Wednesday, September 23, 2009

Notes and Observations

* Thanks to readers who sent in trade setup ideas in response to the recent post. I will be featuring those setups in posts beginning later today;

* Increasingly, I find myself entering trades late in the afternoon and holding into the next trading day. I can adjust for overnight price risk by sizing positions properly; I can't adjust for missing opportunities that are occurring prior to the U.S. open;

* The best psychological strategy I have found for not getting caught up in choppy markets is simply to not watch those markets. If I have my profit target set, my stop loss point identified, and my strategy for adding to/scaling out of the position fixed, then I find that watching the market tick by tick adds little value;

* I start my trading day by asking: where is the market likely to move today? The volatility-adjusted price targets that I publish each morning before the open via Twitter give me a road map for that. (Follow the tweets here). Everything else is gauging market strength/weakness and volatility to handicap the odds of touching one of those targets and finding good entry spots to optimize risk/reward.

* At one firm, I'm working in a "pod" with a large trader and an analyst. The pod is supported by a programmer who creates proprietary tools for market timing. There are three sets of eyes on the markets; three sets of eyes on the trader. A lot more bandwidth for processing what's happening; a lot more checks and balances to aid discipline. I suspect we'll be seeing more of that at large proprietary trading firms.

* A number of recent posts have featured tools that capture market data in a unique way for quick processing. As with carpentry or vehicle repair, I find that having good tools makes a big difference in performance. Traders need to minimize their overhead, but I'm hard pressed to think of successful traders I've worked with who haven't invested in good tools to support decision-making.