I like to trade in my cave where it’s dark, quiet and have no distractions.
I sometimes troll other trading blogs after the days trading is finished and I am always struck by the number of traders who are rabid followers of any tidbit of information on their favourite stocks. They form opinions, certainties and are probably already spending the money they’ll make on those trades. Giddy when the market is rising, angry when it’s down.
My view is that the less information you have the better off you are. Here’s why:
I don’t think that anyone can know everything that’s going to affect the markets or is “qualified” to disseminate it all and form the correct opinion. There is always more news to hear, digest, factor in its effect. What is real news? What is fake news? If you trade a certain way on the news, your expectations will colour your decisions if the trade starts to go against you. How many times have you seen a company announce terrible earnings only to see the stock shoot higher? Too bad if you’re short it. Information in the public realm is behind the times and should never be relied on. On the other hand the charts are always right and they tell you the only story worth buying.
I can tell you that it’s not at all stressful to trade in my sphere of ignorance. I don’t know when FED announcements happen. I don’t know what level the DOW is at. I don’t know when a company states its earnings. I don’t know if a CEO just got arrested. I don’t know if drug company latest product passed or failed FDA testing. I don’t know what the latest non-farm payrolls are. I couldn’t care less.
You see, none of that matters if you are a momentum trader. Let me put it in plain English: You don’t need to know! You can certainly see the effect of the news and that is what you trade. It matters not one little bit what the news is. A person could drive themselves crazy trying to process all the information out there.
Try this instead: Take the hours you spend now looking at news events and spend it instead on mental training. Develop your concentration skills. Your order entry skills, your trading plan. Work on the things that need improvement.
You can’t control the outside world so let go of it and work on what you can control – your actions based on what you see in the here and now.
Since I don’t know what’s happening in the outside world, I rely on a very simple concept to trade. Generally when I see green candles and the chart is rising, I buy and when I see red candles and the chart is falling I short sell. For me anyway focusing on the price action works better than filling my head with information. And at the end of the day it not how much you know or how smart you are, it's how profitable your day has been.
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8 comments:
I totally agree on not analyzing the news, but I do like to know when key economic data is being released so I can be more cautious around those times, or simply sit out for 5-10 minutes since the S&Ps can jerk around violently on some economic releases.
Do you do any night before or premarket preparation? It seems like you just sit down each day trade wherever you can see it moving.
Scott,
This is precisely what I wrote in my current blog post. Having more information is not only useful, it's actually harmful. Whatever information you have read skews up your mind which can kill you when you are in a trade. [Just like it killed me!]
BTW, I would like to echo Keith's question. Do you do any preparation the night before OR you just get up in the morning and look at the charts and place your trades?
Thank you for all the knowledge you have been sharing,
RJ
Good post.
Guys, Thanks for the comments. The only preparation I do is when I first wake up in the morning, I lie in bed and think about the chart patterns that usually appear everyday. Breaks to new highs or lows, dojis after long runs, slowing up or down trends, fast long candle reversals etc. I then think about what my trading response will be to those situations. Will I buy on a pullback or a pop for a short? Where will I set my stop, how much risk? These are the scenarios that I am preparing myself for although I don't know when they will arrive only that they will at some point during the day.
I also tell myself that I am a excellent trader with a solid plan, I will have winners and losers today and know how to take both, and my trading edge gives me an advantage over my competition.
Then I get out of bed, grab some juice and a banana, put my music on and trade the first thing that looks like it has some momo behind it.
Your postings are worth their weight in gold, Scott. I don't mind speaking for others when I say we are grateful for the info you pass on to us. This is the first blog I read and the only one where I have gone back to the beginning to read and try to understand every post and chart.
Thank you.
And, thanks for that Tony Soprano "Slap to the head" the other day. I have been trying to manage the art of Averaging Down instead of just exiting and entering later at a better price. Bad habit but one I find particularly hard to break as I learn through paper-trading.
Quitting averaging down is like quitting smoking. You have to decide you won't do it anymore and quit it cold turkey. Accept being wrong and get out, but don't give up on playing that trade you've worked so hard on. Don't quit the chart, just take the highest probability direction on the next entry.
Being able to long and short the same stock is a huge bonus.
Thanks, blue. The difficult part comes from the high degree of success I have had with it... and the fact that successful traders like Don Mileer have success at "scaling in" on trades. The trouble comes when I get that punishing loss every once in a while whenyou don't get your reversal. I believe Don Miller has learned to manage it by entering with small trades early then increasing them in size as the price increasingly deviates from the mean. I think it works but I'd much rather get better at entering closer to the reversal of direction. That seems to be one of Scott's particular strengths. A sound risk management policy begins with a good entry, in addition to the use of a stop to cut your loss. Seems like Scott doesn't get stopped out too often because of his remarkable feel for entries.
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