"When I was trading in the pit every day, after I cleared my outbraves in the morning I would go to the health club to swim a half mile. While I was swimming I would recognize that there was a crowd in my head arguing the pros and cons of the market. I learned to follow a routine while swimming laps to try to clear my head of opinions prior to going into the pit to begin trading. As I swam, I would look down at the lane line at bottom of the pool and say to myself "follow the line." When I exhaled on my stroke I would say "opinions." Repeatedly saying "follow the line" and exhaling "opinions" was a very important ritual that I went though every day for nearly fifteen years of trading on the trading floor."
http://www.futurestradingschool.com/technical/psycho/psycho.htm 32. When the market is going up, say "the market is going up." When the market is going down, say "the market is going down." Say it without qualifications, no "buts" attached. This is a reality check, you'll be amazed at how hard it is to say what is literally going on in front of you when your mind is full of preconceived opinions.
You may be beginning to sense that I have a pretty strong opinion about market opinions. I have a right to my view because I paid a lot of money over time being distracted by hearing what other people think. It takes a long time to understand the cost and effort it takes to over come preconceived notions. As a day trader, you will eventually arrive at the same conclusion. The question is how much will it cost you to come to that conclusion, and can you survive the cost.
The thing I try to tell myself every moment of every trade is to say what the market is literally doing at this moment. "I'm looking for a sell, but right now the market is going up." It will probably keep going up, unless it stalls and starts going down, but right now it is going up!
A moment later, what is it doing? It is going up, should I sell? Why would you sell? Is it going down? No, it's going up.
A moment later, what is it doing? It seems to have stalled. I'll sell because I am looking for it to go down. But is it going down? No!
A moment later, what is it doing? It is going up, I should not be short. Cover your trade.
The point of the reality check is to be sure you are trading reality not imagination. I do understand that many trades are made "anticipating" a market turn. If that is your approach you need to be cold and calculating in evaluating your expectation.
If you are anticipating a turn, at what price difference, or what time difference will you acknowledge you are wrong. Be sure to determine that before entering the trade. Don't allow those parameters to change once you are in the trade.
There is nothing more foolish than a trader trailing his stop against his position because he stubbornly thinks "I'll be right in just a few more moments so I'll move my stop so I won't get stopped out."
When I was trading in the pit every day, after I cleared my outbraves in the morning I would go to the health club to swim a half mile. While I was swimming I would recognize that there was a crowd in my head arguing the pros and cons of the market. I learned to follow a routine while swimming laps to try to clear my head of opinions prior to going into the pit to begin trading. As I swam, I would look down at the lane line at bottom of the pool and say to myself "follow the line." When I exhaled on my stroke I would say "opinions." Repeatedly saying "follow the line" and exhaling "opinions" was a very important ritual that I went though every day for nearly fifteen years of trading on the trading floor.
33. THE DAILY MARKET COMMENTARY: I've never had an opinion I didn't like, however, successful day trading requires flexibility. Do your homework not to develop a market opinion, but rather to understand the potential for both sides of the market. This will allow you to make your trades based on what the market is doing at the time of the trade.
I know the best approach for a day trader is to not have any opinions, but if you find that you are continually bombarded with opinions that you just can't shut out then a approach I have found helpful is to thoroughly think out reasons for both sides of the market.
Let's say you think out that the market can be bullish for the following five reasons. And you also think out that the market can be bearish for an equal number of reasons.
The reasons for each opinion above should be thoroughly thought out, the logic tested and the markets past movements in relation to past similar events tested. Now you can with some degree of authority talk both sides of the market at any moment.
For example, "Bonds are going higher so that is bullish for stocks." You can study comparisons of the stock market and the Bond market and find many times where that is true.
"Bonds are going higher (rates lower) and that is bearish for stocks." Again you can study past market comparisons and find many instances where this is also true.
Study these situations in great detail so you thoroughly understand that the relationships can have a high positive correlation as well as a high negative correlation all the way down to intra day turns on the five minute chart. Now, no matter which side is working, you can use that information in your trading without having the bias that the effect on the market will always be the same way.
Think about the situations where the Fed raises interest rates. You will hear all of the following:
The Fed raised rates and the market went down.
The Fed raised rates a quarter point, "as expected", and the market went up.
The Fed raised rates more than expected, which suggests the Fed will not have to raise rates again for some time, and the market went up.
In a surprise move, the Fed raised rates more than expected, and the market went down.
If you follow the news and results above, you will understand that the news commentator is simply connecting two events that occurred the same day as if there was a cause and effect relationship. He read on the news tape that the Fed raised rates, and he read on the news tape that the market went down. He simply reported them both in the same phrase.
I often squirm in my chair when I watch the nightly business new connect a move in the transportation stocks to changes in the price of crude oil. On a given day crude could rise a dollar, and the transports are up. The rise in crude is not reported with the rise in the transports. The next day crude drops a quarter and the transports are up again. The commentary is the transports rose on the drop in the price of crude.
34. Here is a quote to remember: "When you wake up, your instincts are wrong."
This means you have to try very hard, it is difficult, to get on the right side of the market. What comes naturally is usually the wrong answer when it comes to day trading. If it was natural 90 % would win rather than 90 % lose.
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