Awareness And Acceptance In Trading

I had two interesting experiences recently. 

The first occurred on Friday morning.  The stock market was short-term oversold and displaying early signs of strength before the NY open.  Prior to the decline, we had been seeing unusually low volume and volatility.  I had a string of losing trades during that period. 

Each time I recognized the poor environment for what it was and limited my losses. That awareness, I've found, has been essential in managing risk and maintaining a sound trading psychology.  It was not a great environment for my trading, and that accepting that allowed me to take the losses with equanimity. 

Once the market showed strength on Friday, my research suggested the possibility of a short-covering rally.  I bought several positions early on and then other research kicked in shortly after the open suggesting that we could see a trend day.  Now the awareness was of a positive opportunity set.  I added to the positions and the resulting gains more than erased the prior losses.  

It was awareness and acceptance of the environment--and the rapid updating of these--that allowed for good decision making.

The second conversation was with a trader who insisted that his goal for trading was to maintain a consistent high level of calm and confidence.  He wanted to be positive in his outlook (and aggressive in his risk-taking) no matter what was occurring in his trading and in markets. 

I explained to him that feelings of doubt and uncertainty can represent information and are not necessarily things to brush aside. My recent market experience was a case in point. It was the loss of "conviction" that helped me limit losses and stand aside until opportunity presented itself. 

Open-mindedness was the key from my perspective, not optimism

The trader was surprised by what I had to say.  He had not considered that a state of doubt and uncertainty could be a wonderful guide for actions (and inaction!) in markets.

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