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This post is fairly long so I thought I would warn you upfront. But I
thought I would provide some thoughts on Trend Days like we had on Friday as
those used to be just a nightmare for me. Nothing was more frustrating then
seeing the market up or down 30+ points at the end of the day only to see
that my net for the day was only a few points. Or worse as I may have
actually been down because I kept trying to sell an uptrend or buy a
downtrend...ugh! Talk about frustration. But then again, maybe this has
only happened to me......
We all know that price compression/contraction leads to price/range
expansion and vice versa. And we also know that when a market does break
out of a range that it tends to run quite aways. Then why is it that I
always seemed to fight the trend and focus on looking for the reversal
rather than looking for places to enter the trend and enjoy the ride? How
come as soon as the market began to rise I was looking for a sell and vice
versa? And how come this normally resulted in losses and further
frustration? But then again, maybe this has only happened to me.....
Why was it that I was always thinking that it has already gone too far and
it just couldn't go any higher or lower? And my trusty state-of-the-art
indicator said it was overbought/oversold so I just couldn't buy it because
I was sure to buy the high or sell the low? Why was it that I still hadn't
bought or sold and the market was now 12+ points higher or lower? And my
favorite indicator/oscillator was still saying it was overbought/oversold?
But then again, maybe this has only happened to me.....
Then finally I couldn't take it any more and jumped in. But I was right, as
soon I got in it reversed. Another loser and another emotional hit. I just
caused my worst fears to come true but that's not the message I got - all I
remembered was that when I got into the trade it reversed. I didn't
remember all the prior chances I had to enter that would have resulted in a
nice profit. But then again, maybe this has only happened to me.....
What I painfully discovered was that it was my OPINION preventing me from
trading this environment successfully.
WHAT IF you had a trading plan that had no bias to market direction or an
opinion of what you think MIGHT happen. AND what if that plan was based on
things you could really see - PRICE progression or tape/internals or ND/DJ
confirmation.
WHAT IF you managed this plan based on what you could see continuing
(PRICE). It is OK to be aware that moves can (and will) reverse, but it is
NOT OK to expect or assume that this will happen. Highs can go higher AND
lows can go lower. There is a reason for price movement that once in motion
can remain in motion = Momentum. AND if you are always focused on the
reversal, you will never see or understand this reason and find yourself
with the above mentioned OPINION. And these OPINIONS almost always lead to
missed opportunities at best and losses at worse.
AND WHAT IF you accept the fact that there is no such thing as Overbought or
Oversold and that there is NO PRICE TOO HIGH OR TOO LOW.
We need to be able to determine if a trade is “progressing” – I.e. if we are
long then we want to see Higher Lows and Higher/equal Highs. If we are
short we want to see Lower Highs and Lower/equal lows. We want to see the
market break through Resistance and then hold that level as Support or vice
versa, and we want to see this progression throughout the trade. And we
SHOULD hold part of that position as long as the market is moving in this
manner regardless of how long the process takes. But how could I do that
when I was a 1-lot S&P trader?
When the market trends like it did on Friday we have an absolutely great
opportunity to profit. Quite frankly we can have a good month on a day like
this if we can recognize the environment, throw our opinion out the window
and employ the proper money management techniques. Ideally we want to enter
at the beginning of the trend and keep part of our original position
throughout the whole progression – which is why I always hold at least 1
contract because you never know how far it will go – or when.
Yesterday was one of those days that just confirms everything that I believe
trading is about (not to mention 2/15). IF we can just take our setups
without OPINION or BIAS as mechanically as possible - Then manage the trade
progression for small loses when it doesn't work - We can then be in a
position where GREAT things can happen.
Truth is that most times we don't have to do very much, we just have to be
there.
Hope some of you find this post useful.
Bob
WWW.PRICE-RULES.COM (no URL exists)
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