Thursday, February 25, 2010

Reflections on an Intuitive Trade

I'm not sure it's difficult to teach good trading to motivated, capable students. So much of good trading is pattern recognition and repetitive training to act promptly and decisively upon patterns.

It's the great trades that are so tough to teach. Because many of the great trades are like the audibles that a quarterback will call or the surprise moves of a chess grandmaster. It's the pattern hidden behind the pattern that often leads to the great trade...and so often that hidden pattern will only manifest itself as a strong hunch or gut feeling.

We opened today super weak and many patterns looked bearish. Within a relatively short time, however, things didn't feel right to me. I investigated further based on that feeling and saw that several sectors were trading up from their opening prices. There was also firmness in the euro and gold. That led to a nice short-term trade to buy the market, rather than buy into the panic.

(We can see from the screenshot above that just about as many stocks in my basket were recently trading up from their opening prices--green color--as down. That is more characteristic of range trade than trend days).

It's intriguing that many of the worst trades and many of the best start out as emotional experiences. It's when the patterns we're not focusing on kick off a sense of unease that we can often call the good audible. When our unease comes from P/L and performance concerns, it's rare that we'll sustain a feel for markets.



The Myth from harvard and sports handicapping picks lover said...

Funny I was in a similar predicament this morning when I bought at 9:57 but had that bad gut feeling after an upturn followed by a downturn followed by a weak run back up so I exited because I was not comfortable even though it did end up bouncing a little higher. How can a trader reach you for direct questions?

Matthew C. said...

Your continuing emphasis on "Tick" was very helpful to me today. I'm more of a slash-and-grab scalper than you, so I don't typically go for the kinds of "big moves" you are talking about in this post. But I try and pay attention to the broader context of the market to ensure I don't get run over by tidal waves as I scalp the smaller movements. When I saw $TICK pop over 1000 on a spike up, I knew price would soon follow on a big move. So I positioned long on a half-point pullback, confident the ultimate move would be at least 5-6 ES points. As Tick kept retreating to 400 and then popped over 1000 again, I became more and confident this move had legs, so I sold on big strength, waited for relative weakness, loaded up the cart again, rinse, repeat, until finally $TICK went below zero on a retreat when I figured the risk/reward of the move had finished.

Thanks very much for teaching us the importance of $TICK for seeing what big moves are real instead of head fakes!

My Trading Edge said...

Dr Brett - a question relating to performance development.....

when away from the screens for a few days, its easy to produce some sloppy trading until you once again find your "form"....however something I've noticed....if you really push yourself on a particular day - perhaps by putting in more hours that day, and really exhausting yourself (basically drawing on adrenalin to overcome fatigue) a funny thing happens....Too tired to trade productively the following day or two; when you do get back to the screens after appropriate rest, straight off the cuff you tend to trade in a very mindful and alert fashion, not needing to "warm -up" therefore avoiding making silly mistakes.....any thoughts on this performance process Dr Brett? thanks Adam

Michael said...

What data provider are you using for the put/call ratio?

Gustavo's Trades said...

Brett, one of the key indicators on this reversal to me is Henry Carson's current condition chart. If you look at the chart you can clearly see when sentiment is shifting by watching the "cumulative trend of High Volume Stocks".

His histogram chart will help you to validate if the bearish sentiment is gaining strenght or weakening through the day..

Henry's chart, combined with the tick and some 30-min candle patterns are the key information points I use to read the intra-day sentiment..