Friday, October 22, 2010

What is that picture?

There are many things a trader can do wrong in the markets. Still, there are a few things a trader can do right. All the market acumen in the world is useless for a trader who ignores his own rules, or who changes systems as often as he changes socks. Yet, many of these folk seek a better system, a holy grail in their trading.

The battle in the market is not just bulls vs. bears, it's educated (about trading and the market) vs. non-educated money. Richard Pryor used to tell a story of a tourist coming upon a lion in the bush. The lion is laying down lazily watching the tourist. Camera in hand, the tourist diligently snaps pic after pic, encroaching on the lion's space. The lion raises his head just a tad to get a better look and says, "That's right, come on... yea, that's it... and bring your camera too."

It isn't your system, or any system, that brings success. It's the discipline and understanding of trader behavior within the trading environment. This is specifically why I continually point out the difference between investing, where price is the driver, and trading, where behavior is the driver.

If you're unsure of which way you're involved in the markets, you've got to stop, back up and review everything... your motivation, your goals, your approach, your "system," and your attitude.

No one likes it when I say you have to "not care"-- that you must be detached from your trade. Bringing human emotional baggage into a trade will make you sell/buy at precisely the wrong time.

The discussion above is why you see the following on my site, www.wallstwise.com, "everything you need to trade is on this site, but you will still need a coach to sort it all out." Why? Because trading is about behavior, attitude, knowledge, timing, and other esoteric skills, it just is not enough to have a "feeling about that one."

Moving right along:

Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names. Markets also tend to return to the mean over time. The quality of Wednesday's rally was not as strong as the quality of Tuesday's decline. It came on lower volume and narrower participation. This suggests that no matter what path stock prices choose over the short-run, stocks are topping.

Based on the empty data calendar and a light earnings calendar, Friday looks to be a quiet session. Nonetheless, the dollar action certainly will be the focus.
Geithner Push for Trade-Gap Targets Is Opposed Before G-20 Meeting Starts

We are all focused on the dollar because it has been the primary driver of this market. Knowing that, what will you do when the dollar stabilizes and the dollar is no longer the reliable driver? Knowing how to play in a stable market environment would be a good skill, wouldn't you say? Or do you just like taking pictures with your camera?