Wednesday, 11 November 2009

Big Girls Don't Cry

The song was wrong. Big girls do cry, at least when they miss a trade. My daughter, Kiki, was pretty upset this morning when she missed the BUY at 1095.25. I said: 'Why didn't you just buy it?" She said:"Well I was waiting for it to pull back closer to the EMA." "But it was the second green candle - the market was moving. Long CCI had turned up, the short CCI had hit -200 and turned. Order flow had turned and "they" were buying. What more did you want to see", I said. "The price was even past the MomDot."

The question I got about the smoothed volume indicator on one of the charts brought it all back to me. Most new traders use indicators as a proxy for price. Big Mistake. It's price you are trading, not indicators. The indicators are there to give us information that we, as information processors (as Pete Steidlmayer referred to us), process so we can make trading decisions.

Trading is an art, not a science. As a discretionary trader I  enjoy a high percentage of winning trades which is very important to me. I have low draw downs. This is not the case in most computerised automated trading systems which rely on science to find the best combination of indicators and numbers to grind out profits in the longer term.

I learned long ago that I cannot sit out long strings of losing trades in a row or large draw downs because I don't know whether its just a draw down or whether the market has changed again to make the automated trading system broken.

As a discretionary trader, I do the same thing day after day - I process the information I see and make my trades. I know if I am reading the order flow and momentum correctly I will be consistently profitable.

What was my last answer to Kiki? "Don't fret about it. Forget it. Trades are like taxis. Another one always comes along". Taxi!

Click to enlarge

No comments:

Post a Comment