Are You Thinking Like A Pro Or An Amateur?

December 10, 2003
Chris Curran

The
December
SP 500 futures opened Tuesday’s session with
a small gap to the upside, just under R1 resistance. The ES looked ready to
continue the historic string of a bullish bias ahead of an FOMC announcement,
holding its gap as the Dow pushed through the 10,000 mark for the first time
since May 2002 But, just like many other times this year, that history was
meant to be changed. If you blinked, you missed the Dow hitting 10k, and the ES
turned and bled lower for the first 2 hours, before settling into a tight range
around the Daily Pivot at 1,066.25 ahead of the announcement.

After the
FOMC left rates unchanged, as
expected, with the Fed Funds rate targeted at the 45-year low of 1.00%, but used
the same old phrase that the same policy can be maintained for a “considerable
period of time,” traders seemed confused on direction. Both stock index and
bond futures popped higher before the game of musical chairs quickly stopped and
both turned into a nose dive.
Now I know what to send Alan Greenspan for Christmas. A thesaurus
so he can find some good synonyms for “considerable” for future meetings.

The December SP 500 futures
closed Tuesday’s session with a loss of -8.50 points, and finished in the lower
1/2 of its range. Volume was a healthy 680,000 contracts, which was ahead of
Monday’s pace and the daily average. Open interest declined on Monday’s move,
indicative of shorts covering ahead of the FOMC meeting. Looking at the daily
chart, the contract posted a key reversal down and closed below its 10-day MA
and 38% Fib retracement of the 11/21-12/3 up move. Next support would be the
contract’s 20-day MA in the 1,054 area. On an intraday basis, the cups and
handles were negated on the gap and big trap. The 13-min chart closed with a
bear flag, but does have room to retrace up to the 1,063.25 area.

Wednesday is absent of any
economic reports, so it will be interesting to see if the bulls can make a stand
with no catalysts, or if the shorts will cross the line and keep pushing.

Are You Thinking Like a Pro
or an Amateur?

We’ve all heard the old
traders’ adage, “Cut your losses quickly, and let your profits run.” Easier
said than done, right? An amateur trader is usually thinking about how much he
can make on a trade. If the trade goes in his favor, he fears that he’ll lose
his profit and takes it right away. When a trade moves against him, he hopes
that it will come back and he swears he’ll never do it again. Sometimes, the
market helps in its own perverse way by allowing a break-even trade and further
re-enforcing an ultimately devastating habit. A professional trader is
constantly thinking how much can be lost on the trade. So, he takes the
emotions of an amateur and turns them around into a positive scenario. The pro
trader fears when the trade goes against him and cuts his losses within his risk
limits. When a trade goes in his favor, he has confidence in it and stays with
it as long as an exit signal isn’t generated or his stop is hit. And just as
importantly, he has confidence in his set-ups and knows when NOT to trade.