Watching Order Flow and Tape Reading To Find Good Trades

TraderInterviews.com: Hello everybody and welcome back to TraderInterviews.com. Thanks everybody for joining me and joining us for another show this week. We're going to be speaking with Gilbert Mendez; he's a trader. He's going to talk to us about how he approaches the markets and I'm going to ask him all the usual questions I do when I'm interrogating traders about how they find good opportunities. So, Gilbert, thanks very much for joining me on the phone today.

Gilbert Mendez: Tim, thanks for having me.

TraderInterviews.com: All right. So talk about, what kind of trader are you, are you a day trader, swing trader, or what are you?

Gilbert Mendez: Well, for the last five years, I've really been more of a day trader and recently with all the changes on the market and most of having to deal with all the issues with the high-frequency trade and then having to adjust my trading style a little bit from completely intraday to really mostly like 70% intraday and 30% swing trading.

TraderInterviews.com: All right. So that's interesting when you say high-frequency trading has affected your strategy, can you talk about how it has?

Gilbert Mendez: Absolutely. One of the biggest issues is that we're competing now against computer programs, so it really just trying to make pennies on trades. And as a really short-term frequency trader, I tended to basically do their job, but instead of trying to look for pennies, I was trying to look for nickels, dimes, and quarters and try to grant that a decent day out of that. And then, primarily, it was 60%-70% of my trading came from doing that over and over and over, and then the other 30% which is mostly looking for the bigger picture place and really trying to capture the bigger move with a little bit more size.

TraderInterviews.com: OK. So is it because the spreads are narrow because of all this trading that you're unable to capture as much of those nickels and quarters anymore?

Gilbert Mendez: Absolutely. And it's not only that the spreads are narrowing, it's just that that there's a lot of false signals that we get to see. So, I'm a huge believer in reading the order flow. So, you get to see where the buyers are, where the sellers are, and based on what the true order flow was, I used to take on possessions that would really just last no more than a few seconds and up to a few minutes. But now with the heavy competition with the high-frequency algorithms, then they're generating a lot of false signals in a way that they know exactly what tape readers like to look for in the tape, so they generate all this volume and they really are just trying to make the spread off of me paying the offer when I can get on the bid and then they will drop the bid and I have to head out and so I'm losing 2 and 3 cents here and there all day long, and I need to make the necessary adjustments to make sure that I just don't get completely crushed by those 2- and 3-cent loses all day long.

TraderInterviews.com: So, these false signals, do you have a trade or something you saw recently, I know we're just coming back from the break here, so did you have anything, for example, today that would be a good example of that?

Gilbert Mendez: Let me see. I'm trying to think of something that happened today. Well, I was trading this ABX this morning and, normally, I came in seeing that gold was acting pretty strong. And right on the open this is when I find it a half, my biggest chance with making quick money just taking advantage of the high volatility and the real order flow. I have yet to see that a lot of those algorithms have really got turned on until around at 9:50 almost even 10 a.m. when things tend to settle down. So, between 9:30 and 9:50, I was actually doing pretty well. I have a couple of levels that I was watching and right around when 10 o'clock kicked in, the market started to come off, ABX started to act very weak and it got down to my level, which I don't necessarily remember to handle at this time, but I knew it was 75 times. It was right around the opening print, and there was a lot of volume being done at 75 cents, which got me to believe that it was actually acting as a really good support level, so I got a very long there, buying at 76 and it's all the way up to 80. And my real out is really when I start seeing a little bit of selling below 75 cents. So, the algorithm actually drops the 75 cents at first to show me the weakness, 73 cents selling, 72 cents selling, I head out of 70 cents and then immediately the algorithm goes high bid to 80 cents basically telling me, "Oh, I'm sorry but it got you out of your trade, but now it is possible that I'm going higher now. So having to deal with that nonsense all day long is what I really mean about getting taken out for nickels and dimes all day long now with these algorithms.

