Last night, I was looking for the market to react and begin to head lower today (see last post below). That analysis turned out to be wrong. How do you salvage a trading day when your analysis turns our to be flawed?
In truth, there are many days that my nightly analysis turns out to be wrong, or, more correctly, the market doesn’t do what I anticipated the night before. It took me a while to learn this, but the fact that my analysis turns our to be wrong is okay. Marty Schwartz was instrumental in teaching me about wrong analysis. He had been a net losing trader for about a decade. When he turned the corner and became one of the most profitable commodities trader of the 1980s, he attributed his turn-around to accepting the times when he is wrong. He said,
“Before, admitting I was wrong was more upsetting than losing the money. I used to try to will things to happen. I figured it out, therefore it can’t be wrong. When I became a winner, I said, “I figured it out, but if I’m wrong I’m getting the hell out, because I want to save my money and go on to the next trade.” By living the philosophy that my winners are always in front of me, it is not so painful to take a loss. If I make a mistake, so what!” — from Market Wizards
This is an excellent attitude and one I try to adopt.
So, let’s see how to do this in the context of today’s trading. Clearly, the market rallied strongly in the Asian and European sessions breaking yesterday’s high on sizable volume. You can see this on the 9,000 Tick Chart. Look at the volume on the wave up at A. I circled it in blue. This was a big clue that the market was not going to be weak today. There is no sense in standing in front of a train.
So, we shift our gears. One of the great values of having a game plan coming into the market is that if the market is doing what you expected, it’s great. But if it isn’t, that’s great, too, because you also know what the market is doing. Think about that. This is the real value of a game plan.
The market drives up through yesterday’s high on strong demand. Shortly after the US session opens, the market is still holding gains, shows a lack of supply, and has a spring (3,000 Tick chart at green arrow). That’s our cue to go long. Nice trade.
The take-away message is to remain mentally flexible. If we have to be right, we wind up fighting the market on days like today. That’s no way to trade.