Wednesday, April 11, 2007

Strong Opinions, Flexibly Held: Lesson From A Morning Trade

One of the first pieces of progress I made as a trader was looking at enough patterns that I could develop strong opinions regarding when demand or supply was shifting in the market. The second, more important step of progress came when I developed the ability to hold those strong opinions flexibly. This morning, I thought I saw the negative TICK readings strengthening when I placed a trade to buy ES at the first arrow. I took a bit of heat in the next two minutes, then watched the market rally...and stall...and stall. Positive TICK readings (green on chart) were not moving price higher. That inefficiency occurs during weak markets, not ones ready to make solid rebounds. I took a small profit and flipped my position (second arrow), covering into the subsequent heavy volume at the bid (third arrow).

Years ago, I wouldn't have made that second trade. I would have stuck with my initial long and then watched a small profit turn into a loss before covering. I would have had a good idea, but not the ability to flexibly modify or overturn that idea. To hold an idea strongly enough to act upon it--and risk money on it--but not so strongly that you're wedded to it: that takes an ability to assess and reassess markets on an ongoing basis. You want to identify with those ongoing assessments, not with any single opinion. There is strength in flexibility.


Kathy said...

Hi Brett:
Is it possible for you to mention your trading result such as ratio of win/lose trades and average gain/loss of all the trades? Or even the number of winning years versus losing years. I am new to this blog maybe you had mentioned these before?

Brett Steenbarger, Ph.D. said...


I returned to daily trading after completing my last book and stepping down from my full time position at a Chicago prop firm. Prior to that I had been profitable over several years and, since returning, have averaged 15% returns per year on my account (after costs) trading part-time, mornings only. I average 20 minutes holding time per trade and a little better than 60% of trades have been winners. I average 1-2 trades per day and only trade equity indices.


Simply Options Trader said...

Hi Dr Brett,
"To hold an idea strongly enough to act upon it--and risk money on it--but not so strongly that you're wedded to it". Indeed, it is a fine balance and ability to achieve this will bring trading level one notch up.

Thank you so much for all your posts on TICK. I have learnt much more from them than from books I've read which doesn't go into the kind of depth that you do.

On your initial trade here, what made you decide to go long at that time? Was it the higher lows & higher high that you saw prior the trade? Thanks

Brett Steenbarger, Ph.D. said...

Hi Simply,

At that point I was still anticipating range bound trade in ES and saw the TICK making higher lows. So it looked to me as though we could get a TICK breakout to the upside, which I wanted to ride. We did get the upmove in TICK, but it failed to carry price meaningfully higher. Meanwhile, I was seeing weakness in the other indices. That convinced me to flip the position.