When people hear the word "flexibility," they may think of yoga, working out, sticking one leg over your head, or something to that effect. But in trading, flexibility is also an important skill. In fact, I believe that being flexible is one of the most important and underrated attributes you can posses as a trader. The worst traders are stubborn and get married to trades, and the best traders simply read and react purely to the price action.
I will use my experience trading ExOne Co
(NASDAQ:XONE) on February 20 as a perfect example of flexibility. I came in with a long bias because yesterday's daily green bar close was the first in green day in six trading days for ExOne. The oversold stock was due for continuation to the upside, in my opinion. I believe recent IPOs have a particular penchant for reversing and following through after several days in one direction.
The stock opened up above February 19's high of $27.20 and looked like it was going to head back to the $28 area. It took a while for the stock to get going, but it eventually got as high as $27.72. It then set up a small bearish consolidation on the 5-minute chart between $27.20 and $27.40. When it broke that channel to the downside, the whole complexion of the trade changed. ExOne went from $27.40 to $26.30 in the blink of an eye. At that point, I had to adjust my thought process to go from wanting to be long on pullbacks to shorting on bounces. The stock bounced back to $27 where I initiated a short and then ultimately covered for new lows.
As a momentum trader, you have to check your pride at the door. Just because I initially traded the stock as a long doesn't mean the situation can't change. I am never afraid to admit when I am "wrong" and flip to the other side of a trade.
Although I played ExOne for a short in the late morning, this doesn't mean that I won't look at it again from the long side in the afternoon. That is the beauty of being a momentum trader. Once we have identified the most in-play stocks, we will continue to trade them in both directions based on the intraday signals.
A perfect example of an inflexible trader is one who is still focusing their attention on Apple Inc.
(NASDAQ:AAPL). The former market leader was once a great momentum vehicle, but at this point, it is dead money. Many traders are programmed to always watch and try to play Apple, and in doing so, they are missing out on a ton of great tradable stocks over the past few months. The 3D printing stocks like Stratasys, Ltd.
(NASDAQ:SSYS), 3D Systems Corporation
(NYSE:DDD), and ExOne, for example, are providing great two-way action.
Editor's note: This story by Steve Levay originally appeared on T3Live.com.
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No positions in stocks mentioned.