April 18, 2014

Developing Market Awareness – Trading the Number Part II

CandleChart_line_graphAs I discussed in Wednesday’s post a key to successful trading is developing a sense of market awareness.  An awareness that enables you to make adjustments to strategies, (tweaking) to fit what the market(s) are giving or not giving.  Also, as I pointed out on Wednesday, I have a preset check list that I review each day before the market(s) open.

Here is a partial list of my pre-market checklist:

  • What is apparent before the opening?  Any relevant announcements or economic data, news stories, or carry over momentum from Asian and European trading.
  • What are my expectations with regards to market direction, intensity of the move(s)?
  • What strategies will I employ, which risk management profile will I use?
  • What indicators will I look towards for signals?
  • How will I ‘tweak’ my strategies to fit a change in market mood?


There is also an often unspoken pre-market checklist that needs to be acknowledged and given a place at the table.  We are a part of the market and in our very own small but collective way contribute to market moods.  Therefore taking note of our physical and emotional status is also important.

overbought marketHaving a clear picture of one’s own relationship with money is critical and failure to include it as a part of your daily checklist may keep you on a perpetual search for success.

From my bio I wrote:

In the midst of the many economic storms currently swirling around the globe, making decisions is often swayed by crowd behavior or panic as prices race in both directions. Opportunities present themselves during chaotic, panic driven times. Opportunities often missed due to all the “noise”.  As a Market Maker on the San Francisco, Amsterdam, and London options trading floors I studied the psychology both employed and self-employed by the most successful traders.  Most if not all-successful traders have the ability to stand within the chaos and pull out opportunities without succumbing to the panic itself.

This ability was an early “master” lesson I learned and employed to great success.   However, I have also felt the nasty crash and burn when I self sabotaged myself into failing.   I miscalculated the nuisances of having to move off a trading floor “open out-cry” system to a computer screen that represented the trading pit and a keyboard to execute orders instead of my voice and pieces of paper.

I don’t know anybody that trades to lose money, but I’ll be damned if that isn’t what happens to more and more well intentioned souls.  The emotional blocks that surround the ‘blame game’ are at times better protected than Fort Knox, and I say this from personal experience.

As discussed in Wednesday’s post there is a difference between knowing and caring.  The knowing part of the equation is covered with the partial checklist above.  The caring or emotional checklist carries as much weight as market awareness and has as detailed a checklist.  Most of the time, the why not’s of our emotions are usually embedded so deep in our brains that it can take several attempts to ‘crack the code’ so to speak.  Gratefully, I can say it is possible to do. It took some time to realize that after I left the noise of the trading floor, the noise I was experiencing was primarily being created by me.  This of course removed my focus from what was happening in the markets to whose fault it was that I was loosing again.   It took several steps and persistence to get to the core but it is so often overlooked as unnecessary and that is the mistake.  It takes strength to make friends with your unseen but strongly felt emotions.  Make room for them at the table and listen responsibly and with accountability.  I know, easier said than done, but it is essential.  Paying for a trading coach to fine tune and implement a workable emotional checklist proved to be a wise investment for me.

The concept of trading the number continues to function in its pure form, but the time portion has grown in importance by a factor of well let’s say billions.  Time as a number is critical to strategy implementation. Data travels at the speed of light across fiber optic cables, which is a far cry from 5, 10 or15 years ago.  Until the next set or rules and regulations are passed by a group of well meaning politico’s trying to satisfy a growing army of disgruntled investors who haven’t figured out yet that the blame game is more about them than the accused, we need to continue to be the ‘gnat on the elephants ass.’   Seriously, think about this, when haven’t the markets been ‘rigged’ in favor of the overtly greedy players.  Since they rarely have an original thought on trading the only way they can fulfill their ambition is to ‘rig’ the game in their favor.

Thursday’s pre-holiday trade presented its fair share of opportunities as traders quickly adjusted positions to get a jump-start on the long weekend.  Options expiration was pushed forward a day due to the holiday and this added some volatility.  Check out today’s chart on NFLX over 4 trading days for trades and discussion.

4-18-2014 10-39-51 AMNFLX_EAGLE

The current atmosphere remains prime for day trading.  I expect there will be numerous opportunities from a growing list for both traders who approach the market from a bullish perspective as well as traders who approach the market from a bearish perspective.

Remember the key is being able to reduce and separate the “noise” from opportunity.  This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them. 

Opportunity continues to knock on our doors.  While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.

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