Lack Of Discipline

April 11, 2002
Dave Floyd

It happens to all traders, and
unfortunately it is painful when it does. However, when you recognize it, you
can nip it in the bud and move on. What am I referring to? Lack of discipline.
Yesterday on the opening stung me pretty hard. Rather than waiting patiently for
quality setups, I immediately raced in and tried to play, what I would call, the
meaningless noise that occurs in between valid setups. Why did I do this? I
suspect I did it because I was anxious and wanted to make something happen.
Think about that. Make something happen. How on Earth can I, with 2,000 shares,
make something happen? I can’t.

Naturally this first trade, which did not work out, segued into another
marginal trade that yielded the same result: more money out the window. I
repeated this process three more times in the first 20 minutes and dug myself a
nice four-figure hole to begin digging out of. This was shaping up to be a whole
lot of fun.

This isn’t the first time this has happened to me, nor will it be the last.
And I suspect this is resonating with some readers as well. Needless to say,
once I took a few deep breaths and stepped back for a few minutes, I regained my
composure, and once again returned to my normal style of trading: waiting
patiently like a cat, extremely fussy about how the trade develops, but when it
does, I strike, and strike with conviction. The remainder of the day was far
more relaxing and productive, what a trading day should be: minimal effort.
Nevertheless, I never completely dug out of my hole, and ended the day down a
few hundred. While that is not a really big deal, I was furious with myself for
"losing touch" on the opening.

In the current market environment, there is no room for this approach
(actually, there is never any room for this), yet I know people who play the
market like this all the time. Their results speak for themselves. Why do people
do it? I believe the reason is simply that they are more afraid of missing out
on something that may happen vs. the money they will lose by taking the trade.
This clearly indicates that the trader does not know how to differentiate
between a great setup and a marginal setup. Yesterday, on the opening, I had a
temporary memory loss in terms of how I define a great vs. marginal setup.

If you know through every fiber of your body what a good setup looks and
"feels" like, you will have absolutely zero interest in pursuing
anything but that trade. In fact, taking a marginal trade gives me more
apprehension since, subconsciously, I know my odds have been dramatically
reduced. When I enter a trade, the only thing I should be focusing on is the
price action, not that nagging feeling in my gut that puts me on the defensive.

So what were these marginal vs. good setups? First and foremost, I tried to
scalp (HVT) a Nasdaq stock. I have never had
any degree of success scalping Nasdaq stocks. They are just far too noisy for my
style. On trades based on a 15- or 60-minute bars, however, Nasdaq stocks offer
the volatility I want. This was the root of the problem. The solution was when I
waited patiently for the setups.

Gold Fever

It looks as though the market will continue to meander in the trading range
again. So, keep the game plan the same, trade selectively. There are good
trades each day, make no mistake about it, just be patient.

Key Technical
Numbers (futures):

S&Ps	Nasdaq
1143.20 (confluence)	1408
1136-37	1384-85
1131-32	1360
1126-28	1349-50 (confluence)
1115-16	1336 (critical support)
1108	1318
1099	1300
1083-84 (confluence)

As always, feel free to send me your comments and questions. I am still
experiencing browser problems, so until further notice, I will not be able to
participate in TradersWire.

Dave

Lack Of Discipline

BUY THE FEAR, SELL THE GREED

Quick Links

Company Info

Contact

Company Resources