Do You Need To Be Right All the Time?

October 1, 2004
Chris Curran

Stock
index futures opened the last day of Q3 under pressure after
pharmaceutical giant Merck announced that it was pulling its popular arthritis
drug, Vioxx, off the market.Â The futures faded their gaps the first 30 minutes
but after the Chicago PMI reported its 17th straight month of growth, good
broker selling came in to shake the market down to new session lows.Â After the
lunchtime chop, the “we’re not gonna let MRK ruin our quarter-end” rally to new
highs turned into a bull trap.

The
December SP 500 futures closed out Thursdayâ€™s session with a loss of -0.25
point, while the Dow futures suffered a loss of -63 points.Â Looking at the
daily chart, the ES squeaked out a market structure high and has formed a bear
flag into 3 lines of resistance made up of its 10-day MA, 200-day MA, and 50%
Fib retracement of its 9/21-9/28 down move all at 1117.Â The YM also posted a
market structure high and is trying to break a bear flag on its settlement back
below its 50-day MA. On an intraday basis, the bearish rising wedges broke on
both the ES and YM 60-min and 30-min charts, with the lower line now acting as
resistance.Â In the small-caps, the ER2 showed good relative strength and really
has no strong resistance up to its weekly and daily downtrend lines at 578.Â
Despite the tight hi/lo ranges, the market’s flow allowed for some nice entries.

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â

The
Banking Index (BKX) posted a narrow range day, but still managed to hold its
200-day MA.Â The SOX posted a gravestone and has formed a bear flag at its
10-day and 50-day MAs.

Friday morning gives us the
Revised Michigan Consumer Sentiment Index at 9:45, with an estimate for a slight
increase to 96.5.Â The September ISM Index follows at 10:00, with a consensus
for a slight decrease to 58.3.Â The VIX is at the low end of its range again and
the big question here is whether the late sell-off was the end of the up move or
a shake-out of the late longs that will lead to higher highs tomorrow. With it
being Friday, we may see both scenarios pan out!

Do You Need To Be Right
All the Time?

Trading
isn’t about perfection or being right all the time. Trading is about making due
with existing conditions and doing the best you can with what you have before
you.Â Generally, you have a choice between being wrong more often and taking
larger profits relative to your losses, or trying to be right more often and
taking larger losses relative to your profits.Â For many traders, the desire to
be right is unconsciously one of the core motivations to play this game.

Perfection and the need to be right are unattainable ideals that warp, corrupt,
and turn good into bad, profits into losses, and winners into losers. Perfection
means missing a fill by one tick because that one tick is more important that
making money. Perfection means not taking a profit and then watching that profit
turn into a loss because the need to be right is more important than making
money. Perfection means passing up profitable trades because they weren’t
perfect enough even though those set-ups could have made money.Â The need to be
right means hoping a loss comes back to let you out even, because taking a loss
would blemish your perfect win %. Perfection and the need to be right when it
comes to trading, to put it bluntly, is for losers.