Aug 082011

I was a bit scared to trade this morning, thinking the worst could happen – a crash at any minute.  So I watched at the beginning and buyers were clearly in control.  I took two stoxx trades and scratched both, scared of a loss.  Both would have been nice winners.

Then I got in on an ES trade and held it for a new high and got a nice win.  ES pulled back again and I took another long.  ES was too far extended by now and I was pressing my luck so I got a small profit on that one and abandoned thoughts of a new high.

So a couple points here, for me, these may or may not apply to you:

  • Often me scratching a trade is due to fear of losing.  I need to have confidence in the trade and let my target or stop get hit.  Whenever I enter there will always be opposing traders trying to push the other way, I must not let them fake me out of the trade.
  • Don’t believe all the hype.  Don’t pay much attention to the news.  Just watch the market and let it tell you where it wants to go.

That last point reminds me of something:

The selling started way before the downgrade was officially released (after the close on Friday).  People knew.  The market was saying there was a problem.  As long as one followed what the market was saying and not the news (the news said the debt deal would be reached) then one would be on the right side.

I must admit last Monday I was long and I took a large loss.  I thought the debt deal would trigger a rally.  That was when the selloff started.  But after that I traded almost all short and went for big wins and managed to finish positive.  Next time I won’t wait so long to join the dominant side.  I won’t let my own personal beliefs cloud my judgement.  I will just read what the market is telling me.

Good luck today.


  3 Responses to “Fear & Listening to the Market”

  1. Good points Michael – exacty what I was thinking. The downgrade provided a reason, an after-the-fact explanation for what the market had been telling us all along. Somebody knew. Somebody always knows. This is one of the reasons why it’s just naive to believe one can anticipate the market’s reaction to news, econ numbers, etc. Unless I *am* the market, there is just no way for me to know. This very simple fact is hard to accept for competitive, critical, contrarain traders, and is therefore potentially very destructive. One way in which I try to address this problem is

    1) To create alternative market scenarios before trading, even if it means “forcing” yourself to come up with something which you absolutely don’t think will happen

    2) Trying to ask myself several times during the session, to which extent my primary idea has been fulfilled and if it is still valid. If my primary idea turns out to be “completely” wrong, chances are that the opposite scenario will play out pretty well.

    Thanks for posting.


  2. Benko – Great comments there. It’s hard to forget everything we think may be true and focus on what the market is saying but that’s the goal.

    Your idea of forcing yourself to come up with alternative scenarios is a good one and one I’m going to put into practice going forward. When my main hypothesis fails then as you said, the opposite hypothesis may play out.

    Thanks for sharing.

  3. If you need some sort of hypothesis to pull the trigger, then having alternate scenarios makes sense. If anything it will be good to remind yourself that there are other possibilities than your favorite one.

    I just want to point out that it’s less work to dispense with scenarios altogether and go with the market no matter what it is doing. Like you are pointing out, people always already know fundamental news long before you do, and they have more insight than you do into what it means. So try to discern their opinion via the price, rather than take the information they’ve had for days and try to do something with it on your own. You just have to have faith in price in spite of what seems to be common sense sometimes.

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