Here’s What I Wish The ‘Gurus’ Would Tell Us…
Both major
markets closed significantly lower this week,
having broken several key short-term technical
supports and following through on significant price vs. momentum divergences we
discussed
last week. At the close of Friday’s action, ES had tumbled 39 (3.7%) to 994
while the Nasdaq gave up 83 (6.0%) to 1312. In the process, the market reminded
us that nothing lasts forever, especially markets on technical fumes with
screaming daily and weekly divergences appearing for the first time since
pre-2002.
Intraday trade pace throughout the past week was nothing short of spectacular,
with an abundance of trading opportunities on both the long and short sides as
market volatility increased and conflicting trends provided solid entry and exit
guidance, much to the delight of intraday traders.
I’ve got a lot to say, yet let’s first peek at the charts and see what they’re
saying.
S&P 500
src=”https://tradingmarkets.com/media/2003/Don/dm092603-01.gif” width=”574″ height=”617″ />
Nasdaq
src=”https://tradingmarkets.com/media/2003/Don/dm092603-02.gif” width=”574″ height=”617″ />
Moving Avg
Legend: 15MA
Larger Timeframe 15MA
See https://www.donmillertrading.com
for Setups and Methodologies
Charts © 2003 Tradestation
Where Are They
Now?
(a.k.a. Part 2 to Last Week’s
“They’re Back” Column)
Last week, we discussed the rampant “I
Told You So” garbage that has once again reared its ugly head and increased
its stranglehold on the financial and trading press. Now most of you know I try
to choose my words very carefully, and frankly I couldn’t come up with a better
term — although other nouns came to mind. You know the kind of drum-beating I’m
talking about, where everyone tries to “one-up” the other guy (gal) to make
himself shine when probability both happens to turn their way and provides a
result that stretches the bungee cord.
Last week, the noise grew more deafening last week as “buy, buy, buy” echoed
across the financial land amidst guru and analyst back-patting — the kind that
would have any chiropractor and psycho-analyst licking his/her chops. Yet as is
usually the case, the echoes were occurring ad nauseam despite
ominous market signals referenced above. To all such folks, we — on behalf of
the trading community — continue ask one simple question: Where is the
profitable exit help??
Maybe the arms are simply too tired from the back-patting to assist in ethical
sell guidance. OK, whatever…this game has been played for years with folks
robbing Peter to pay Paul, and the games will go on long after you and I make
our last trade. Yet let’s quickly revisit two quotes from last week’s column
that I mentioned I’d like to see more of in the press, in light of this week’s
action.
Quotes I’d like to see:
“I told you the market would trend and you should enter here. And here’s my
phone number so I can fulfill the second half of my ethical obligation with
guiding you with a profitable exit into the retail hype or a stop if I prove to
be wrong … call me anytime.”
“The market curtailed my expected move not because of some external event out of
my control and therefore leaving me blameless and faultless, but because I lost
sight of the extremes of the extension. Simply put, I screwed up.”
(We’ll omit the Red Sox World Series win statement for now and revisit it in a
few weeks.)
Now I won’t ask for a show of hands to ask how many were visited by their
market “guru” last week with such statements, but I’m pretty sure we wouldn’t
need a calculator. And if you’re wondering why I’m beating this particular horse
yet again, it’s because this past week has reminded me how sick and tired I am
of traders and investors, especially emerging traders, being swindled by the
“noise” and missing the guidance from the most honest, unbiased entity on the
planet: the market.
Yes, it was the market that spoke this past week. But the point that seems to be
missing by too many, is that the market spoke even louder the preceding
week. Independent of my views and methods, contrasting views and approaches,
and whether you, I, or Joe Schmoe was long, short or flat, the market was
screaming at all of us.
It was speaking in terms of significant price vs. momentum divergences, in some
cases the strongest since pre-2002. Yet the reason many miss the signals is
often distracted or misplaced focus — and yes, even laziness for some who don’t
want to develop into self-sufficient traders — as they wait for their guru to
guide. Result? They miss the market signals and become the follower instead of
the anticipator. And the end game is that followers will never win consistently
in this business.
As I’ve said in the past, I continue to scratch my head over entities that
recommend screaming “trend” buys or sells irrespective of the extent of the
existing trend. And while many of these entities provide effective guidance
early in trends and deserve kudos, tired momentum signals on multiple
timeframes, conflicting trends on larger timeframes, and prices that are
stretched significantly from key supports and stop premises seem to mean nothing
to them. The band just continues to play into the night.
We can only surmise that such action places such public “helpers” into one of
three camps:
-
Traders who have accurately
taken the profits into the momentum and pom-pom waving, while remaining silent
as to their actions as they prepare for the next round of the game, -
Non-traders (or poor traders)
that may be wonderful at entry guidance yet have no clue on exits — we can
call groups 1 and 2 the “roach motel” landlords –, or -
Anyone who simply uses recent
market action to “prove” his/her “methods” under the “even a broken clock … ”
theory.
