5/22/2026 - A common assumption that even experienced traders make is that good trading means getting into good ideas at good prices. Indeed, much market preparation goes into finding the right ideas and then waiting for those to set up as good trades. So what's missing? Surprisingly little preparation and planning go into exiting the trade. Yes, there is probably a stop level, but less often is there an elaborated plan for taking profits. Some of the greatest frustrations occur when trades move favorably only to reverse before hitting targets. Or perhaps there is no clearly identified target in the first place.
When we place a long or short trade, we make an assumption about the direction we're trading, but we also make an assumption about volatility. We assume that the instrument will go to the target and not significantly beyond. That assumption is rarely backed up with research and a careful tracking of volume/volatility. As a result, traders often fail to hit their targets or, equally often, leave money on the table.
The best traders I work with typically have multiple price targets for their positions. They take a portion of the position off at a nearby target, locking in profits, and then let the rest of the position ride to subsequent targets. Their approach is to create a win-win, where they can harvest profits if volume/volatility dies out, but also participate if we see an extended move. Sometimes they have processes for adding to positions if they notice volume and volatility going their way. Sometimes they use options alongside cash positions to leverage their bets without too much added downside.
The point here is that the process of targeting trade exits is every bit as important for the successful trader as the process of finding and executing good trades. We assume that planning means finding opportunity. It also means figuring out best ways of exploiting that opportunity.
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5/21/2026 - What's the most basic assumption that developing traders make? They assume that they'll make money by anticipating the directional price movement of a particular instrument. Their choice is to go long or to go short.
When we enter the professional trading world, we find a variety of trading strategies. For example, many money managers trade relative price movement. They take two related instruments and trade one long and one short. If they think the yield curve is steepening, they will sell a basket of bonds at the long end and buy a volatility-weighted basket at the short end and profit from the relative movement. Or they will be long one stock in a given industry that is showing recent growth and short another stock in that same industry, again volatility weighting the pair. As long as the one stock outperforms the other, it doesn't matter what the overall market does. It's a different game.
Or perhaps the professional trader expects an increase in volatility given likely geopolitical developments. Buying equivalent amounts of puts and calls across relevant instruments allows for profitability regardless of the direction of the reaction of the underlying instrument.
There are so many strategies for making money in markets and the question is which ones most play to our interests and strengths. When we assume that there is one way to make money, we limit ourselves to a crowded universe and fail to take advantage of much greater, lesser-known opportunities.
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5/20/2026 - One of the most common challenges I hear from experienced, successful traders and money managers is balancing the need to hold onto positions that have further to run and the need to hold onto profits during volatile price retracements. In other words, how can traders participate as fully as possible in a trending move without getting shaken out along the way? This need to blend vision and opportunity with prudence and risk management is not an issue of fighting weaknesses, but rather ones of balancing strengths.
This is a classic example of how better trading can create a better trading psychology. For instance, if the trader can find inexpensive options structures as hedges, this could very much cushion the downside on retracements while allowing the trader to remain in a meaningful trending position. Similarly, if the trader can define a core position that will be held onto through an anticipated move and then trade around that core when retracements offer good risk/reward opportunities, that too can bolster the trader's psychology, as pullbacks now are no longer threatening. Too, if the trader holds multiple positions that are not highly correlated, one might retrace, while others continue to profit, cushioning overall P/L. In such a case, diversification is a trading psychology strategy, not just a trading strategy.
The beginning trader uses psychology to avoid mistakes. The advanced trader draws upon best practices to cultivate a winning mindset and sustain motivation. This is why it is so important to study, study, study one's best trades and best trading periods. Hiding among our successes are our strengths and what ultimately will bring us to our trading goals. All trading reviews should be exercises in positive psychology.
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5/19/2026 - The Barchart site notes that the yield on 30-year Treasuries has climbed above 5% for the first time since 2007, which preceded the global financial crisis. While markets are focused on AI and related growth themes, how will higher long-term rates affect the housing market? Payments on U.S. debt? Inflation and the value of the U.S. dollar?
Meanwhile, negotiations between the U.S. and Iran continue, as neither side wants all-out war, but neither side will concede control of the Straits. What if the only option becomes a military one and the Straits remain closed indefinitely? $150 per barrel for oil? $200?
The point is not that these scenarios will necessarily happen, but that the market is not pricing in anything remotely like these scenarios. Rates are telling us about inflation and oil prices are telling us what could further stoke inflationary expectations.
The best money managers I work with develop multiple "what-if" scenarios and then walk forward to see if the odds of those playing out are increasing are decreasing. That is very different from looking at chart patterns in a particular instrument. It is in the story told by multiple markets and regions of the world that we can gain a sense of the market's bigger picture.
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5/18/2026 - I recently spoke with an unusually successful hedge fund team. Their returns were particularly interesting because they didn't trade all that much. They developed big picture ideas--many of which were unique--and they occasionally tweaked the expression of these views and the combination of the positions in the portfolio. The lion's share of their time, however, was spent in developing ideas. Rarely did they express their ideas in terms of going long or short a particular market. Rather, they were interested in the relative performance of multiple markets in the face of changes in the world. For example, if their research pointed to higher oil prices, they would express a number of their views in rates markets (expressing an inflation perspective) and equity markets (expressing different growth perspectives for oil producers vs. consumers). The result was a diverse and unique combination of positions that provided multiple ways to win.
Still, that is not what I found most interesting in their approach. They had big picture views and therefore focused on big picture price targets. Perhaps their most unique quality was their ability to hold onto positions while they worked out. Moves that would have shaken out other traders had them contemplating adding to positions. Yes, they were wrong on occasion, but they had a number of amazing winners. Their skill was finding areas of unique opportunity and then committing to those. The capacity for commitment was their key talent.
Similarly, some people are great at dating and meeting people at social events. Others are great at committing to and cultivating long-term relationships. It's not that the team I spoke with was so great at controlling their emotions; their greatness could be found in their capacity for commitment.
Which few traders talk about.
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Please allow me to point out a few things.
* Energy (oil) prices continue higher in the face of seeming Middle East progress toward peace;
* Inflation expectations are on the rise and we're seeing higher yields at the long end of the curve;
* European stock prices (VGK) remain well below their late February highs;
* Europe and the Far East as a whole (EFA) remain below their late February highs;
* Oil importing countries such as Australia (EWA) and Japan (EWJ) have not made new highs;
* We have recently seen more U.S. stocks make fresh 52-week lows than highs.
* Many U.S. stock sectors have not made new highs, such as raw materials (XLB); financial (XLF); consumer discretionary (XLY); healthcare (XLV); and industrials (XLI).
* The equal-weighted version of the SP500 (RSP) has not made new highs.
Well, you get the idea. If and when this market corrects, everyone will look back at how obvious the top was.
It pays to question our assumptions and look beyond a broad market average to see what markets are actually doing. A rising tide lifts all boats. Many boats are not rising.
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