Tag: Bias

“I should only take 100% certain signals”

Posted on by Anatoliy Schneider

I should only take 100% certain signals – the ones that I know will not fail me

This one is tricky. It seems that it makes good sense. Shouldn’t we all analyze the market properly and find the best possible trading opportunities? Why should we even bother taking the trades that we are not certain about?

So how do you feel, think and act when you believe this?

  1. Reluctant – “This signal does not look quite certain yet…”
  2. Frustrated – “I’ve been analyzing the market for hours now, but no trades look certain enough yet!”
  3. Reckless – “Now that I found this 100% certain signal, I can scale up my position and I don’t really need Stop Loss either – this trade can’t fail!”
  4. Worried – “Well, this trade does not behave quite as I expected, but I am sure it is just a temporal correction.”
  5. Hopeful – “I should just double my bet while Market gives me better price…”
  6. Afraid – “This does not look good so far, I don’t have much margin left…”
  7. Numb – [just stares at the screen…]
  8. Horrified – “It’s all #u?king gone! My whole account!”

The above example might be over-dramatized but it shows what can result from your inability to accept uncertainty.

You certainly get a lot of excitement trading that way, and I guess for some traders gamblers excitement is a goal in itself.

Let’s consider the opposite belief:

I should take any signal my trading system offers, knowing that none of them is certain

How do you feel when you believe in the above statement?

  1. Calm – “I am just doing my job, taking each opportunity I find”
  2. Quiet – “Every trade feels completely the same inside”
  3. Composed – “I know exactly what I am doing”
  4. Safe – “My account is always protected when I trade like this”
  5. Optimistic – “I am looking forward to positive long term results of my trading regimen”

Not much excitement, nor fun. Reminds me of one of my favorite quotes from “Market Wizards” in interview with Larry Hite:

“Larry, how can you trade the way you do; isn’t it boring?” I told him, “I don’t trade for excitement; I trade to win.” It may be very dull, but it is also very lucrative.

If you are excited about your trades, you are doing it wrong. If excitement is what you want, just go to Las Vegas – at least you get free drinks as you lose your money.

Thinking ahead of the crowd

Posted on by Anatoliy Schneider

 

When reading Price Action, one of the important concepts is to trade according to your bias before it is already obvious to everyone. You need to look for such price setups where you can already see some hints that the price is likely to move in the direction of your bias. At the same time, there is still no obvious entry setup. At this point we ask ourselves how other traders are likely to interpret the current situation.

How do you know that these early signs of reversal are not obvious to everyone else? Simple – the Market is not reacting to that setup just yet – the price is not breaking through support or resistance levels with enough conviction to show that the majority of market participants are trading in this direction.

If these signs are not obvious to everyone else, how do you know that these are correct signs? You don’t. That’s the main trick in trading – to act under uncertain circumstances. You want other traders to push the price in your direction, BUT after you are already in the market. We are seeking such a situation where not only there are enough traders who will see similar opportunity and start trading with us, but also there are enough traders who are holding the opposite position at this moment and who are ready to take a loss if the price goes against them.

If expecting a bearish move, start trading on a correction, on a bullish failure, on double top, on a bounce, etc. If you wait for the price to break a significant level, you are already too late.

The problem with waiting for too many confirmations is that we really can never be sure enough. Looking for confirmations only strengthens your desire to be right, to find a perfect opportunity. There is no perfect opportunity on the market, there is no situation when you can take a trade with absolute confidence that it is going to be a winner. But, there can be confidence that the Market is already providing a great selling/buying price and refusing it is foolish.

You see, there is nothing we can do on the market without our fellow traders. On the one hand, you need them to create liquidity and take the other side of your bias. On the other, you need them to move the price to your target after the entry – you want enough volume that will agree with your analysis as well. Whether this volume is generated through new entries aiming for profit, or taking old losses, is irrelevant.