Profitable Trades Happen — For This Type Of Trader
The major markets
performed right on cue this week, with both the S&P and Nasdaq working their way
back to their respective weekly supports.
For the week, the S&P lost 13 while the Nasdaq gave up 33. And while the
retracement action may have come of some minor shock to those in the
“everything’s coming up roses” momentum group — no, I’m not going the “You
read it here first” route folks, as markets do what markets likely do —
this week’s action was frankly about as predictable as it gets in this
business.
Yes, it’s nice to see that trends continue to develop, extend, and pull back via
time or price as much as the sun rises and sets, and this week was chock full of
trading volatility within the high-probability longer term retracement. All
major intraday timeframes took their turns throughout the week in providing
excellent trend and trade guidance, with the 13 and 60 often alternating in the
lead dog (pun-intended) position.
I’m a bit sleepy-eyed after an more than typical bout of Globex trading this
week — including during the wee hours of this morning — so please excuse any
typos and let’s go right to the charts before talking some “shop”.
S&P 500
Nasdaq
Moving Avg
Legend: 15MA
Larger Timeframe 15MA
See https://www.donmillertrading.com
for Setups and Methodologies
Charts © 2003 Tradestation
Business or Expensive Hobby?
One of my long-standing pet peeves as a
professional trader is how many traders treat trading like a recreational
sporting event. Now before recreational traders flood my email in-box, let me
clarify first — if you’re made a conscious decision to trade purely for sport
and entertainment versus income, have at it and have a blast … life is too
short. Heck, I couldn’t get enough of pinball at college. (Yes younger
readers, there was arcade life before Pong.) Further, hunting is a great
example of folks making decisions to either hunt for sport or for food, and if
sport is your game, go for it!
Yet for those of us that choose to earn our keep by trading — hunting for food
if you will — the “game” is mightily different. Here’s what I mean. Those
that follow football in the Northeast may have heard of a fellow named Deion
Branch. Now while Deion is a rather talented — albeit young — wide receiver
for the 8-2 Patriots, he has the terribly annoying of making a Hollywood
production out of catching a pass for a first down. And while that may not
sound all that terrible in the current days of the marketing-driven,
make-people-know-who-you-are NFL, he often celebrates first down catches when
the game is just starting, or worse yet, when the team is losing and playing
terribly. In fact, I remember a game not too long ago where he dropped about
four passes thrown right at him, then caught one for a first down, and did that
stupid dance anyway.
Recommendation? How about acting like you’ve been there? Now I fully realize
that such antics are typically done purposely in the spirit of self-promotion so
that every scout and ESPN PrimeTime viewer will know your name. Yet I
also see many traders — specifically those looking to develop serious trading
skills for long-term income purposes — doing similarly on profitable trades,
and actually in some cases being encouraged to do so by some of those
stock-calling venues led by non-trading cheerleaders that egg on such antics.
Perhaps a better analogy is to view a hardworking hardware store owner, who is
in the specific business of buying “stock” (pun intended) at wholesale prices
and selling at retail prices. Some days there’s a flood of customers, and other
days there’s only a few. Now imagine that same store owner jumping up and down
after ringing the register for a sale of one hammer. Are you listening Deion?
The trading business is no different. For the
skilled, serious, and disciplined who persevere, profitable trades happen … it’s
called revenue less cost of goods, it’s expected, and it repeats over time. Get
excited over one great trade? Great, enjoy it, store away the pattern and use
it as a confidence booster. Yet acting like you’ve been there and expecting to
go there time and time again can help regain or maintain perspective and
emotional control — never mind a dose of maturity. For those merely playing
the game, you may find buying an old pinball machine a lot less expensive.
Footnote: Frankly, one of my admitted downfalls over the many years is that
I’m often too serious. For if I had the proverbial nickel for every time I’ve
been told “Loosen up Don!”, whether it be from a peer corporate executive in the
old days, or simply a friend or my spouse, well I’d have as they say a pile of
nickels. And over the years, they’ve been right more times than not, although
as I’ve reached my mid-40s I’m hopeful that life’s balance has improved at least
a smidge — at least based on the mail it appears I’ve gotten pretty good at
sarcasm and cynicism. Enjoy what you’re doing — it’s what brought me to this
business and will sustain me hopefully for years to come.
From the Recent Mailbag:
(Deion disclosure – I continue to try print what I get, both good and
bad)
Dear Don – I commend you on the most informative article about contra-trend
trades. My losses exceeded my profits on these types of trades. In addition to
the reasons you mentioned against these trades, there is the major psychological
factor that you are fighting the major trend and hoping that you win against the
odds. You think that you are smarter than everyone else, but you kick yourself
in the ….. when you lose at the end. Thanks again Don A.M.
Don, Great lesson I needed to hear. I am learning to trade E-Mini S&P. After
studying for a year with an options trader (oex) who looks for counter trend
opportunities, I would have to say I have become “gun shy” to pull the trigger
lately. Your column today has given me new insight into my problem: I often see
both sides of trade but am confused and hesitate, doing nothing! Currently
studying with an E-Mini expert I feel like a baseball player (Long suffering
RED SOX fan here too!) who refuses to swing the bat. Any other advice to help
overcome this problem? Thanks, and be well. D.P. (Follow-Up E-Mail is below.)
Don, I can’t tell you how
much I appreciated your generosity with me today. I have been very successful in
my real estate business because I have adopted the simple philosophy of “giving
before I get”. It’s refreshing to find someone who shares the same philosophy.
Thank you again for your valuable insights today; I will implement your ideas
next week! Not expecting a quick fix, just progress step by step. D.P.
Good Trading and Have a Great Weekend!