakout in FMSA? I haven’t a clue.
Speculation is observation, pure and experiential. Thinking isn’t necessary and often just gets in the way.