TraderInterviews.com: OK. So, if before you were much more confident I guess in these levels that you would seen on the time and sales, how have you changed from that to what you're doing now to kind of compensate for those little losses you're having to take?

Gilbert Mendez: Great question. Now, what I'm really trying to do is to let for the real volume and really try to be on the right stocks. I think to me one of the biggest issues right now is that I find myself losing a lot of nickels and dimes when I'm trading something that is not truly in play. So, what I mean by that is that you're looking at the rate flow and instead of being 300,000 shares a minute; it's actually probably something like 20,000 shares a minute or even 50,000 shares a minute. So, the algorithm is in full control of the stock. So, one of the biggest adjustments that I had to make is really try to avoid being in a lot of what used to be OK plays because of the lack of volume now that I feel like I don't really have an edge trying to compete for, for just trying to make 5 and 10 cents. So, when I'm trying to look at a lot of these plays that are not stocks that aren't really not in play, then what I'm really trying to do is try to look for the big picture. So that's how I'm trying to switch a little bit my style for some of the other stocks that I normally watch, but instead of trying to make a dime or 20 cents, I'm really just trying to capture a half point or even up to a point on some of these plays.

TraderInterviews.com: OK. So, what would the difference look like? How do you know when something is just kind of being played with by the high-frequency traders and when something is legitimately trending in the right direction?

Gilbert Mendez: That is a great question. To me, the big difference comes down to the volume and it's really hard to explain. I created the Reading the Tape program for SMB Capital, and I try to put together four years' worth of banging my head against the wall and trying to figure out what the algorithms were doing. And because of that I've developed a really good feel for a stock whether it's really in play or not. And unfortunately, it's not something we can all look at volume bars, but unless we'd really see really what the rate flow is on the stock a lot of times we're walking into a stock that has just big prints. When you look at a chart or any type of timeframe, it's going to tell you the stock really has order flow, but when you really boil it down to penny by penny, it might be better just a couple of prints and not necessarily a lot of heavy action on a penny by penny basis. I don't know if that makes sense to you.

TraderInterviews.com: Yeah. So, let me try to kind of bring that down here, I guess you're saying that it maybe a few big trades that came through, but not a lot of players getting in there and really buying it. I mean it's just a few people maybe that have made a couple of trades and that's it and that's what boosted the price, but it may not last.

Gilbert Mendez: Absolutely. To me, what really makes a lot of sense is when you look at a stock and we're all chart players, so we all look at the same charts and when we get a technical setup, we we're looking at a break up trade, we get confirmation from the volume. But then when you really pay attention to what's really going on, it just seems like it was just one big print that took place, and then the couple algorithms just battling it out for a couple of pennies, but there's no real follow through. There's no panic buying and you don't really get to see the institutional guys on the bed really trying to soak it up. Most of it just becomes noise now.

TraderInterviews.com: What are you using to determine the time in sales, is it a NASDAQ level 2 or some other, what are you using?

Gilbert Mendez: Absolutely. All I'm looking at is a NASDAQ level 2.

TraderInterviews.com: All right. And so how long did it take you to get comfortable reading NASDAQ level 2 to the point where you can feel like you can get a good read on a stock?

Gilbert Mendez: I think a lot of the concepts are very easy to get right away that the program that I designed really is intended for somebody to look over the stuff and over a three-day period really learn the fundamentals to really get a feel for how to identify a buyer, how to identify a seller. But it really does take a lot of practice in really seeing the place and seeing the algorithms over and over and over. So to me, it's really a skill that it takes over a year to really develop, but like I said the concepts are really not difficult. The stuff is really not rocket science. It just takes a lot of screen time to get comfortable seeing the same patterns. I mean all it really is, is pattern recognition of how a computer program will buy the stock by paying the offers versus soaking it on the bed.

TraderInterviews.com: And I know a lot of traders deal with the fact that they don't know what to trade because they're so much available out there even if they're just trading equities, there's a ton of choices for them. How do you decide each day when you get up in the morning what you're going to trade that day?

