Friday, May 28, 2021

Three Steps To Avoid Trading On Tilt

I hear many traders early in their development wrestling with issues of emotional, reactive trading.  Here are three practical steps that can help traders avoid going on "tilt":

1)  Plan Your Losses - Big expectations lead to big frustrations.  Every trade should be accompanied by a very specific idea of what would tell you you're wrong and how much you're willing to lose on the trade.  It's when losses surprise us and become too large that they're likely to create disruptions in our mindset.  Your goal should be to lose well, in the right way.  Focusing only on how much you want/need to make sets up surprise and frustration.

2)  Take Breaks - After large gains and large losses, it's easy for P/L to get in our heads.  Always take a break after a large trade, clear your head, and assess the opportunity set with fresh eyes.  It is just as important to reset after big wins as big losses.  Both can lead to taking trades for the wrong reasons.  Quick meditation exercises to increase calm and focus can be *very* helpful.

3)  Keep Trading Size Moderate And Consistent - Too much size creates unusual P/L volatility and that leads to emotional volatility.  Your goal is to be consistently profitable and then grow your size while you retain your consistency.  If you *need* to be profitable, that creates undue performance pressure and emotional distraction.  Drama = distraction.  You want no drama in your trading.

The greatest edge of all in trading is self-awareness.  Frustration happens to us all.  The goal is not to trade without emotion, but to be so aware of our emotions that we know when to step back from the screens.


Further Resources:

Three Minute Trading Coach:  Taking Breaks

Three Minute Trading Coach:  Taking Your Emotional Temperature

Three Minute Trading Coach:  Shifting Your Trading Psychology


Sunday, May 23, 2021

Short-Term Trading With The NYSE TICK - Part Three

The first post in this series and the second post took a look at the NYSE TICK and its relationship to price action as a way of identifying:  a) whether buyers or sellers are dominating the market and b) the degree to which their buying or selling activity is actually able to move the market directionally.  A valuable short-term edge sets up when buyers or sellers cannot move the market meaningfully higher or lower and then become trapped, setting up a move in the opposite direction.  

If you click on the chart above, you'll see a different TICK statistic, the NQ TICK, which assesses buying and selling activity (upticks vs. downticks) for the NQ100 stocks.  (Friday, 5/21; chart from Sierra Chart).  The horizontal yellow line represents the zero level for the NQ TICK and the white line is a short-term moving average of the one-minute TICK values.  At the bottom of the chart, we see the QQQ ETF.  Notice the blue arrows showing areas where there is net buying among the NQ stocks that cannot move price higher.  These become candidates for selling, as buyers are trapped and have to exit their positions.  These same patterns also show up for the TICK covering the Russell 2000 stocks.

Recall that the TICK measures the short-term psychology of market participants.  A different source of edge emerges when we place the different TICK measures next to one another.  We can see if there is uniform strength or weakness across the SPX, NQ, and Russell stocks.  If so, we have a nice tell for a trending market.  Conversely, if we see that one TICK measure is noticeably stronger or weaker than the others, we have a great tell for sector rotation.  And suppose we get a significant expansion or contraction of TICK extremes across the various measures.  That's a sensitive tell for changes in market participation, which often leads to changing market conditions.

There is a world of valuable information available to traders beyond simple barcharts, trendlines, and support/resistance levels.  There is little value focusing on trading psychology if you don't have a trading edge.  Many trading edges come from understanding the psychology of the marketplace itself.

Further Reading:


Wednesday, May 19, 2021

Short-Term Trading With The NYSE TICK - Part Two

In the first post in this series, we took a look at the NYSE TICK and how it measures the moment to moment sentiment in the overall market.  We also took a look at a pattern with edge, where buying pressure in the market cannot take prices higher.  Eventually, those buyers are forced out of their positions when sellers come in and that takes the market lower.  That pattern played out nicely in yesterday afternoon's market, which we see depicted above.  My cycle work was looking toppy and I tried to enter short positions in the market three times in the morning only to get stopped out with small losses.  Then I saw the TICK pattern play out in the afternoon and left the short position to run, more than making up for the losses, particularly given the overnight action.  One takeaway is that our best trades occur when the longer time frame picture and the shorter term market behavior line up.  It pays to be patient and wait for that alignment.

