Trading across multiple-time frames must be one of the hardest things to do as a trader. Many I know have chosen to avoid this completely while others wait patiently until all time frames correlate with their general read, which sometimes can take weeks if not months depending on the various time frames in question.
—Some struggle with the volatility of the tape, while others struggle with a psychological bias. At present I am struggling with the different pictures on different time frames. Currently I have trades on both sides of this argument taking index shorts against the weekly pattern while playing daily longs as they setup. The net gain has been a whole bunch of nothing which is making me ask the question if the different trades are worth it or if it would have been better to simply wait for one picture to resolve itself and correlate with the other. In hindsight this certainly sounds like it would have been the smarter play.
—Patience is never fun but until we have some solid resolution I still believe it to be the best play.
There’s that ‘P’ word again…
Humans have weaknesses that hamper their trading capabilities. Many were developed in ancient times and were important for survival. I will enumerate the most important:
1) Loss Aversion: the strong tendency for people to prefer avoiding losses over acquiring gains
2) Sunk Cost Effect: The tendency to treat money that already has been committed or spent as more valuable than money that may be spent in the future
3) Disposition Effect: the tendency for people to lock in gains and ride losses
4) Outcome Bias: The tendency to judge a decision by its outcome rather then by the quality of the decision at the time it was made
5) Recency Bias: the tendency to weigh recent data or experience more than earlier data or experience
6) Anchoring: the tendency to rely too heavily, or anchor, on readily available information (more…)
“feel the market,” “feel the pace,” based on this, “have a bias,” then “sense, trust, and act.”
There is a Korean martial art called Kum Do. This is a brutal game that involves a fight to the death with very sharp swords. The way it is practiced today is with bamboo sticks, but the moves are the same. Kum Do teaches the student warriors to avoid what are called “The Four Poisons of the Mind.” These are: fear, confusion, hesitation and surprise. In Kum Do, the student must be constantly on guard to never anticipate the next move of the opponent. Likewise, the student must never allow his natural tendencies for prediction to get the better of him. Having a preconceived bias of what the markets or the opponents will do can lead to momentary confusion and—in the case of Kum Do—to death. A single blow in Kum Do can be lethal, and is the final cut, since the object is to kill the opponent. One blow—>death—>game over.
Instead of predicting, anticipating, and being in fear and confusion, you must do exactly the opposite if you are to survive a death blow from the market movements. You must watch with a calm, clear and collected attitude and strike at the right time. A few seconds of anticipation, hesitation or confusion can mean the difference between life and death in Kum Do—and wins or losses in the stock markets. If you are not in tune with the four poisons of fear, confusion, hesitation or surprise in the markets, you are at risk for ruin. Ruin means that your money is gone and the game is over.
How can you avoid the four poisons of the trading mind: fear, confusion, hesitation and surprise?
Replace fear with faith—faith in your trading model and trading plan
Replace confusion with the attitude of being comfortable with uncertainty
Replace hesitation with decisive action
Replace surprise with taking nothing for granted and preparing yourself for anything.
Read….When ever you are Free.
Prepare, be confident & be decisive
Follow my trading rules without exception
Plan every trade with profit exit, stop exit and risk/reward ranking
Trade only when you have time AND you have an edge
Formulate and write down a trading/investing plan
Exit a position at my stops and not “hope” it will recover tomorrow
Trade the market I actually see, not the one I think I will see
Focus more on what’s actually happening rather than what I wish would happen
Learn to prevent my skepticism and opinion over the economy from keeping me from making good trades
Have a plan every day to trade the market and to not let my opinions of the market interfere with my trading
Concentrate on rule based trade management and not the outcome of the specific trade
Follow price action as opposed to listening to the fundamental “experts”
Listen to the market signal rather than market noise
Don’t be afraid of making mistakes
To pay more attention to technical signals to determine purchase/sell points rather than emotion & personal reasoning
Have more confidence in my trade ideas and believe in myself more often
Do not have a bias but instead let the charts be the guide
Have the discipline and fortitude to stick to my trade plans
To improve my organization of stock lists and automation of stock alerts
Do not over-leverage
Select only the most favorable setups
Try not to over analyze every potential trade
Lose less when I am wrong
Spend less time reading words and more time reading charts
Stick with winners and sell the losers
Allocate 2-3 hours each day & 5 hours every weekend to finding attractive setups
Increase position size and be in the market more (more…)
It’s become something of a custom for CNBC personalities to be silly and/or ignorant, but it’s generally on matters related directly to monetary policy or the markets (except for the Fast Money crew, those guys are cool). It’s rare that any of the CNBC peeps get to flaunt their half-witted chops outside the confines of the network’s rather limited subject matter, but when they do, it’s gold. Such as today, when everyone’s favorite Money Honey displayed a kind of shocking lack of comprehension of what Medicare even is. Pardon the bias, HuffPo never claimed to be objective.
At one point, Bartiromo was critical of the government-managed health care system in the United Kingdom. “How do I know the quality [of health care in the United States] is not going to suffer” with a public option? she asked. (more…)
Someone once said that to trade successfully, you must think like a fundamentalist but trade like a technician. Do you agree?
A: Yes, I agree with it. Understanding the context and fundamentals, even when you trade the technicals can be helpful as long as you’re able to separate the two when needed. The problem is that many traders will have a bias toward one discipline over the other and will justify poor technicals with faith for the fundamentals. How traders handle these conflicts that arise from time to time and how flexible they are based on market conditions will make a huge difference.