Thursday, February 18, 2010

Looking for Information, Not Trades

An important implication of the recent post on building intuition is that coming to markets looking for setups to trade is probably the wrong approach if you're trying to maximize your gut feel for trading patterns. By explicitly looking for setups, we lose sight of what might already be setting up. We have no feel for the real time patterns, because we are attending to our expectations and needs--not what the markets are actually communicating.

I've found that running through a checklist of observations--much like a physician runs through a standard list of questions during a history and physical--is helpful in arriving at a "market diagnosis." Those questions pertain to intermarket themes, short-term sentiment, how sectors are moving relative to one another, how we are trading relative to established ranges and VWAP, etc.

Out of the observations will often emerge an insight regarding the likely structure of the market day: trending, range, breakout. That, in turn, leads to fresh observations that suport a gut feel for how the market is likely to trade going forward and whether it will make sense to trade or fade market moves.

When we look for trades, we're putting the epistemological cart before the horse. If we look for the right kinds of information, the trades can come to us.



madi said...

My original trading mentor would always put down my intuitions. In hindsight, if I had acted on all of my intuitions, I'd surely be a multi-millionaire. The feeling I get is "I can just put my finger on it." Yet, I still fail to trust these feelings, even after all the times that they proved correct.
There is a pattern of entries in my journal where I write that I will take my intuition trade next time.
I think that you're right on with your concept, Brett. My goal is to act on my next intuition.

Ionized said...

One of the problems I am currently having is learning to listen to and trust and ACT on my intuitions concerning my chart and TA reading.

madi, I am having a similar issue, my mentor pretty much stomped on my TA system at first, not because it is wrong or bad, but because he doesn't see in it what I do.

So my understanding of TA is fine, and I should be acting on the intuitions. Sometimes they are wrong, but that is what stop-orders are for. I actually am having a hard time understanding some of the actions of my mentor because he does some things in a way that I learned not to do them (for instance he likes buying tops then averaging down, and I like to not buy tops period heh) Currently figuring out how to best mesh with his style, cause I know I won't ever trade exactly like he does, but he has a lot to teach overall. There are days I am down on myself for even needing a mentor, but I digress..

I still have plenty of other issues to resolve of course, most of them related to the fact that I am still very much under-capitalized in life (major debts, no income other than trading, dwindling savings account which was tiny in the first place, etc.) But my intuition tells me that if I keep going and keep learning, I can become profitable.

Looking back on all the stages I have gone through as a trader, it is amazing. 1 year ago I knew nothing about any of this.. When a friend finally talked me into opening my first brokerage account, and I began learning, it was my intuition that this is my calling, that kept me going. I need to remember that part..

ok I rambled a bit here, thx for reading.

NQ Trader Jay said...

I thought my need to express my creativity should be satisfied even before I start the day to trade in order for me to be able to focus on the trading plan as it exists rather than trying to change it in a creative way since that got me into loads of trouble in the past.

However, now that I am improving, I think I am starting to creatively apply solutions or creatively adapting the plan and it's patterns onto the current market environment and finding the one that fits. It is starting to become interesting and a bit more creative now that I am enjoying applying what I've learned in my plan to the infinite variations in which they can occur in real time. I'm afraid it's becoming fun!

I really loved the awesome pattern today in NQ where that flag pulled in and moved up on support and then had a mechanical ladder reaching right back up to the high of the day at resistance with no chance for me to enter on overlapping bars, and then, the light at the end of the tunnel was the dip, the handle of the cup with all kinds of supporting evidence from the internals to be a perfect entry. Awesome.

I didn't trade it! But that's ok, I explained why in blog, I'll save room for others here. - J

DailyDoses said...

Dear Brett,
thanks for this informative article.
Would it be possible for you to create a "checklist of observations"
that can form a base for all of us to basically analyse the market.
With your experience, I believe that would be greatly benificial for all of to basically get a feel of the daily market and trends.

Tariq said...

Dr. Steenbarger,

Thanks to your blow up reagrding shady institutions ripping off new traders like myself in the name of training and proprietary trading, I ended up signing for training at Excellent and professional training for my kind of trading. I have been looking for a year to find a good training program and did not find one till i read your blog

It will be very helpful to get a list of check ups. I have information overload and this checklist will get me FOCUSED on right kind of information.

Thanks for all your help.

Tariq Malik
Hopkinton, MA