Gilbert Mendez: SMB has created a system for us, but I kind of fine tune that system a little bit. My routine really is at night I look through 500 different charts, I kind of come up when my top three long plays and my top three short plays and these are based on my top volume from the previous day, top gainers, top losers. But then when I come in the morning I'm really scanning through the headlines to see if there's anything unusual that I really like. Anything that I feel that is going to bring out the institutional players to come out and either add to their positions or having to dump their positions. I look a lot of the things that are gaping up on decent volume in pre-market. And so a lot of times I really kind of go by feel in the morning and see really where the money is going to be based on the pre-market action.

TraderInterviews.com: What types of new stories have you found that really attract the institutional interest?

Gilbert Mendez: Basically anything that has earnings and anything that when a company is crushing their earnings, when a company is really coming out with really bad guidance, anything that when you read it as a regular trader and you're like, "Wow, that sounds very positive," and then you go and look at the level 2 when the stock is trading 50,000, 200,000 shares by 7:45. Those are kinds of things that I really start to put two and two together. When things are getting active even before eight o'clock that just really means that maybe the new story is going to create enough order flow for the day to really provide enough opportunity for a lot of people.

TraderInterviews.com: And do you find yourself having time to get into those moves. I mean a lot of traders feel like it will gap up or gap down and then kind of sit there for the rest of the day. They don't really have time to get in. How do you get in and take advantage of that?

Gilbert Mendez: Well, I'm the kind of trader who usually in by 7:30 and I already have kind of my plan of like I said what kind of stocks I want to be looking at. But when I do the quick morning scan and I notice there's something that's trading actively in pre-market, part of being able to read the tape allows me to really make a lot of decisions in a really short timeframe where my risk is not really, I'm looking at a buyer I can see that they're buying, there are people buying it. So, I make it a buying decision based on what I'm seeing on the tape, and when that reason is gone, then I'm out of that play. So, I can easily get into a play even when the stock gaps up as long as I'm seeing the things on the level 2 that confirm my bias.

TraderInterviews.com: That confirm that the move is still happening?

Gilbert Mendez: Absolutely.

TraderInterviews.com: And then will you reverse yourself if you start to see a turnaround and go the other way?

Gilbert Mendez: Yes, absolutely. I mean part of being a short term trader is really having a very flexible bias where you can see that a stock is gaping up, but then when you look at the level 2 you're seeing that there's just unusual selling on the offer. So being able to remain flexible even though the stock might be gapping up and really positive news, but when you're seeing heavy institutional selling, it's having the flexibility to change your bias, play the short side that really can save a lot of money especially in pre-market when that liquidity will not necessarily be there at times.

TraderInterviews.com: What outside of NASDAQ level 2, if anything, do you also watch?

Gilbert Mendez: I tend to watch a lot of NASDAQ stocks in pre-market just because they are the ones we trade more actively. From time to time, I trade NYSE stocks as well that are only trading on the ECNs and pre-market, but for the most part we trade the entire realm of stocks in the market place.

TraderInterviews.com: OK. So you will trade NYSE stocks if there's movement. It sounds like you'll trade pretty much anything that's got decent movement behind it?

Gilbert Mendez: Absolutely. I'm a huge believer and being in the stocks that have the volatility, that have the order flow behind them, that's how I have an edge. Being able to read the order flow while the stock is moving gives me an easy chance to get into the stock without having to take a whole lot of risk.

TraderInterviews.com: All right. But you also mentioned pattern recognition and kind of noticing those things on the chart that indicate that as well. So, I'm assuming you're using charts in addition to order flow?

Gilbert Mendez: Yes, absolutely. To me the charts, I really start using the charts more after 10 a.m. when things start to settle down and I'm scanning through the market to get a feel for what sectors are acting pretty strong, what stocks within the sectors are acting the strongest or the weakest. And then I try to figure out based on the chart what levels and support and resistance levels I want to be involved in. But then when it comes down to making my trading decisions, then I'll boil it down to just looking at the level 2 to see if I can find confirmation to what I'm seeing on the chart.

