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Removing Stress From Your Trades
Post: 01/09/12 by Gary Dean 10:08
Let me start out with saying, we are still perfect and have zero losses since July of 2011. I do not have a crystal ball or some system that is telling me exactly when to get long or short. I have learned how to control my emotions, be patient with set ups and I am NOT scared of missing a move.
Everyone has an opinion as to where the indexes will be trading. Me personally, I think we are heading much lower. I have a number of reasons on why I have that opinion and why I am more comfortable trading the short side. But there are just as many traders who believe the indexes are heading much higher and only feel comfortable trading the long side.
I am a bear right now and have a downside target that is much lower than where we are trading now. But this doesn't mean I will just take a short position and hold it until my target is reached. Many bulls and bears are taking that approach and are going absolutely nowhere. The longer you hold onto a trade that is not going in your direction, or you watch your portfolio go from +7% to even or down, the more you allow your emotions to take over.
Have a road ma or an opinion on the longer term direction, but trade the short term charts. Yes, everyone wants to be a swing trader and collect the massive gains on a big move. But honestly, if you are an active trader, 9-10 people are never in the move when it happens. Using the layer in/out approach, allows you to totally control your emotions. You don't have to be perfect and when you start locking in profits with a portion of your position and letting the other piece run, you are controlling your emotions even more.
Think about this for 1 moment. If you have a full short position and the markets heads lower, once you lock in profits, you are freeing up money to re-short if the market bounces. If the market continues lower, you still have a piece of the position and are making money. What do you want to happen-do you want a bounce to re-short or the market to continue lower and make more money with your short position? Poof-you have now controlled your emotions on an existing trade.
Now lets say you are entering a position. If you layer in 1/4 size on your entries on the short side and have 1/2 position filled, what do you want the markets to do-go higher so you can fill the trade, or lower and make money on the 1/2 position you are short? Poof, you have controlled your emotions. That is the primary thing I concentrate on when entering trades for our members. How can I control our emotions for the entries and exits.
Looks take a look at today's tape. The bulls are banking on this being a
consolidation pause before the breakout to higher levels. I have some other
thoughts about that, as they have gotten here on nothing but gap up after gap
up. That means there is no volume to really support the levels we are trading
at.
Now
this doesn't mean the bulls can't try for 1290 or even 1300, what it means, you
should look at this as a shorting opportunity or a chance to unload any long
side positions you may be holding. I am seeing some early bears starting to
mentally capitulate and they are now thinking that nothing will take this market
down. That is the primary reason I have been making fast trades up here. We
don't have that problem. We/I am bearish but now HOPING we gap higher so we can
get short again.
That is what we call managing our emotions!! We are
bearish but hoping for higher levels. The goal, to have a very nice short side
position when EVERYONE turns bullish just as they are about to pull the rug out
from the bulls.
I have been asked over and over again, if I am so sure
the rug is going to get pulled out, why am I trading the squiggles and just
taking 2%-3% tza trades day in and day out. Why not just let it run and wait for
the breakdown? The answer is pretty simple. Nobody is that sure of anything!!
I have a
road map that I believe has a very high probability of playing out, but when the
timing systems are looking for a bounce and we are at support, I would rather
just take profits. It also controls our emotions, as I just explained before.
The ones that have been bullish forever or bearish forever, have gone absolutely
nowhere and are getting as frustrated as ever. Especially the bears, even though
we are nowhere even close to the May
highs.
The bulls use time to frustrate the bears. A perfect
example is is when you look at a long term chart. The bulls are laughing about
how strong the market has been since the March 2009 lows-and it has been. But
strictly on a technical basis, the indexes still haven't taken out the 2007
highs yet. But the fact that it has been moving up for over 2 years, has
everyone convinced we are now in a long term bull market, even before taking out
the previous highs.
The same thing is done on these monthly moves. The spx
has yet to take out the May highs, but being we have been trending higher
(kicking and screaming) for the last 2 months, the bulls are now saying the new
trend is up, even as we aren't even closing in on the May 2011 highs yet. But
the time piece is weighing on the
bears.
Now by taking our approach and shorting rallies and
taking profits, we remove the time piece and only worry about price. We are
removing a piece of the emotions that is killing the bears, with no new highs
made yet. That is why I like to trade the way we do-take the quick hits and step
aside and wait for the next set up.
We are
closing in on some cycle tops and that is my primary reason for only shorting
rallies. Trading both sides is not easy and if you are bullish and buy the dips,
you have been doing fine. If you are bearish like me, you simply short the
rallies and we are doing just fine. As long as you are not greedy, make patient
trades, you will do fine. Once that changes, so will we. But until it changes,
we will take the 2%-3% winning trades each day.
Let's see what plays out tomorrow and if we are lucky
as bears, they will gap it up for us. That just sounds strange, but it is also
how we manage our emotions. Our biggest enemy as a trader/investor, is our
emotions. Learn to control them and you will win more than you lose. And making
money is the ONLY thing we are trying to do as traders.
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