This Old Dog Sticks With Old Tricks
Earlier today I had an interesting conversation with
an acquaintance of mine. A few days ago I had recommended what I thought was a
very good book on some trading strategies to him. He read it and came back to me
saying:
“Hey Eddie, this book doesn’t have anything new in it.
I’ve heard of all of these strategies before. What a waste of time.”
Later I thought about it. This friend of mine had said that he’d
“heard of all the strategies before.” But I wondered whether he was
actually using them. Traders are always searching for the new-and-improved
mousetrap that’s right around the corner. They are looking for the mechanical
and non-subjective system that will relieve them of the responsibility for doing
their own thinking. I have had the opportunity to work with the best traders in
the world. Every single one of them looks at charts, patterns, indicators and
market technicals and they take all that and use their best judgment to identify
trading opportunities. Their minds process information continually and they
always know that at any given moment, the market could prove them wrong. They
are accept the continual uncertainty that is inherent to trading.
Which brings me to today’s Chart of the Day:
On this 10-minute bar chart of the Nasdaq Composite
(
$COMPX |
Quote |
Chart |
News |
PowerRating),
you see a good old-fashioned triangle that has been forming for the past two
trading sessions. Into the close, as this is being written, the COMPX is trying
to break out, but I see that it’s more like petering out as we get into the
final minutes of trading.
Many of today’s high-tech traders have dismissed subjective
patterns such as these as frustrating and useless. I’ll readily admit that they
can be frustrating and prone to false breakouts. But, as many of my trading brethren
will agree, it’s anything but useless. Clean breakouts from triangles can and do
occur. The breakouts typically occur in the direction of the dominant trend
going into the triangle. In the case of the the $COMPX, the dominant short-term
trend is UP. False breakouts are a part of life and you simply have to be ready
for them and know that, as Cooper is fond of saying: “The second mouse
often gets the cheese.” That is, you have a failure that washes out the
weaker players and that is followed by a real breakout. Even that may not
happen.
The one thing I’d like for people to think about this weekend
is that traders need to acknowledge that the market is very complex. Even the
Nobel Prize Laureates punished by the markets in the late 90s when they tried
to develop the perfect trading systems.
So while it’s okay to look for new tools that will give you an
edge and tilt the probabilities in your favor, it’s also important to remember
that many of them already exist.
Have a great, safe and fun weekend,