This Week’s Battle Plan
The Ron and Maria
Show
I wouldn’t have believed it if I hadn’t read it myself. But, on
Wednesday, our very own members, those who use our TradersWire,
were downright rude to CNBC’s very own Maria Bartiromo and Ron Insana.
No, ‘rude’ is not the right word…‘BRUTAL’ is! And here is
what happened…
The Duke Nazi
Poor Ron and Maria showed up on the TradersWire Wednesday to
ask a few simple questions. CNBC has, from time to time, showed up on
our site for some live events, and Wednesday it happened again. But
this time, they were pummeled. Pummeled to the point where there is no
recognizing them. Pummeled to the point of no return. So bad, that now
Insana claims he really was not on the TradersWire
(sorry Ron, but you’re the only person in the world besides one other
person who has the password. And, we’ve already accounted for that
person). But that matters little. What matters to me was the
rude behavior we showed him and Maria on Wednesday. And calling Ron
“baldy” just isn’t nice!
So therefore, beginning today, we’re going to implement new TradersWire
“proper etiquette” rules as part of everyone’s membership.
When new members sign up for the site, and when you renew your
membership to TradingMarkets, you will be required to first buy, read
and pass a test on this
book.
Then after passing Letitia’s test, you’ll have to agree to the
following:
1. The next time Ron Insana comes onto the TradersWire,
you will not refer to him as “baldy.” I won’t name the
gentleman who did this (aren’t you glad, Dennis Atwood? The Dennis
Atwood who uses the handle “Atwood” in the TradersWire.
The Dennis Atwood who is a successful businessman turned professional
trader who owns a Winston Cup race car from North Carolina. No Dennis,
I won’t let anyone know you did this. It’s our secret!)Â But even
though Ron has a logical answer for “everything” the market
has ever done, I’m sure he has feelings too. So we need to show him
the due respect his insights have earned him (never mind that last
part).
2. When Ron comes on, you don’t ask him to fix you up with
Maria. Maria is married and her father-in-law is one of the most
infamous, er, I mean famous Wall Street legends. No dating a
married woman who’s in-laws are worth millions on the TradersWire!
3. When Ron and Maria ask “which patterns are most
effective?” you don’t tell them “leftover
corndog formations.” I have hundreds and hundreds
of books on trading and I’ve spent the entire weekend looking through
them (if I wasn’t forced to do this my piece would have been up on
Sunday, not Monday!). Nowhere can I find a “leftover corndog
formation” mentioned. If I don’t know what that formation is,
there’s a good chance Maria and Ron don’t either. So, the next time
they ask such questions, tell them something logical. Tell them that
patterns and technical analysis don’t work but insight such as they
provide including telling the world that there were “more buyers
than sellers” today and we went lower because of “profit
taking” is absolutely the way to go.
4. When Maria comes on the TradersWire as she did last
week, we will not greet her with “hey baby.” Again,
Dennis Atwood, I’m not naming names.
5. And finally, Seinfeld might
of had the Soup Nazi but as you know, we have the Duke Nazi.
And if you are not nice to Maria and Ron, Duke will send you an e-mail
that says “NO TRADERSWIRE FOR YOU!”
These rules go into effect on Tuesday.
This Week’s Lesson
This week, I want to pick up on a theme
we discussed two weeks ago which many of you wrote to me about. It’s
the fact that you cannot be both a trend following/break out
trader and at the same time a reversal trader. Nearly everyone agreed
with me and today let’s go further on the topic.
I sometimes receive e-mails from people who tell me that I need to
keep our commentators in line and have them provide the same
directional analysis (meaning the same market outlook). I wish this
was possible, but it is not. First, I have no say in the content that
the traders provide. Each trades their own style and has their own
opinion. There is no editorial control whatsoever with their analysis.
But, the major reason we have days where one will say up and the other
will say down is because the market almost always lives in two camps:
it’s either trending, which is great for traders like Mark
Boucher, Dave
Landry and Tim
Truebenbach, or it is reversing, which is great for people like
me, Kevin,
Don,
and Dave.
Which side is right? Both. That is
because money can be made and is made trading both ways. But, you
cannot trade it both ways. Why? Because you only know “after
the fact” whether or not a trend will continue. And, you only
know after the fact whether overbought will reverse and lead to
oversold and vice versa. Look at your oscillators for proof of this.