TraderInterviews.com: In charts that you are watching, the indicators that you have on their charts if any, I mean are there moving averages or do you use stochastics and MACD, anything like that?

Gilbert Mendez: I honestly don't keep any moving averages at all. A lot of what I really look at is three different timeframes. I look at a five-minute chart, a 15, and an hourly chart. And when my levels match up on all three different timeframes, those are kind of my A setups. Those are the plays where if I have confirmation in all three different timeframes and I get confirmation on the tape, those are the ones what I'm really willing to put money at risk.

TraderInterviews.com: Yeah. I've talked to a lot of traders just in the past six months who've pretty much all said they read the tape and that's it, and they've simplified their trading down to just that. They watch buyers and sellers and what's happening in the market. Have you always traded like that or this is something relatively new?

Gilbert Mendez: No. This is how I learned to trade. I learned to trade strictly by looking at the level 2. It wasn't really until probably about a year-and-half ago when I wanted to move a little bit more from a really high-momentum trader like scalper almost into a mix of my trading where I could actually hold positions for the bigger moves. And what that require me to do was to get a little bit more comfortable looking at the different timeframes in making decisions for longer timeframes even though I'm going to be watching the stock tick by tick, and adjusting a little bit from having such a short term mentality where a lot of times if I have a really big, long position and I'm 30 cents in the money and I can tell in tape that the stock is going to pull in, I have to be able to tell myself I'm trying to catch a dollar and half move and the temporary weakness that I'm seeing here, it's OK, I don't have to take that much off the table. So, it's been one of the biggest obstacles really and one of the biggest challenges for me as a trader. I started trading strictly off the tape and being mostly a scalper and a momentum trader, and now doing that adding a little bit of mix to my trading style.

TraderInterviews.com: So, it sounds like, if all you had was time and sales, maybe a NASDAQ level 2, you could trade with that charts and be profitable?

Gilbert Mendez: Absolutely. Actually, even before the holiday, I caught the flu for a few days and I wasn't feeling well, and I was at home trading, my computer was acting pretty funky, but I got a call from one of my traders that RIMM was acting pretty well. And I was having trouble getting my charts to load up on my computer. It was acting a little silly, so all I really have to look at was my level 2. And I was actually able bang out a pretty decent day for being actually sick and not having charts at all just by strictly looking at level 2.

TraderInterviews.com: Are you willing to share with us what a pretty decent day is for you? If you're happy at the end of a trading day, how much money have you made?

Gilbert Mendez: Things are all relative. We all have different goals as traders. To me having a decent day, I try to really make anywhere between one and $4,000 a day, on a consistent basis, 15 to 17 out of the 20 days of the month. That doesn't mean I hit my target everyday, but what I really try to do is at least being that positive 70% of my trading days. That's what I consider to be a decent day and a decent month.

TraderInterviews.com: All right. So, do you feel like trading, we talked about this before we started recording that you would come back from this break and that it was a little bit tough to kind of get in to that mood again or get into that the feel of the market. Is that kind of typical whenever you take a few days off?

Gilbert Mendez: I think more than anything was a little bit of anxiety. Last year, it's no surprise that a lot of people struggle with high-frequency algorithms and having to like make changes with their own trading style and I'm part of that group as well. I struggle for a couple of months trying to make some adjustments and then sitting down taking some time off to really think about your trading style, thinking about some of the necessary changes that I need to make in outlining a bunch of goals that I want to have for the year, not necessarily related financially but also related to my trading, some of the changes that I want to make in having taken a few days off, coming back in today, it's almost like it hits you all at once. It's like, "OK, I'm in front of my screen again and one of my first goals is to get more comfortable trading with a little bit of extra size." And so, it's the battle of, "OK, it's my first day back and I don't really want to try to press it. I want to start getting comfortable again, I want to see what kind of volume we're going to be getting the first day coming back from the market," and then having to deal with, "I want to trade with more size, but am I really ready? Do I really need to couple more days to adjust back from my break?"