In the chart above, the yellow horizontal line represents the zero TICK level and the blue arrows show where net buying (where the moving average line of TICK is above zero) cannot produce price highs.  The longer that pattern plays out, on average, the more longs are trapped and end up needing to cover, creating a meaningful move to the downside, which we see play out with the very negative TICK readings late in the afternoon.  A good idea doesn't become a good trade unless we see traders trapped going the wrong way and needing to exit positions.

In the third post in this series, we'll look at the TICK in a different configuration and how it can provide upside edge.

Further Reading:


Friday, May 14, 2021

Short-Term Trading With The NYSE TICK - Part One

So much of intraday trading boils down to pattern recognition.  When you view market activity day after day, year after year, you internalize patterns that recur.  Those can provide a meaningful edge in trading.

As long-term TraderFeed readers know, one of my favorite market indicators is the NYSE TICK (shown above; $TICK on most platforms).  The TICK is updated many times per minute and captures the number of stocks in the NYSE universe trading on upticks minus the number trading on downticks at every moment.  So we can think of the TICK as a moment to moment measure of trader sentiment across the market.  It tells us what traders are actually doing in the market, which is an important clue as to the psychology of the marketplace.  Trading psychology is not just about our own psychology; it's about understanding the psychology of those we're competing with.  We can pick up tells in the market just as we can at a poker table.  

If you click on the chart above (taken from my Sierra Chart screen), a one-minute chart of the NYSE TICK (above) and SPY (below), you'll see patterns noted by the arrows.  The yellow arrows show us occasions where there is increased buying pressure that is unable to move the market to new highs.  Those buyers will be trapped and will have to exit, fueling the next downleg.  The blue arrows show the market basing and selling pressure drying up, with higher TICK lows.  This led to a nice upleg.

Knowing if buyers or sellers are dominant (do we see net positive or negative TICK) and how well the buyers and sellers can move the market is very helpful information.  We want to see who is in control of price action and who is trapped.  In upcoming posts, I'll expand upon this edge.  The key is seeing enough patterns over time that you can recognize them in real time and act upon them.  It's amazing how you don't have to worry about your own psychology when you understand the psychology of the marketplace.

Further Reading:


Monday, May 10, 2021

How To Network Successfully

I want to thank the traders who participated in the first Traders' Virtual Happy Hour session on Sunday evening.  Over time, these efforts will get better and better at connecting traders with others to accelerate development and improve performance.  At the networking event, I presented two unique edges in the stock market and we heard about a unique approach to maximizing trading performance and quality of life.  We also heard about tools for evaluating where large market participants are buying or selling--a huge potential edge in the market.  Most of all, we provided a forum for traders to share what they're up to and connect to one another.

I am totally convinced that the most successful traders are those that are best at networking and learning from and with others.  When people share their successes, failures, and ideas, they accelerate their learning and become broader as well as better.

The wrong way to network is to focus on what you want to learn.

The right way to network is to focus on what you want to share.

When you share your learning, others share with you.  When you focus on your needs, you bring nothing positive to others.  For developing traders, it's easy to get caught up in what you *don't* know.  Still, it's important to identify what you've learned and what you can bring to others, because that cements your learning.

Networking is a lot like dating.  If you reach out to 10 people, 8 of those contacts will be so-so, 1 will be really promising, and 1 will be so awful that you'll have funny stories to tell the next evening at the bar.  It's all about "fail fast".  If you try reaching out to others and get butt-hurt because you don't get a response, you'll never persist and find that one in ten great opportunity to connect with someone.  If you keep meeting people, it's only a matter of time before you meet the right people.

Already I identified 13 traders who have done a special job of sharing.  I put them in touch with each other and I shared a unique idea with them.  I look forward to including you in such special lists!

