JI
jimkane
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Posts: 33,089
Okay, so let me explain what happened according to my approach. I got a buy signal off that new LOD area, as posted. The key area to watch was the bearish ABCD that it formed. Now, here's what it did. It started to react to the ABCD, and violated the obvious TL off points A and C. This is a good thing in a bullish scenario, as that's exactly what they like to do. It panics out some longs, and gets some in short. But, and here's the first big clue, after it bounces back up over the TL, it doesn't sustain, it just creeps up the line. Then it drops below, tests the line from beneath, and soon after swoooooooooooooosh.
This is, to me, an easy read that the long is not likely to play out, and another leg may be forthcoming. All this happens around the entry area, so a 'flip' is about a scratch on the long. My view was I didn't like the way it 'saw' the ABCD so a partial scale right away was appropriate (even though a small reaction to the ABCD level is not uncommon), and the rest could then be flipped out as additional contracts were added to bring the short position up to normal size. By this I mean say you were long 5, scaled out 3, the 'flip' was for 7, 2 to close out, 5 to get to 5 short. (Let me caveat here that a direct 'flip' is a very rare approach for my style, closing and a separate entry, at the appropriate times, is more the norm. This was a case where a direct flip, as described, would have been acceptable.)
This is an example of how one wouldn't get married to a position, and would be thinking about what other things might be unfolding if the initial premise doesn't play out. This is the kind of approach I like to take, always looking for opportunities at all times. I try not to be influenced by a position I may have, or a viewpoint. One of my favorite quips from Reminiscences of a Stock Operator, is:
"When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks."
I go over this when mentoring. I can't emphasize enough just how critical, and how overlooked, this concept is. I've seen some of my very best students, some of them experienced fund traders, do this, even after we have discussed the concept. I saw some studies recently, I forgot the term for this, that shows that the human mind is wired to not seek all facts, but only those that support a pre-held belief/theory. This is our nature, but it's deadly for a trader. One must become aware of this, and fight the inclination. Develop the skills to not let the current position, or belief/read, to in any way affect the interpretation of incoming evidence. I think (just an opinion) this is a skill I have developed quite a bit, and is one of my strong suites.
This is, to me, an easy read that the long is not likely to play out, and another leg may be forthcoming. All this happens around the entry area, so a 'flip' is about a scratch on the long. My view was I didn't like the way it 'saw' the ABCD so a partial scale right away was appropriate (even though a small reaction to the ABCD level is not uncommon), and the rest could then be flipped out as additional contracts were added to bring the short position up to normal size. By this I mean say you were long 5, scaled out 3, the 'flip' was for 7, 2 to close out, 5 to get to 5 short. (Let me caveat here that a direct 'flip' is a very rare approach for my style, closing and a separate entry, at the appropriate times, is more the norm. This was a case where a direct flip, as described, would have been acceptable.)
This is an example of how one wouldn't get married to a position, and would be thinking about what other things might be unfolding if the initial premise doesn't play out. This is the kind of approach I like to take, always looking for opportunities at all times. I try not to be influenced by a position I may have, or a viewpoint. One of my favorite quips from Reminiscences of a Stock Operator, is:
"When I am long of stocks it is because my reading of conditions has made me bullish. But you find many people, reputed to be intelligent, who are bullish because they have stocks."
I go over this when mentoring. I can't emphasize enough just how critical, and how overlooked, this concept is. I've seen some of my very best students, some of them experienced fund traders, do this, even after we have discussed the concept. I saw some studies recently, I forgot the term for this, that shows that the human mind is wired to not seek all facts, but only those that support a pre-held belief/theory. This is our nature, but it's deadly for a trader. One must become aware of this, and fight the inclination. Develop the skills to not let the current position, or belief/read, to in any way affect the interpretation of incoming evidence. I think (just an opinion) this is a skill I have developed quite a bit, and is one of my strong suites.