Were you Ready??

Once again the market tried to cause the most pain for the most people.  As I discussed last weekend, news about the markets seemed to more negative than I had seen in a while.  Even the cheerleaders on CNBC were bringing out the bearish commentators and guests in herds.  The “Death Cross”, which by the way has no statistical relevance, was the beginning of the end.  Well if you sold short when the 50ma crossed the 200ma congratulations you sold short the recent lows. 

There are many reasons that most people don’t make it as traders.  The one thing I have been harping on for a while now is most traders form a bias, get tunnel vision, and only listen to information that confirms that bias.  On our trading desk I have a running joke that “I only want information that confirms my bias.” Now I say this completely joking but many traders get so locked into their bias and plan, that they miss all of the information telling them they are wrong. 

As traders we make the most money when we have conviction in an idea and are able to put the most leverage to that idea.  But you need to have a level of flexibility to your ideas.  Yes I came into last week wanting to be short.  But in the back of my mind I knew the market could bounce.  I know when things look to good to be true they usually are.  So I traded some short setups early in the week.  I had a great day on Tuesday when the 1040 couldn’t hold in the S&P 500 and we sold off for the rest of the day.  I was ready for that because my bias was short and I knew what levels I wanted to get involved at. 

I lost money on Wednesday and Thursday.  Why?  Because I traded what I wanted to see.  I fell into the trap of guessing and not waiting for the market to confirm my ideas.  I ‘m human, and when I start to trade sloppy I get mad at myself.  I have no problem losing money, but when I trade undisciplined that is unacceptable.  But the one thing I was proud of was my ability to put these losing days behind me and reevaulate my overall plan for the market.  I came in Friday looking to be long.  News from the overseas markets were slightly positive and it looked like some of the commodity names were going to continue with their recent strength.  I talked to the guys at my desk about what stocks we were looking at.  We came to a consensus that we liked the long side, took note of the levels that we wanted to get involved at, and killed it during the gift that the commodity names gave us before 11am. 

The key to all of this is being flexible.  You need to look at the market with an open mind.  If you look at the market with blinders you are going to miss what is really happening.  When the market is confirming your ideas you need to take advantage of these scenarios and get paid.  But don’t force these ideas on the market and remember the market has a tendency to do what is least expected.  You must plan for all scenarios.  Have a good weekend and best of luck. 

Kyle

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