Are You Evolving in Your Trading?

September 1, 2004
Chris Curran

Stock index
futures opened Tuesday’s session with small upside gaps and found a bid the
first 30 minutes ahead of the 10:00 Consumer Confidence and Chicago PMI
reports.Â After the reports came in lower-than-expected, the futures were hit by
a steady stream of selling, but after basing out during the lunchtime lull and 2
failed breakdown attempts, the month end fun and games were strong enough to
bring the indexes back into positive territory (there was also talk that
attributed the buying to index changes).

The
September SP 500 futures closed out Tuesdayâ€™s session with a gain of +5.00
points, while the Dow futures tacked on +50 points.Â Looking at the daily chart,
the ES breached its 10-day MA support, but was able to settle back above it and
its 50-day MA. On an intraday basis, broken 60-min and 30-min trend lines should
now act as resistance in the 1105-1106 area. The YM also breached both 50-day
and 10-day MA support, but settled back above them and just under its 100-day MA
resistance.Â
Both the
SPX and INDU cash indexes broke above their downtrend lines on August 18th, but
neither index will technically enter into a new uptrend unless the prior highs
from July are broken. “Higher lows” have been set, but “higher highs” have not
yet been established on the daily charts. So, the rest of the week will likely
be a “make or break” point for both indexes.Â

Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â

September
bonds (ZB) continue to find a “safe haven” bid due to the Republican convention
and talk of a weak jobs number on Friday. The Semiconductor Index (SOX) posted a
small hammer after testing its August low.

Wednesday
morning gives us more economic reports with the August ISM Index and July
Construction Spending report at 10 am ET.Â Estimates are calling for a decrease
to 60.0 and increase of 0.4% respectively.Â While the monthly statements might
have been made a bit prettier today, some more work is gonna be needed in the
next month to tidy up those quarterly statements.

Are You Evolving In Your
Trading?

How do we acquire trading knowledge?Â There is an
objective reality which humans perceive through the filters of their values,
beliefs, and rules. This perception can and usually distorts our sense of
reality. The extent to which we reduce or eliminate the distortion is the extent
to which we will be successful as traders. The time that it takes us to get
through these distortions can be seen as a trader’s “evolution.”Â For me, the
natural progression is:

1. The Rule-Based Trader: The trader in this stage of development has 1 rule,
“Never break your rules.” Obviously, this is the strictest of the stages.

2. The Subjective Trader: The trader in this stage has 2 rules.Â The first is
“Never break your rules.” The second is “Know when to break the first.”

3. The Intuitive Trader: The trader in this stage has no rules, but is guided by
this: “Whatever my intuition tells me is the right action on this trade is the
correct action in the circumstances.”Â The trader in this stage truly has the
“feel” and “rhythm” of the market with defined risk, and many times has a hard
time explaining the reasons for his actions.

All types of traders can make money as long as they conform to the
rules/elements of that stage.Â For example, a trader at the Rule-Based Stage is
more than likely to lose money in the long run if he breaks his rules.