Pinpointing the Fake-Outs - TheStreet

Short-term traders, this column's for you.

For me, these

Fed

days will always be like football games. You are on defense. The bad guys -- whoever they are -- have the ball. They are running play-action fakes, roll left, pass right, anything to throw you off your game. And your job is simple: You cannot get faked out. You cannot commit to a false move. You have to follow the ball.

Take the first decline after the bias shift. For a matter of seconds, the market seemed to hang up there. But that was really illusory. Whole stocks stopped updating correctly. Take

Chase

(CMB)

. I stupidly had been! I quickly turned around and offered some Chase at 78 1/2 after buying it a point lower. It looked like I could lose it there. However, the screen was just wrong. There was nothing, I repeat, nothing between 78 1/2 and 77 1/2. I know it because a minute after the shift, I ordered my trader to hit bids "down to 78." The Chase bids on the screens were fake-outs.

They didn't have the ball!

There would be no price that I would be able to offload it -- except at a price where I probably wanted to buy. Which is exactly what happened. Ten minutes after the decline, I found the ball at the 75 level and picked some up for an unceremonious average down.

But the

Nasdaq

, well, that's a different story. The Nasdaq was still running left while the rest of the offense had decided to pass to the right. You could sell all of the

Applied Materials

(AMAT) - Get Report

or

Conexant

(CNXT) - Get Report

you wanted right after the bonds got clocked.

Sometimes this business is a simple matter of knowing that if you

can

sell, you shouldn't. The fact that there were willing buyers after the bad news came out told you everything you needed to know: The Nasdaq didn't give a hoot about the bonds, and demand stayed strong. (I later

wrote this dichotomy up in piece about the 26-year-olds in this business.) For these strong stocks, you had to buy. Selling into those bids turned out to be the fake-out.

The Net and the semis were the same. They had a few moments of weakness, which if you chose to sell into, produced the worst prices of the day.

Again, you had to buy, not sell, to make the good trade.

Of course, once the market had fallen almost 200 points from top to bottom, people who owned puts on the market and on individual stocks rushed to take a profit. That put-profit-taking, which was monstrously big around 3:15 p.m., caused the market to rally back to unchanged, where the puts weren't worth as much, and the put-selling then stopped. That was the top for the second half of the session.

There were three times when you could have been faked out in Tuesday's session: buying right before the Fed shifted bias; selling when the market had declined 90 points; and buying after the market rallied all the way back to zero.

If you daytraded yesterday and you got faked out at any of those three moments, revisit your game plan. These were short-term extremes that led to awful buys and awful sells. Did you buy because you couldn't take the pain of not being in? Did you sell because you thought it was going down much more and you were scared? Either emotion is wrong. Both will get you into trouble. Recall your feelings at both moments. I am not saying that you should be immune to the market's vicissitudes. But you should get used to the notion that the market may simply be faking you out.

If it did, you are not alone. But you must work on not biting out of emotion, and instead buying and selling because things hit your price, a price that you arrived at not in the heat of the battle with programs flying left and right. If you arrived at those prices away from the trading action, odds are that you sold yesterday's top and bought yesterday's bottom. Then you are doing right.

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Chase and Conexant. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at

jjcletters@thestreet.com.