TraderInterviews.com: And did you find yourself getting into the groove pretty quickly?

Gilbert Mendez: It kind of took a couple of hours to just get back in those rhythm of being able to watch three and four stocks at the same time. Obviously, when you're off for a couple of weeks and a couple days really even, it's hard to lose touch of the levels. I'm a huge believer in knowing 20, 30 different levels from a handful of stocks, and all I do all day is try and look for those places where I have an advantage. And when you come back from a break, it's almost like I was completely out of touch from the big picture levels that I like to look at. So, as part of my routine everyday, I dry run 10 o'clock, I go to my list of my 50 stocks that I normally watch and I was having a really hard time remembering is LVS $16 a level or is it 16 and half. And having to go back and forth looking at the different timeframes, it just takes a little bit of time and it just makes a little bit more of a challenge in day to day.

TraderInterviews.com: All right. So that's interesting. So, you have a basket about 50 stocks you'd like to trade and because you are so familiar with those it sounds like you know kind of support and resistance levels on those 50?

Gilbert Mendez: Absolutely.

TraderInterviews.com: OK. And those levels come from what? Where did those levels come from?

Gilbert Mendez: A lot of these levels come from what I like to call inflection points where I'm looking at a chart and I can tell that for X number of days the stocks have been holding above it. It finally gets below the price and I can see confirmations on the tape that it's starting to act really weak. And so it's a combination at really looking at the charts for support and resistance levels, but then having the extra confirmation from having to look at the level 2 around those prices.

TraderInterviews.com: OK. So, these inflection points are this something that you kind of see in your head or you charted this somewhere?

Gilbert Mendez: Well, the problem is that a lot of the charts these days lie a little bit just because of the high-frequency algorithms has the tendency that will take through the levels just long enough for a lot of people to say, "Oh, the level was violated." Take for example, Las Vegas Sand, sixty-and-a-half and that really traded for a while above it, now if it gets above sixty and a half, they might put a tick up to like 16.55 and then if it closes below 16 and a quarter, you're saying to yourself, "Well, maybe we took the sixty-and-a-half level, maybe tomorrow we're going to have a strong day just because we we're able to clear the level." But to me, if I had actually been watching the tape and then I look at when it gets about 16 and a half, there's no buying interest, then to me that 16 and a half now becomes a huge level for me to take a lot more size on the short side the next time it gets up there. When I look at the tape, I can put a story to the picture, I can tell exactly what the buyers or what the sellers look like, so that I can feel more comfortable taking a much bigger position when it gets there if I actually have seen what the volume looks like out there.

TraderInterviews.com: And when you talk about a bigger position, what's a standard position size for you?

Gilbert Mendez: The way that I look at my trading, I try to develop a system that is based on a dollar value. And so if I know that on a trading I'm going to be risking 5 cents and I have three separate types of trades, I have C trades, my B trades, and my A trades. And every single type of trade has a dollar value attached to it. And so, for example, on my C trade I'm willing to risk a $100, and those are kind of my low-probability trade. And if one does trade, my risk is 5 cents; therefore, the most amount of size I can take on that position would be 2,000 shares. Now, when I get into my A trade, say for example that I will be willing to risk $400 on those trades and my risk if 5 cents, then I could actually have 8,000 shares, so it's never really a fixed amount. I found that one of my numbers of my style of trading, it makes more sense to actually fix a dollar value to each of my trades and adjust the size based on the amount of risk that I have to take on the position.

TraderInterviews.com: OK. That's interesting. So, you've got the three different types of trades basically on how much you think they're going to work out or how probable it is it's going to have the result you think it's going to be. And so do you then put a stop-loss in at that exact dollar amount then or 5 cents below or whatever amount of shares you're going to trade?

Gilbert Mendez: Yeah, absolutely.

TraderInterviews.com: OK.

