This post was inspired by another blog here
Specifically, the line that caught my attention the most in that post was:
“It is not possible to reduce trading decisions to a simple set of rules or patterns to be applied blindly.”
I couldn’t agree more with that statement. Its such an important concept and yet it eludes most traders. Of course, we need rules for risk management, such rules are necessary to stay in the game long enough. We may also need rules for self-management. But rules applied to market behavior, I would say even applying rules to set-ups mechanistically, defeats an important objective for a discretionary trader – to get as close to the market as possible so one can read it. Being a discretionary trader means you have to make decisions, use your judgement.
Although I don’t use oscillators and such in in my own trading, and I’m sure this post will be interpreted as bashing indicators, that’s not my objective. My objective is to force you to consider why you rely on them.
Indicators such as oscillators are derivatives of time, price, volume. In other words they tend to take one further away from what’s really going on in the market – which is order flow. The problem is not the indicator per se, the issue is that traders tend to focus on mechanistic market rules as an attempt to understand the market. And if your focus is on the rules, it takes you away from reading the market. You can’t really read the market if you’re busy reading rules. The reason? Its harder to develop your own feel for the market if you rely on rigid rules to tell you what to do.
The market has no rules. We all like to think we know this. But if you are relying on rigid market rules, you are not really comfortable with the idea that the market has no rules. Be honest with yourself.
Great post, Andrew, and thanks for the shout out for my blog. This whole subject of reading the market (i.e., intuition) has really absorbed a lot of my thinking and attention lately… you make great points here too. Keep up the great work.
Ditto. The post you did on your blog is very important, I hope traders realize its significance. I’m looking forward to reading more from you on TA. I like your thinking.
Andrew
I think there’s a caveat here. New traders need rules. Most definitely. As someone who had too much self-confidence too early, meaning I traded when I felt comfortable instead of having a reason.
I would have benefited from being rigidly bound to trading specific set-ups. I’m sure traders who go through a development program are bound to rules in the beginning. I do not mean technical patterns, but rather specific market events that signal you to execute: new week high, violate previous day’s low, etc. Why am I in? It felt good can signal a trade when there is no rule.
Intuition has to be backed by empirical experience that can be quantified internally. After intuition has developed and you get to your 10,000 hours of screen time, you will begin to sense inflection points, recognize key patterns and anticipate important price levels. All this becomes familiar over time. An experienced trader makes conjectures based on experience.
Ross,
Very good point. I should clarify the idea of trading with and without market rules by putting it in the context of the evolution or development of a trader. Eventually, having a ‘market feel’ is the objective for a discretionary trader, and of course, being able to execute on that feel is also part of the evolution.
Andrew
Nice article. After too many years at the helm, my rules are more about me and less about the market. The market is a super fast, dynamic structure thats constantly changing and adapting to traders new habits. On the other hand, I am relatively slow footed in changing who I am. My level for fear and greed may have changed substantially since I first started, but I tend to do the same things as I get into the bolingerbands of Profit and loss. Therefore my rules revolve around what makes me tick, what makes me stick and what makes me run.
Your rules sound like self-management rules, not market rules. Most traders need self-mgt rules. And such ‘rules’ are best individualized. Sounds like you’re on the right path as a discretionary trader.
Andrew
Hi
For me trading the markets feels more like how it feels to catch a football than like solving a math problem. If I explained to you how I catch a football, the best I can say is that I stop thinking about catching the ball, and just catch the ball. The more I think about catching it, the more likely I won’t catch it. The best way to catch a ball is simply to relax, allow the body to position itself, be coordinated, set the eyes on the ball, and catch it when it arrives within reach. I do not need to know the wind velocity, the air temperature, the speed of the ball, the gps coordinates, or any other math, Is it instinct that catches the ball? Maybe, but more likely its the result of endless practice.
I remember as a child my coach would “teach” me how to catch a ball. He gave me a set of rules to follow. But it wasn’t long before I simply “let go” of the rules he gave me and just caught the ball. Trading is the same. Feel the trade, execute, let go, and enjoy.
That’s a nice analogy.
Keep doing what works for you!