The second quote referenced above
reflects the typical current search for a “culprit” or reason for a change in
market tide. This week’s scapegoats of course were oil, atrocious earnings,
Eastman Kodak and perhaps even a blister on Pedro’s pitching
hand. Catalyst? Perhaps. Reason. No. Then again, I assume headlines that say
“Market retraces as excess momentum works itself off” won’t sell many
newsletters.
Don’t get me wrong, I believe in trading with the trend, yet heavily caveated
with “which trend?”
and
“at the right times”.
OK, so how does one define “right”? Simply put, right is “early” where
risk/reward ratios are at their best. Well, that helps a lot Don … How the
heck does one define “early”? Well, we may be able to best answer that
using the process of elimination using last week’s data — early is sure as heck
not buying into an empty fuel gauge, nor is it buying on the fifth,
sixth, or seventh pullback to an immediate trend support with the same size as
at earlier times.
With respect to the “which trend” question, let me first say that I believe this
is one of the most important, yet least discussed issues in the trading world.
Astute traders know the market is always trending on multiple timeframes, and
such timeframes are almost always trading in opposing trends. For example, many
traders made very nice money long the market this week. That’s right — long
— as in long on strong one- or three-minute trends resulting from stretches
from higher timeframe downtrend supports. Kevin Haggerty talks about snapback
opportunities all the time. So next time someone tells you that you’re trading
against the “trend”, simply nod and smile.
This isn’t a hindsight view based on this week’s action, as we’ve been
discussing emerging divergences for the last few weeks as the squeeze and mania
were in full force. Simply look back at recent columns for the “chart-speak”.
Not my “speak” … the charts’. Sure I and others can point them
out in this virtual space and the our educational material, yet it’s the market
that deserves our attention. For the triple-threat combination of trend,
momentum, and range indicators is indeed powerful, and the market will
provide better buy and sell signals than I or anyone on this planet can ever
provide.
The tea leaves are there and always will be, and once you learn to effectively
interpret them and embrace the concept of probability, you’ll be on your way to
becoming a self-sufficient trader — which remains this trader’s sole objective
in any teaching or column that I’ve asked to do over the years. Remembering
that the last three letters or the word “trend” are “e-n-d”, may also help you
keep your wits — and profits — while others are boasting about the past before
they too are robbed blind.
From the recent mailbag (been piling up a bit, given the interest in recent
pieces)
I haven’t ‘printed’ any
article I’ve read in months, I’m going to print yours to remind this ‘dumass’ at
times that it’s not all about the financial game but also the spiritual one that
helps everything go right. I tend to forget about those very important bits when
all is going well in ‘trade’ world. Thanks for speaking from the heart. Your
co-worker, F.P.
Don, Just wanted to send a quick note that I thought your
9/5/03 column was excellent. I could also fully relate to your mentioned
relationship between being in tune with life and God and trading performance. I
have always found that when I maintain proper balance in my life and adhere to
proper principles, nearly every aspect of my life benefits. I highly recommend a
book that I first read years ago when I was in the corporate world. “The 7
Habits of Highly Effective People” written by Stephen Covey. This is not a
typical “quick-fix” self-help book. If you have not read this book, I highly
recommend it. Take care and keep up the great work, M.Z.
Don, I just wanted to thank you again for all your help. I’ve reviewed both
your courses again and
have been following the market sticking pretty much to your techniques and it
works like a charm. I am very appreciative. It’s actually a lot more interesting
trading discretionary as opposed to having some fast hard rules, as I was trying
to do before. If I were in your neck of the woods, I’d take you out for lunch.
Anyways thanks again. Sincerely, P.A.
Hi Don, I said this to you once before, but feel I must repeat it: Even though
I do not trade your style (I trade Mark Boucher’s style), I think I owe much of
the success I have had to you and the life lessons you share with new traders
like me. I would probably never have persisted with my quest to learn ways to
manage the market (instead of the other way around) if I had not heard your talk
at TM2001 about the pitfalls of leaving a solid career and starting trading for
a living. I was on that path, and very uncertain about it (rightfully so), so
that talk you gave in addition to the weekly “refreshers” from you have helped
me steady and focus myself greatly. Thank you for sharing all these gifts and
inspiring me and others like you have.
Sincerely, J.B.
Dear Don: We have a small group of traders meeting on a regular basis NOT to
discuss strategies but the psychological/mental size of trading. It has been
amazing to see how this group has helped each of us grow personally as well as
help our trading. It’s great to have someone who understands the difficulties of
the trading biz and know that when one need to dial the “trader’s help hotline”,
they indeed have a number to call. In any event, we all read your recent
commentaries with great interest and one happened to have copies of the Norman
Vincent Peale book you made reference to; he had copies as he wanted to hand
them out to friends. I have just finished Chapter 3. THANK YOU! I miss your
daily commentary and I thank you for sharing your personal thoughts with your
readers as a novice trader I am learning there is more to trading than technical
analysis. E.H.
Good Trading and Have a Great
Weekend!