Wednesday, September 23, 2009

Listening to Yourself as a Trader

When you've been following markets for a while and something you're seeing just doesn't feel right, the chances are good that your implicit pattern recognition is kicking in and something *isn't* right. When I posted the following tweet, I felt strongly that something in the rally off the Fed announcement was not right:

steenbab1:52 PM CT - Unusual breakout; only 772 more adv than dec; still not confirmed by a number of SPX sectors. TICK weaker, still pos tho

A host of market sectors didn't confirm the new highs and a large number of stocks in my basket were not even up on the day from their opening price! That recognition led to one of the best trading days in recent months, as prices retraced all of their gains off the premarket lows and then some.

So often we hear that traders need to overcome emotion when trading. But sometimes emotions contain valuable information: we often feel danger before we explicitly identify it. The value of experience is that it hones our antennae; we become more finely calibrated in our feel for markets. To sustain contact with that feel, however, means that we have to stay market-focused, not focused on P/L, yesterday's trade, or our particular opinions about the Fed, the Administration, or the economy.

Once we sustain that contact with market feel, it becomes clear that we often know much more than we know we know.