Gilbert Mendez: And I really determine my stop-losses based on not necessarily if it's a penny below the level, a lot of times and even more recently with the high-frequency algorithms I have to really widen my stops a little bit just to give myself a chance in not having to get taken out too often. And that's really made a big difference on my numbers for the most part up until pretty much the middle of last year, I could consistently find a lot of place where I could risk no more than 3 and 5 cents to catch a point and point and a half. Now, it's almost really starting to become like I have to risk a quarter to make a point. And so based on my style of trading, based on my money management rules, then that's really limiting my up side just because it's all about risk reward. So, if I was risking 5 cents to make a point, now I risk in a quarter to make a point when if I'm risking the same dollar value, it really just puts a top on the amount of money I can make.

TraderInterviews.com: How do you determine the A, B, and C trades and which go into which basket?

Gilbert Mendez: It has been all about understanding what kind of trader I am and what kind of setups I like best. And so when I'm looking at for the last five years that I've been trading, I keep pretty close records of what are the trades that I do best, what are some of the trades that I know I can grind out 5 or 10 cents here and there by really not risking a lot. And what it really boils down to is, what are my high probability trades and they really come from understanding, I am really good sometimes identifying the top or a bottom, and being able to get in there with very little size and pressing it when I start to get confirmations, so that will be one of my A trades. My B trades are take for example when I do my research at night and I find levels that I really like so because I have done all the homework, then I considered that to be a B trade. And then for me a C trade is more something that one of my traders will call out a stock and they're sharing some information with me saying, "This stock is really strong." And when I look at the level 2 and I want to get involved, obviously I don't want to put a whole lot of money at risk because I have to gather a lot more information. So those for me are more like C trades. So, I have the three different tiers of the type of trades that I really like to be involved in.

TraderInterviews.com: OK. Now, you hear a lot of people talking about, "OK, if I'm risking 5 cents to make a dollar or I'm risking 10 cents to make a $1.25. How are those levels determined? How do you determine what the risk reward ratio is there with some accuracy?

Gilbert Mendez: It's a really tough question to answer because it really becomes more about how aggressive and how confident you can get about identifying especially the profit targets, but I think that's where a lot of people struggle when you look at a six-month chart, you're like, "Oh, this stock has eight points of up side," but when you look at things intraday, is that really going to go $8 for that day? And so what really works for me is looking at, if I'm trading off of a 5:15 in an hourly chart, and I'm looking at levels on the hourly chart, then I have to accept the fact that if I pick a price target that is on the hourly chart, the stock might not get there to that. It might take one or two days. So, it's really all about finding your sweet spot for what are you comfortable holding for what kind of time period you're OK holding with. So for me, I tend to pick a lot of my price target based on the 15-minute chart just to make sure that I can make sure that the stock will have a chance to actually get to those levels intraday rather than to having to take stock overnight.

TraderInterviews.com: And it sounds like it's also the ability of your comfort level and being able to get in and out quickly.

Gilbert Mendez: Absolutely. I mean to me it's all about, I'm not an analyst trying to figure out what the real price of the stock is. What I'm really trying to do is I'm trying to make trading decisions based on the order flow that I'm seeing, and when I look at the order flow and I kind of like a clock in my head when I'm keeping track for the last five minutes while I've been watching the stock 2 million shares traded and I know that on a very active day 2 million shares might get to stock to pop 80 cents, then using that information along with looking at the charts to really try to get a feel for how much upside I really have on the play. It really is more of an art than a science. I try to pick prices that I think are low ball in a lot to make sure that I'm not really pressing my system enough where I can still hit my target and not necessarily give a lot back of open P&L because I'm trying to shoot for a homerun all the time.

TraderInterviews.com: All right. We'll finish up with this. You traded at prop firms, so you traded in a room with a lot of other traders typically. The question I know I'm going to get from this interview, is people are going to email me and say, "Look, it sounds like he does a lot of this by gut feel because he knows the markets, he knows the stocks he's trading," so how can I get to that point as quickly as possible? Are there any shortcuts for me? Are there any ways that I can accelerate my process to get to that point?

