As I signaled in an earlier note this morning, we are going to make some tweaks. What follows is a long message, so bear with me. The short version is, we are going to replace our "Indicated Price" with a "Limit Entry", which is exactly what it is: a price where we intend to enter the specified trade, or better. 

By now, you may be familiar with our morning note format. 

The cell highlighted above is a tweak we will test for size. I have gotten some specific feedback which resonates with several exchanges I have had with members on the Live Trading room repeatedly over the last months. Namely, the confusion related to the term we used to have on that highlighted spot: "Indicated Price."

Several of you took that to be the entry we were going to have, a "Limit", so to speak. Rather, that was merely where the price "indicated" at the time the note was written. 

While an "Indicated Price" (or "Ask at Writing" for Longs, "Bid at Writing" for Shorts) keeps things simple and open-ended for me, it is ambiguous for you - leaving too much to the interpretation when, in fact, the goal is to keep things tight and as simple as possible. 

Therefore...

Starting tomorrow, we will actually specify a "Limit Entry." This will be the price-or-better at which we will enter the trade (Price-or-better simply means: if our limit is $20 and mark is $19.95, we will fill at the better price of $19.95). I will submit the trade in Marketfy to show the Limit or as close as we can get it. Marketfy at the present does not have a Limit feature, which does - pardon the pun - "limit" the effectiveness of what we are trying to do here. Therefore, our implementation will be manual, i.e. I will press the button to enter when I see the limit-or-better displayed. This should not be a major issue.  

A couple of other issues must be touched upon with this approach for our discussion to be more thorough. 

Until now, our entries have been almost strictly once the market has opened. Our decisions have been discretionary: we take a trade at whatever price is at the open or shortly after IF our "gut" is still right. "Gut" has been a hit or miss performer for us. We have entered good and bad trades and we have sidelined good or bad trades with no real definitive correlation. We would not have been definitively better or worse had we instead taken every trade. A Limit implementation will take "gut" and discretion out of the question, which is a good thing, since once a note is posted, discretion or Gut really should have no place in the equation any longer.  

The Limit approach takes us farther away from a discretionary model and more toward a "systematic" approach (although that should not be taken literally). Our limit presupposes that out entry could take place anytime, at open or ahead of open. Here we have the minor issue of thin pre-open volumes in the stocks we would consider trading. Our collective entries would move the market. Other trades could subsequently step in and correct or overcorrect the price - base and worse case scenarios - which makes for a hairy situation. To a lesser extent, there is the uncomfortable situation where, in a thin volume, the first few of us acting will move the market and the rest will not get a limit. This is why I tend to Marketfy-trade my alerts at Open or after. For this reason, I will send my Marketfy alerts at Open or after, at a Limit-or-better basis. At this point, you will have a stock we want to trade and the price we want to trade it from. You are free to front-run me or take my eventual alert. 

Also, you already know that I will not enter a trade after a certain time. This is because a lot of our trades depend on the momentum of the open. Because we are now dealing with Limits, and not a discretionary approach on my part, I will have to actively communicate to you when I officially abandon a trade idea. Obviously this will happen only in those cases when our Limit-or-better price has not been already hit. 

Several different situations may arise. 

(1) Limit never fills. In this case, both you and I will be sidelined for the day. On a Long trade, for example, this will invariably mean the stock traded at an "or-worse" level for us. We could (a) miss a great trade from a price range at the open, or (b) sit on the sideline on a range-bound stock - the lower bound of the range is still "worse" than our limit. This is a situation where I would communicate to you at some point in the day that I am abandoning the trade. This would be your signal to either cancel the limit, or carry it at your own risk. 

(2) Limit-or-better if filled ONLY once market opens. In this case, both you and I are in a trade that (a) delivers our targets, (b) is rangebound but clear of our stops or targets or (c) hits our stop. 

(3) Limit-or-better is fillable in the pre-open (where I do not participate) AND again fillable once market opens. For possible scenarios, see (2). 

(4) Limit-or-better is fillable ONLY at pre-open (where I do not participate). By definition, I will not enter this trade, and you will face one of these scenarios: (a) your targets are hit - and here you must remember that, because I am not in the trade, I will not send out targets, therefore you will manage them, or (b) stock stays above the specified limit but stays clear of targets, in which case - again - trade management is your own responsibility. Note here that scenario (2) is stock stays above the limit. If it got to an or-better at any point before I abandon the trade, I would be in the trade with you). 

Whereas situations (1) and (2) are simple and straight up, (3) and (4) may pose potential issues. For example, they could result in a favorable situation for you - you fill premarket on a trade that goes on to make you money. OR the situation could turn unfavorable - you fill premarket on a trade that is underwhelming OR which goes against you at some point after I abandon the trade. 

Speaking of abandoning the trade, this is something many champion traders do all of the time for various reasons. So far as we have discussed, I would most likely abandon the trade for technical reasons, i.e. stock has opened and stayed at an or-worse price. However, trade abandonment could take place because of a shift in my opinion that has happened in the time since I posted the note. (This is the reason why in an earlier paragraph, I caution not to take the word "systematic" literally - in a systematic approach, the trade decision is effectively algorithmic: if something happens, we do another thing - no discretionary tools such as a change of opinion at the last moment apply). Because of my acting only after open, we may have an ugly situation where you are in a trade because our Limit has been filled in the pre-market and I abandon the trade for non-technical reasons - i.e. our Limit-or-better is fillable but I no longer act. This should be a very, very rare situation, but a possible one nonetheless. 

In conclusion, Limit should not represent a drastic change from the way many of you use our service. Many of you trade independent of our alerts in the direction we specify in our notes. Many of you follow our alerts, and that would not change. What I believe a Limit will change (or rectify) is the ambiguity of whether I will act on a stock or not. Unlike before, it will be clear that if our limit-or-better becomes tenable, we are in. The concept of trade abandonment is also something that we make newly official in the above-mentioned situations.