This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
Yesterday was the first day in over a week where I have felt good about my trading. It took a while to get out of my slump. I talked about my slump already on my own blog, so I won’t re-hash everything here.
Yes, the market environment has changed. Unfortunately, I think it took last week and the better part of this week for me to adjust to the changing environment. In my head, I thought I had made the adjustment, but it wasn’t until yesterday and today that my trading told me that I had made the adjustment.
The markets have demonstrated that it can change on a dime. What worked yesterday and/or last month no longer works, that much has been made painfully, yet crystal clear. The old tricks and techniques that I have used in the past are no longer as reliable, because the behaviour of the “elephants” have changed. As humans and as traders, I think we have built-in “mindset inertia”. We think it’s easy to change our mindset to adapt to the new market environment, but in reality, it actually takes some practice to do so. For me, it took the better part of a week.
So then in order to survive and thrive in this game, we must also change and adapt, and either quickly find out what works for this new environment, or stay on the sidelines until our old patterns start working again.
The ‘Phantom of the Pits’ has a rule that you should not trade for 5 days or more after a period of extreme activity (like the 400 point drop in the Dow last week). Good rule! Wait until the new market character defines itself.
As for the change in the markets, you’re exactly right. I haven’t found any good Trader-X setups since last week. It’s good to have different strategies to apply in different situations–I need some!
Congrats on changing your mindset so soon. It takes a lot longer for some (like me), and some never change at all. :)
@Prospectus: thanks. it wasn’t easy, believe me. But it was either change, or go get a (real) job.
BTW, I agree with your previous article. Even though today’s market action looked encouraging, I also don’t think we’re out of the woods yet. There’s another shoe waiting to be dropped.
I would need to see the indices go higher AND with volume showing up in order to change my mind about being extra conservative in these kinds of markets. For instance, I’m all cash going into this weekend, and I haven’t done that for a while.
I still haven’t read that Phantom of the Pits. Maybe I should try to do that this weekend.
So, any specifics about what you’re doing differently to play better in the new environment?
“So then in order to survive and thrive in this game, we must also change and adapt, and either quickly find out what works for this new environment, or stay on the sidelines until our old patterns start working again.”
ain’t that the truth…bo yoder has an interesting take on the payout/payback cycle…i don’t know that i would recommend the entire book, but it worth reading while drinking a cup of coffee at your local bookstore
trader mike also has a link to the payout/payback cycle
tradermike.net/2005/05/bo_knows_the_payoutpayback_cycle/ – 57k -
@Richard: The major change in mindset was – “Where will I get out if I’m wrong about this move?” I think about this first before I place my order, even if it is a mental stop. Sounds obvious now, but I actually didn’t have to think this way when breakouts worked better before the enivronment changed.
I find now I am more willing to wait for a trend to establish itself first, and then play the pullbacks to the established trendline. The other major shift for me was finally recognizing (not just in my head, but also in my trading) that this is no longer a trending market, so that means no weekend swing holds until the environment changes.
I’ve also learned that the uranium sector is not as contrarian a market as I thought. I didn’t believe that the run would end so swiftly as it did, and just wasn’t prepared for it either. The lesson was painfully clear – expect the unexpected, which goes back to “Where will I get out if I am wrong?”, and thinking about that first before placing my buy/sell order.
@T’Worm – the payout/payback cycle, IMO, is probably a result of trying the same methods/strategies even when the market environment has changed. As creatures of habit, we all tend to do the same things even though things have changed. Your own trading will tell you pretty fast whether your old strategies/methods are working or not. The sooner you can adapt to changing market conditions (even if it means forcing yourself to sit on the sidelines), the faster you can minimize the payback part of the cycle.