Make Yourself Available

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  • on August 12th, 2010

“Any expectation about the market’s behavior that is specific, well-defined, or rigid(instead of being neutral and open-ended) is unrealistic and potentially damaging.” Mark Douglas, Trading in the Zone

Ever now and then I grab a classic trading book off the shelf, and thumb through a few pages.  Lately, it’s been “Trading in the Zone” by Mark Douglas.  He has an unmatched gift for communicating the essence of what performers attempt to do…get into the flow of the game and stay there.  Years have passed since 1st reading this book, and I found myself struck by the following passages:

“Making yourself available” is a perspective from which you understand that the framework from which you are perceiving information is limited relative to what’s being offered.

My approach over the years has evolved from acting on my beliefs about companies or the economy, to acting on my beliefs about how other traders & investors are positioned and how they might react to a given market structure.  In both approaches, my perception is only a fraction of the true reality, but by measuring stock prices instead of company financials I can generalize on human behavior rather than specify on corporate developments.

It’s the ability to believe in the unpredictability of the game at the micro level and simultaneously believe in the predictability of the game at the macro level that makes the casino and the professional gambler effective and successful at what they do.

I personally can’t wager $20 on a hand of blackjack without my heart racing, yet I barely flinch at risking thousands on a good trade idea.  Why?  I have no edge in cards.  I suppose if I walked up to a table of drunken idiots playing poker, I’d feel OK about my chances…a decent analogy for markets, actually.  But without a robust edge, I have no interest in participating.  Different with markets…while I hope to make money every time I enter a trade, I don’t expect to come even close.  Basic math and logic tells me a method with 50% wins and a 3:1 reward:risk has an awfully nice payoff…the longer I play, the better my chances of a successful outcome.

The degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader.

Seriously, how could I possibly know enough about a company to assess where its stock price might go in the future?  Not only do I need other investors to “see the light”, but I need them to do it after me but in the time frame in which I expect events to unfold.  Tech geeks, industry salespeople, merchandisers, analysts…they are all ahead of me in the hunt for company information.  I’ve chosen a philosophy that says there is plenty of time and price between the time these innovators get excited about a company’s prospects and the time the late majority will rush in droves to buy the stock.  My edge lies in understanding behavior patterns that have existed for centuries and will continue to exist beyond my investing lifetime.  From that vantage point, I not only have emotional ties to no one outcome but an objective way to know when my assessment is completely off.

Whether it came directly from this book years ago, or a combination of experience and reading, thoughts like those from Douglas have permeated my outlook for years.  I probably didn’t grasp them when first read, but they sure make sense to me now…another example of perceiving the same information differently due to my personal experiences.  Then, those passages were probably provocative or threatening to me…now, just a normal part of my daily routine.

Mike Holmgren was famous for scripting the first 15 plays of each game, a smart way to instill some constants into a game of variables and ensure that his team was both crisp and prepared to attack some tendencies of the opponent.  This seems a good compass for a trading day…do our homework, plan for all scenarios, and know that our plan has only a limited shelf life before being overwhelmed by the reality of the game’s flow.  In doing so, we utilize downtime to plan for all scenarios but make ourselves available to the plan that matters…the market’s.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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