Gilbert Mendez: Yes, absolutely. I mean like I said, I've been doing this for almost five years and I didn't really feel comfortable with a lot of stuff until probably about two years into it. The best way to get comfortable is actually get the screen time and really doing a lot of the exercises, really getting a lot of not necessarily live trading, but the best way to do it is finding the tool where you can practice. You can watch the level 2 for X number of hours and to me we're big believers that this is craft that it might take 10 years to really get very professional. I'm halfway through it and I'm not by any means an expert on the stuff. I know what works for me because I had a battle with myself for five years trying to figure out exactly what that is. But a lot of the skill set, what we tell a lot of our newer traders is there are a lot of things that you can do. You can review your tape, you can watch your own trading, would record the screens and then I tend to watch about an hour of my own trading at the end of the day. I look for what are some of the things that I got confused about, what are some of the things that how I traded really well, so I can put it into my mind by watching things over and over and over so that instead of getting money six-and-a-half hours of trading everyday, I try to get 10 hours by doing a lot of this extra work outside when the markets open.

TraderInterviews.com: Right. I've heard that before. By doing the studying and doing the journaling, the trading diary, you can actually increase it by turning one trading day into a couple just by all the study.

Gilbert Mendez: Absolutely. And I think a lot of people think that the hours are really nice about this job, that you can come in at eight o'clock and be out at 4:30, but we're competing against people that are really well capitalized. And we're competing against the Goldman Sachs that has just unlimited amount of money, excellent technology, and these are people who are there until midnight. And so in order for us to be competing at the same level, we have to do what is necessary to get better at this. And if that means spending a few hours watching your own tape or watching tape of some of the other traders that people work with, that's what needs used to be done. I find myself learning a lot about my own trading when I tried to explain to some of the newer traders what I play that I'm seeing developing on a stock that they're trading, so it helps me with my trading, I'm helping somebody else and I'm putting in the time necessary to get better.

TraderInterviews.com: All right. Last question. You kind of just touch on it right there but your goals, I mean where do you see yourself, we're here new year 2010, at the end of this year and you're looking back on this year, what will be the measure of success for you?

Gilbert Mendez: That's a great question. To me, I think my biggest goal for the year is to get much better at holding my A setup. It's something that I struggle for probably for about eight or nine months now trying to get better a hold in a much bigger position for the full target. To give you an example, if I start with like a 4,000 share position, and I'm risking 10 cents and my target is $2 higher, my biggest goal for this year is to be able hold at least 70% of that starting position to its target line. Normally, these days I hold 30% or 40% of the position. And so there are a lot of things that I'm working on to make sure that I can get to that level.

TraderInterviews.com: Being more patient with your winners it sounds like.

Gilbert Mendez: Absolutely. It's not necessarily being more patient, it's just finding that right balance of looking at the tape penny by penny and the tape telling me, almost screaming at me, telling you have to line up with your position because I'm looking at such a short term when I'm staring at the tape, but then remaining with my longer term view since I'm making up a trade off of an hourly chart or a 15-minute chart. So, it's really finding that balance of I don't want to overtrade a position while it's going up or as well as going on my favor, but then listen to enough cues that actually save me money when I can be 70 cents halfway through my target and the stock is just telling me, "This is as much as you're going to get, it's time to get flat." So, it's really finding that balance of listening to the tape when it's time to get out, this is as much as you're going to get, and then trying to ignore the noise until you can get to the target. It's not an easy task by any means.

TraderInterviews.com: Good. Well, I'm sure you'll succeed at that. Gilbert, I really appreciate taking the time to talk to us about some of these things that you're watching everyday. I think it's been helpful to everybody listening. And of course listeners, if you want to take a look at the place where Gilbert trade, smbcapital.com. We'll link to that in the show notes as well. Gilbert, thanks again for your time.

Gilbert Mendez: Thanks for having me Tim. I really appreciate it.