September 3 - Open

Bad time to be short anything overnight, as I am CRM and GS. These sim-trade positions are being punished right now.
There are some general lessons to be learned here, as well as personal, more specific ones: the resurfacing of mental blocks which adversely affect my decision making. On these specific difficulties, I haven't changed since I first started practice-trading in early 2009. That's the real problem... if you do everything the same, don't expect things to change. And change they must...

A while back I found this new blog and consider it one of my new favorites. A few days ago I was reading the blog post entitled, "Our Daily Bread" and was moved by it... I couldn't get it out of my head all day as I worked my day-job. I've read it five or six times since... and while my first reaction is to disagree with the implied negative portrayal of playing reversals as a "novice" trader behavior, I am thoughtfully considering that even that slight disagreement may be misguided, knee-jerk defensiveness on my part. Especially given the results of the two practice trades I have going at the moment. Had I gone long in GS yesterday at the same spot that I was going contrary to the trend, I would have a sweet paper-gain right now. Similarly, the CRM position would be very nice had I just followed trend. Austin's thoughts have really struck a nerve.
I admit I am in many ways the novice trader described in the August 31 essay from http://www.coiledmarkets.com/ reprinted below. As usual, I have highlighted parts which meant the most to me.

Our Daily Bread
Posted on August 31, 2010 by austinp
As I mentioned in last night’s video conversation, the price on my favorite type of bread rose 20 cents a loaf since the last time we shopped. Considering it was pretty much $1.99 for the past couple of years and suddenly offered to buyers now at $2.19 instead, my first reaction was that like anyone else who suffers from the basic-human-nature affliction.

We usually buy ten loaves to last roughly two weeks. Sometimes they do, sometimes we run short until the next big shopping trip. Then it’s just a matter of picking up a few other loaves from the local mart to fill in the blanks. Price is not really an issue on those other loaves, because they aren’t the routine.

So my first thought last night was to only but eight loaves instead of ten. Very first emotional reaction to a +20% premium over recent cost was to avoid the same purchase. Why?

Well, because we’re all human. We are taught to buy low, sell high. We are taught to wait for sales. We are taught not to pay too much for something, only to suffer “buyer’s remorse” when lower prices to follow do appear.

That constant pounding of the lesson “not to buy higher” is very costly to traders. Very costly, to the point where it often costs them an entire account balance and/or fledgling career.

The easiest money a trader can ever make is inside of a deliberate trend session or period. Price is rising, pulls back level and continues to rise all day… or days at a time. Same story for the short side, identical logical emotions involved. Traders see price at now higher levels and inwardly regret buying that new price. In their minds they screwed up… should have bought it before when it was cheaper or “on sale”. Now it’s too high to buy (too low to sell) relative to where pricing just was a moment ago.

Ever have that thought flash thru your mind inside of a plodding, deliberate trend session? Up or down, doesn’t matter. Have you ever let the thought of price is “too high” or “too low” for taking a new position there hold you back, only to see price continue much deeper in that same direction after giving you all kinds of time to open a new trade?

A funny thing happens when we watch that process unfold the the hard right edge of our charts. Once price shoots away from where we passed on entering, a new compulsion overwhelms our senses. The market is now irrational and extreme. The sensible thing to do here is fade the move… short each new upthrust high, buy each plunge-down low. Sooner or later the “herd” will figure out they are wrong and you are right. These prices are insane here. Then the market will turn back in your favor, reward you for being so sensible with your “discount” purchases and reward you again for not taking that other stupid trade which worked a little bit but must surely stop working nearby, soon.

For those who have experienced that emotional pattern, how did the story turn out? Were you victorious more often than not, or run over by the StraightTrend Express more often than not?

I tell ya, it’s a deep-seated emotional flaw that prevents traders from mindlessly buying and selling into extended trend moves when continuation signals confirm. One of the hardest personal flaws to overcome in this profession, by far.

Also one of the deep core reasons why reversal-trade or “fade-trade” tactics appeal to newbie traders before they get chewed to shreds by the market in rapid fashion. It feels really good to time a high or low entry when trading. It feels five times good to make a public call somewhere and be right, then bask in the accolades of fellow newbies who don’t know one whit better about reality themselves.

Then begins the constant (but relatively brief) quest to be right again and again about picking tops and bottoms, highs and lows in a market.

Most traders never grasp the reality that buying medium and selling much higher or selling medium and buying much lower is where the easiest money is. The easiest, and the most. Chunks from the middle of directional swings. Harnessing the market’s own power for our own good. Throwing chains around the market instead of throwing spears at it. Big difference. Tough concept to internalize and accept.

Fortunately for me, my second thought last night at the bread aisle was the fact that I made enough money on two TF trade that day (one loss, one win) to buy every loaf of bread product in sight down the entire row.

Didn’t matter if it was $1.99 or $2.19 or $2.99 a loaf: knowledge and skilled applied in the markets mixed with patience and extreme discipline resulted in ability to afford all the bread in sight without worry or concern. A mental lesson I need to replay the very next time we are faced with a grinding trend session and I hesitate to buy higher or sell lower when confirmed signals align.

Lessons learned, lessons unlearned. Lessons relearned

Trade To Win