Further Reading:


Friday, May 07, 2021

Six Relevant Pieces of Trading Wisdom


Here are six pieces of trading wisdom that I might touch upon in Sunday evening's happy hour session:

1)  Ego is our self-talk.  Our wisdom comes when we stop talking to ourselves and let markets speak to us.

2)  In stable market conditions, we work to refine our game.  In changing market conditions, we find new games to play.

3)  Opportunity is just as much a function of what you trade as how you trade.

4)  If you trade a style that fits your personality, you'll be a one-trick pony.

5)  Greatness is never achieved in isolation.  Great performers--in athletics, visual arts, drama, medicine, music, markets--learn from others and with others.

6)  If P/L is the most important thing in our lives, markets will always control us and dominate our psychology.

More to come!

Further Reading:


Sunday, May 02, 2021

Your Invitation to the First Virtual Happy Hour for Traders


How would you like an entirely new way of preparing for the trading week?  I know I would like that, so I'm creating a new approach to teamwork for independent traders.  It's a way of joining a team and benefiting from the insights of others no matter where you live or how you trade.

I encourage you to take a look at my most recent Forbes article, where I explain that the virtual environment from the past year is going to impact teamwork well after we've put the pandemic behind us.  (May that time come soon!)  The restrictions from the COVID period have led traders and trading teams to generate innovations that will be carried forward to help us work better, individually and in groups.

One thing this past year has taught me, personally as well as professionally:  isolation does not bring out the best in us.  Many traders I work with have felt isolated, lonely, bored, and burned out.  This has taken a toll on relationships, and it's made it difficult to trade with the kind of energy and enthusiasm that we need for perceiving and pouncing on fresh opportunities.  What I observe in the Forbes article is that there are very creative ways in which we can achieve teamwork, even when we are trading from home.

Last month I proposed the idea of a virtual happy hour for traders, drawing upon the success of craft beer outings that I have hosted for money managers prior to the pandemic.  The idea is to enjoy good food and drink, share ideas and experiences, and build relationships that accelerate our growth as traders.  (See also my Three Minute Trading Coach video on the topic).  The feedback was positive, so now let's give it a go!

The first virtual happy hour for traders will be at 7 PM Eastern time this coming Sunday, May 9th.  It will be a one hour event via Zoom.  I will share my observations and plans for the trading week and participants will share their ideas and learning lessons with each other.  There is no fee, there won't be any collection of email addresses for marketing, and I'm not looking to build a large community.  The happy hour is for experienced traders who are looking to take their trading to the next level and who are willing to help others do the same.  This latter point is key.  I'm only looking for people who will share best ideas and best practices.  Traders who feel a need to keep their trading ideas and methods to themselves would not be appropriate for this kind of teamwork.

And bring something fun to eat and drink!  It's a Happy Hour!!

So here's how you "register" for the event:

Send me an email to the address located at the top of the TraderFeed home page, the "Contact for Trading Firms and Media".  The email should *briefly* introduce you, your trading experience/markets/strategies, and the specific idea or strategy you would like to share with the group.  You'll be sharing your idea via the chat function of Zoom, so you should have a brief writeup of the idea ready to go and share when you come to the session.  If it looks as though there's a good fit, I'll then email you the Zoom link for the session and further details.  As noted above, I will not be collecting, selling, or using the email addresses for any kind of marketing.  I also will not be inviting people who show an interest in promoting themselves or who simply want to share generic ideas about controlling emotions, managing risk, having a positive attitude, etc.  The idea is for each participant to share one specific, unique idea or practice they have found helpful.

I'll also ask every participant to share their contact information with each other via the chat function.  That way, if you have a question about an idea proposed by a group member, you can reach out for discussion.  The sharing of contact information will promote networking and sharing of ideas beyond the happy hour.

This Traders' Happy Hour is definitely not for everyone.  It is based on a radical notion of teamwork and sharing, where we learn from each other in a fun environment.  It should be a fun experiment; thanks for your interest!


Further Reading:

Trading Psychology 2.0 - How we can adapt to change, build on our strengths, cultivate creativity, and develop best practices

The Daily Trading Coach - A cookbook of evidence-based techniques for improving our trading psychology