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Strategies & Market Trends : Trade What You See, Not What You Think
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To: Threei who wrote (1)10/14/2000 3:17:40 PM
From: Threei  Read Replies (2) of 867
 
DUAL REALITY

Part 2

So, is it that simple? Buy it when it upticks and sell when it downticks? Unfortunately it is not. Otherwise we would wind up taking 20 trades a minute. We still have to create that map. The difference is, being armed with this realization we:

1. Create a map based on relevant things such as market reality, on price and volume action.

2. We assume that a map will be wrong now and then. The only way to protect ourselves from disaster is to be willing to correct the map as soon as we see that territory is different.

What does it take to create a map based on relevant things? It takes the ability to look at things that are relevant. Forgive me for this quibble. What a doctor thinks of a new drug that a company works on is irrelevant. How well new software a company just released works is irrelevant. How the stock acts is what matters. All those things might be of interest just to draw your interest to the stock but not to base your trading decisions on. If it's trading that we are doing here, then let's look at how a stock is trading. Leave the software discussion to programmers and drug discussion to doctors. Even more than that, plenty of great traders are not interested in news even as an initial trigger of interest. They trade on stock movement exclusively.

What does it take to see clearly if our map matches to the territory? It takes an unclouded, unbiased mind. The most important part is that it takes an egoless state of mind. Ego is what undermines our attempts to be objective. Ego is what whispers in our ears, "You are right, the market is wrong, go with your map."

So, in order to learn how to create a correct map and how to evaluate its correspondence with territory, we came up with our RT Method. R (read) to create a correct map. T (trade) to evaluate and re-evaluate the maps suitability and take any necessary action. That's why the next posts will be devoted to tape reading and developing a correct mindset.


<RT Member> Threei, do you ever consciously trade against your 'instincts'? (i.e. using emotions as a contrarian gauge?

<Threei> Great question. There is an old market adage: Discomfort and profit go hand by hand. Going with smart money against the crowd really takes buying when it feels painful and selling when euphoria sets in. Being a contrarian is the way to trade, just need to know when to go with crowd and when to leave the bandwagon. We will touch this topic many times in the future so thank you for this question.
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