Several traders that I interacted with today were not able to participate on the long side despite the fact that the stock market was strong throughout the day. When they explained their selling bias, they said things like, "I just don't believe we should be trading up here" and "There's no way we are going higher; the economy is in terrible shape."
Mixing the mindset of trader and investor is hazardous to your wealth. As an investor, I can tell you that I remain very conservatively positioned with my retirement assets. I believe that we entered a secular bear market in 2000, and I believe that bear market has years--not months--to run. Just as we hit bottom in 1932 and did not see a full fledged bull market until the late 1940s, and just as we hit bottom in 1974 and did not see a fresh bull until 1982, we could muddle around for a considerable period in a long-term bottoming process.
And that's generously assuming that we made a price low for the secular bear in March!
All of that, however, is irrelevant to what I think about the stock market *today*. If I see that there is no bearish bias over the next several days and that indicators are strengthening over a three-day period, I am going to look for reasons to buy in today's session if I detect signs of strength. Trading is about exploiting supply and demand during short-term intervals; it is not investing.
You could tell me that President Obama is saddling this country with outrageous debt; you could decry the greed of banks; you could question the ability of the consumer to sustain a durable economic recovery; you could question the fundamentals of the U.S. dollar: for the most part, I would agree with you. But those have nothing to do with whether institutional participants, right here and right now, are purchasing, selling, or avoiding equities.
There's a time for politics, and there's a time for economics. Just not when you're trading the day timeframe.
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If traders missed the direction today, it's because they also probably missed the short last week. Those who caught last week move were primed to go ahead and make it 2 for 2.
well said
The post should have a link back to April 14th "Five things you never hear traders say...." There is money to be made on either side of the market, but trying to justify a view(i.e usually when you are either sitting on the sidelines with no position or holding a position that is underwater and keeps getting worse) when the market tells you otherwise is always trouble.
and many traders dont try to find reasons for short/lond.. they trade against a trend just because they wanna catch reverse. They dont trust that market can go higher if it already gained for 2% or more, etc. Its too expensive to do this. But i wanna acknowledged that i have sometimes this problem too..
Dr Brett, very well said! I couldn't have agreed more. That said, there is one situation where I see the economic situation can have some bearing on short term trading. It is when a catalytic news or economic event looms large. Such events not only shape the longer term trend but can steer the short term direction as well. I may be stating the obvious but I feel it is important to differentiate the catalysts from macro economic trends.
Excellent post and blog as well. I got caught looking this morning when it broke the 60 point level. That was the signal to me but I am just paper trading getting my feet wet again. Kept telling myself to drop the negative bias,not easy to do after the whipsaws we have seen.
Is the first trading day after option expiry Firday not an easy one to get a handle on ? Would be interesting to see a chart on that one.
Great post and blog. I came in with a short bias but kept telling myself to let it go and keep the mind open. But with the whipsaws we have seen lately it is hard to not be ready to play the swing back but that never came today.
Its always interesting that when people find out you trade and they ask your opinion on the economy or a company.
As a trader the correct answer should be, " It doesn't really matter to me".
The non-industry people expect us to all think the same as CNBC. Its funny how after a while you may fall into the trap of analyzing your trading within the scripts of these biases.
So true.
Yesterday I have found myself staring at the market in disbeleif, refusing to close my short positions.
One of the sage advices I have picked from you, but really need to work on, is visualising when the market goes against you, and visualising your actions when that happens.
Preparation is key: Am I really prepared for a market to be significantly bullish even though my gut tells me we should be bearish?
I find it diffuclt though - how to determine the distinction between being adequetly flexible and constantly changing your mind and acting like the herd?
eToke
That's brilliant. I'm putting this post up on my blog. So true....
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