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.