My kids have been out on the island with me for almost two weeks, and the restlessness has set in.
It starts with food. My son announced this morning that the second we get off the island, we are hitting In-N-Out. Then, before he even finished the sentence, “and after In-N-Out, can we get chicken wings?” He does not need any of it.
He needs to be doing something. Sitting still is the enemy.
I watched a whole lot of traders do the same thing this morning, and it cost them.
Start with the number, because I always start with the number. The expected move today was $60 in the S&Ps.
That is the range the options market is pricing in for the day, and $60 is big. It means the market is braced for a real fight.
Now here is what most people missed. We opened pinned to the lower edge of that move, sitting right on the line.
And when you are pinned to the edge of the expected move, you are not going to do a damn thing until you do something big.
You have to box it in. The move sat around 7,380. Give it 20 points of freedom either way, draw the box, and that box is your whole day. Inside it, price just slops back and forth. Buyers and sellers meet in the middle and sit there.
The expected move works like gravity, and it kept dragging price right back to the center all morning.
So what is the trade?
The trade is one question: do we break off this edge or not. That is it. And it is a miserable question to answer, because to actually break off the line you need a fierce move through it on heavy volume.
You see 17 points and get excited? Seventeen points is slop. That is not a break. That is noise.
So I did the hardest thing on the screen. Nothing.
I had trades on. I was not bored and I was not out of ideas. I sat because the setup told me to sit, and I do not force this stuff. If a trade is not built so I can knock the cover off the ball, 100% at a minimum, I am not doing it.
You want to know what a slop day on the edge of the box does to an impatient trader? It baits him into scalping, chops him to pieces, and bleeds his account one lousy fill at a time. He is busy all day and broke by the close.
That is the In-N-Out urge.
The need to be in something, to feel like you are working. And if you think feeling busy is the same as making money, what in the hell are you smoking?
Look, nobody puts Donnie in a box, but the market sure did today, and the move was to respect it.
You mark the expected move, you box it in, and you wait for the thing to actually break instead of guessing where it goes. Most days that patience is the entire edge. The guy who waited kept his powder dry. The guy who could not sit still paid for the lesson.
So when the market has you pinned to the edge and your gut is screaming at you to do something, go look at the expected move first. If it has not broken the box, let it slop without you and go get the chicken wings.
To your success,
Don Kaufman
P.S. Speaking of what is sitting on the other side of your trades: today at 2 PM ET, we are pulling back the curtain on THE SWARM, the machine that has been winning against retail for 15 years. One of the technicians who had a front-row seat to how it works is breaking his silence and walking through live setups on the chart, including a few shaping up this week on names you already trade. Be there at 2.
