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.