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Find The Areas Of Hope In Your Trading And Eliminate Them



October 02, 2011 – Comments (0)


It's been an interesting past four days with the series of articles I've posted on the month of August and how it played out. An attempt to be open, honest, and really provide people an opportunity to learn from in terms of how fast and how quick a position (particularly using options) can go wrong, has been met with a plethora of opinions - both positive and negative.

One of my biggest peeves in the financial blogosphere, talking heads on television, and those on twitter, is the lack of honesty and willingness to share. Everyone tries to act like they are the golden child of the financial markets in these mediums. As if they have no short-comings, as if they know the future, and when they are wrong, they are no different than the creepo's we see in Washington who try to spin and change their original story to a more favorable outcome, rather than just owning up to what happened.

I've been trading for 20 years now, and I have been successful at doing so, but more importantly, I've managed to provide for my family in the process (married for five years). That in and of itself is success no matter which way you look at it. I agree that August was horrific from the course that it took, but I did come out of it alive (and profitable), and am still trading today. 

I have a lot of confidence in my discipline in trading the markets, my ability to trade, read and analyze the charts, and manage my positions accordingly. If I didn't, publishing a series of posts like I did this week would never have happened. In fact if I wasn't secure in my abilities to do so, I wouldn't have dared to do so. 

So what was there to learn from all of this? 

Over the next few weeks, I'm going to be discussing strategies, theories, discpline and risk management. A lot of which I have challenged in my own ways of trading and in doing so try and challenge your own popular beliefs on the subject of trading, and how you approach it on a daily basis. 

One thing I have come to recognize is how much inherant "HOPE" is baked into our theories surrounding trading, even those of us who think we're the most disciplined of traders.


An old saying is that there's "No such thing as an athiest in a foxhole", and the same goes for trading, when we are really down on our luck, when we are threatened with some major losses, we tend to "hope" for a favorable outcome so that we don't have to take the loss. I did it, and did it a lot in August.

But when you turn on CNBC in the morning, and watch the economic reports come out, you are "hoping" for a beat of expectations if you are long and vice-versa if you are short. But why do you do that? Because you want to be PROVEN RIGHT by the current positions that you've recently taken. 

I can tell you for certain, that as traders, we should not be getting whipped around by economic reports or any other external announcements that are announced each morning or afternoon.

If you are a swing-trader or investor, your objective should not be, how to trade off of these reports, or how to predict them, because they are always geared toward analyst expectations, not whether the report itself is good or not. So you are really trading against analysts and their ability to predict. And who knows what these guys do to  predict their numbers or what kind of drunkenstate of mind they might be in when doing so. 

Now since we don't want to trade off of those reports due to their unpredictableness, we need to trade in light of them. Meaning, how we swing-trade and invest has to have their impact eliminated from the equation, and thereby "hope" as well. 

That doesn't mean you won't have positions that won't be impacted by these announcements from time to time, but that the impact they have, doesn't change or influence how you trade in the markets as a whole. Your approach should remain glued to the charts, not the tube. Yes, you will be stopped out of a long position from time to time because GDP was way off, but on the whole, you're trading system and the rules that you abide by, must be designed and determined in such a way that you're able to trade your system, regardless of what these economic reports are coming out and saying on a daily basis. 

If you find yourself shrugging your shoulders off of the latest employment number, or doing the Tiger Woods fist-pound on better than expected consumer sentiment, then the time-frame in which you are trading in is not for you, and you're looking for the market to throw you a bone rather than taking from the market what it is willing to give you through research and homework, then you strongly need to look at trading a different time period, or developing a completely different trading strategy more suitable to your mental makeup. 

Next week, I'll be covering the fallacies in breakout plays, market stressors, and the general mindset we shold have when attempting to extract profit from the market. 

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