Tuesday, August 5, 2008

Tuesday PM Notes - The Work Begins

Some thoughts to close the day.

First, I've been slightly curious about the # of hits to this journal since we began this trek less than a month ago, and was somewhat stunned by the huge spike in traffic over the last two days. So much for staying under the radar! It seems Dr. Steenbarger's mention yesterday stimulated more than a passing interest. Brett and I have stayed in touch over the last couple of years, and both his site and insights are top notch. His book, The Psychology of Trading, has done as much for me as anything on any bookshelf, and while he's chosen to deflect any credit for my recent successes, there's no denying his contribution. This industry can use more people like him.

To those new to looking over this trader's shoulder, I strongly encourage you to scan some of the early stuff, especially the posts of the first few days in July and then the July 25 post to help set the foundation for this journal. There are always dangers in taking comments out of context, and that may help you better understand what this is about.

Steve's insightful comment in today's earlier post triggered several thoughts which run parallel to my preparation for tomorrow, so I'm going to think out loud in this evening blog post.

Today's box score: Dow +320; S&P +36; Don's Equity +0 (close 'nuff ... we'll forget the nominal gain)

Tonight's likely reaction by non-traders or intraday swing traders: "Boy you must have cleaned up today!!"

Tonight's reaction from this chair: "Time to go to work."

Days like today used to piss the heck out of me. Initially, my greatest losses were on days fighting extreme trends. And then after I learned that lesson and simply sat out, I had to deal with lost opportunity regret. Then I finally learned to leverage off what I believed was the stronger of market probabilities in the day after a strong trend day and plan & trade accordingly. It took a lot of market tuition capital and years to figure that out.

I greatly respect those who trade well on days when the market is up 300 points. Of course many of those traders have to make most of their income in a handful of days to compensate for the cost of disappointing chop during the rest of the time. Yet it's one strategy. I've simply chosen a different approach ... one that fits my personality and strengths. And since it's tough to trade both types of days well -- except for those times when you're truly in a prolonged "zone" that may happen a few times a month -- why not focus on your strength. Again, it's just another strategy.

Looking back at today, I saw four possible entries that interested me. I passed on two including one when the 10am data was released and the post 3pm continuation trigger. I simply don't typically trade the last hour. I missed a fill on the other one on the post-FOMC spike down, and I caught a small, but very high-probability scalp.

Back to the poker analogy for a second, today reminds me a bit of players losing to someone and then saying, "You called with that crap??" Sammy Farha & Gus Hanson both have strategies built around playing less-than-stellar starting hands. It fits them, they play to their strengths after the flop, and do well over a large sample size and prolonged period of time. Other good players play only quality starting hands. Different approach, same result.

If you're looking over my shoulder, I welcome you. If you're looking for a guru who trades every kind of market well and can predict the future, keep looking. I'm on a different type of journey than spans more than one eight-hour day and includes detours around my personal landmines.

Today's score? Meaningless except when added to the other 249 days. I have a different scorecard that I'll read on December 31. All I know for sure at this very moment is that it's time to go back to work.

Have a pleasant evening.


Charles A Pennison said...

I'm one of the new readers of your blog, and enjoying your comments.

I can relate to your comments about strong trend days. I did slightly better than you did today, but not much better.

Trend days occur less than 30% of the time. So it is easy to become more confortable with non-trend days since this is what the market gives us more than 70% of the time.

On trend days, many psychological thoughts enter my mind. My thoughts usually center on things such as if I take a position, the market will close the gap, retrace 50%, or even worse, reverse trend. You wait for these things to happen, but the market keeps moving in one direction.

However, after a range expansion - strong trend day, there are many smaller range, non-trending days ahead to trade well.


Don Miller said...

Hi Charles.

Indeed. Markets indeed tend to chop more than they trend, or chop within a defined trend, and I think trading a rhythm that occurs more times than not skews probability for the good.

This may be especially true for CME members who in part provide liquidity to the market which requires occasionally fading the immediate market move at times.