Take stochastics. Sometimes they smooth beautifully from overbought to
oversold and vice-versa. And the ob/os traders clean up and the trend
followers get chewed. And other times they become overbought or
oversold and stay that way and the ob/os get chewed and the trend
followers/breakout traders clean up. This is a reality of the
marketplace. But, and you need to remember this, you do not know
until after the fact whether or not a trend is going to continue or if
an ob/os market will continue. So, how do you take advantage of
these markets and not get yourself whipped around? By taking a stand.
And keeping that stand. That means trade one style. All the time. Play
the probabilities and aggressively capture profits when the market is
in your trading mode. And protect these profits as hard as you can
when the opposite market takes place.
Let’s go back and look at July. A month
that was potentially lucrative for both trend followers and reversals
traders. But, if you came into the month as a trend trader, you got
your clocked cleaned on July 5 when the Dow reversed 300 points to the
upside. The trend was still down, but not that day. The ob/os traders
were amply rewarded. But, the next week, who was rewarded? Those trend
traders who did not all of a sudden change and become bottom fishers.
For if they did, they jumped in too late and they missed the next wave
down. And, this next wave down lasted a few more weeks, rewarding
anyone whose “rules (written rules) stated that they need
to be short unless a significant trend begins in the opposite
direction. And, by following these rules, they caught another wave of
selling until they were stopped out late in the month.
On the other side, the intra day ob/os traders were rewarded on many
days and the daily ob/os traders were rewarded in early July, late
July (significantly) and in early August. When they made money, the
trend followers lost.
Now the obvious question here is, “Is this a zero sum game?”
No, it is not. It’s a game that both sides can make a lot of money in.
But each must follow the following rules:
1. You must decide ahead of time which type of trader you are
and then focus all your attention on this style.
2. You must have “entry strategies with an edge.”
There are tens if not hundreds of these. This is the least of most
traders’ problems. They make it a problem by jumping around from
strategy to strategy!
3. You must have impeccable stops in place. Same rules for
these stops on every trade.
4. Your exits must be there to maximize the move. This is the
hardest thing to master! I’ll probably go to my grave not mastering
this. No trade ever looks the same after entering it, and this becomes
part science and part art. In my opinion, “piecing out your
position” in a combination of price and time works best but this
is the toughest thing to control. And guess what? You’ll sell way too
soon a thousand times in your life. You and everyone else. Get used to
it. The Japanese saying “Fish that got away is always the
biggest” applies to trading too.
5. You need the mental discipline to understand that there will
be days, and possibly weeks that the opposite markets will be in
vogue. If you trend trade, there may be no trend. If you trade
reversals, they may be few and far in between. But, eventually, the
opposite comes back into vogue, sometimes very quickly, and that is
when you will likely see your equity curve begin to rise. Most
unsuccessful ex-traders never get this and they turn into the opposite
type traders just as it’s on its way out. They have the uncanny
ability to be trading the wrong strategies in the wrong markets. They
see “everyone else” making money that way and they jump in
just as that style is late in the run. And about ready to have a
downturn. And they only do this “after the fact.” Because
that’s the only time you know whether or not the trend continued or if
the reversal was in place!Â
Wrap-Up
I know of no book that teaches the above. Most books teach their
individual style and that’s it. But, the above is the reality the
market has always lived in. And will always live in. Choose your
style, minimize the risks when you are wrong, learn to live with this
style when the opposite style is working and have the mental fortitude
to dig in during the drawdowns. Because, if you really do have
strategies that have an edge, the market will eventually start moving
in such a way for you to exploit that edge.
Have a great week trading (and remember, Dennis Atwood, I’m not naming
names…it’s our secret)!
Larry
Connors and Brice Wightman
Larry Connors is CEO and co-founder of
TradingMarkets. He is also the author of four books on trading,
including “Street
Smarts,” co-written with Linda Raschke, “Connors
on Advanced Trading Strategies“, and “Trading
Connors VIX Reversals.” Larry also recently released the
video course ”Buy
The Fear, Sell The Greed: Timing The Market Every Day For The Rest Of
Your Life.â€
Brice
Wightman is a Market Analyst at TradingMarkets.com