Trade What I See?

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  • on June 11th, 2011

A couple times a year, I re-organize my nightly trading “cheat sheet”.  It’s not a change of approach, it’s simply a new and (hopefully) improved way of visualizing my information.  The changes are sometimes subtle, but as years pass the before and after is laughable.  Here’s the latest, I’m technologically challenged so just consider it a poorly formatted example:



This exercise comes when I’ve taken on too much, and my brain is overwhelmed with choice.  Adding the final 2 strategy pieces to portfolios in March and May did that to me…death for a trader who needs the ability to quickly draw on experience.  Besides his natural drive and skills, the reason Peyton Manning is a machine is the stability in his system.  He’s dealt with new receivers, but because the playbook hasn’t changed much it’s pretty much plug and play.

The point is not my sheet but that we all experience the market through different eyes.  Those eyes need a consistent routine or we won’t know if something has changed about the market or something has changed with us.  Taking time to think things through makes sense in a marriage but not for a quarterback or a trader…decisions need to be made without delay.

Markets have an infinite number of stimuli for us to accept or reject.  I’m not a neuroscience expert, but it makes sense that each input we accept comes at the expense of some other input we no longer have room to accept.  I want limited but robust stimuli to build my case for buying, selling, shorting, or covering, and the only way I can get it is to stick with my routine and keep my eyes on objective data that has proven its worth.  No media inputs for me, only my own data and sometimes that of fellow traders/investors organized as follows:

1) Sessions– whether times have changed or not, there are times of the day when I feel more comfortable fading and some in which I’m more comfortable following.  I like to fade openings, lunchtime extensions, and crazy closes.  I like to follow the 9:45ish trend, follow the day trend at 1:00 if lunch brought a consolidation, and do the same around 3:30.  This is NOT backtested and yes it limits opportunity, but the most important tool we have is confidence and this keeps mine alive during uncertainty.

2) Day Structure- huge growth area for me.  I used to want to fade everything but learned to incorporate the power of a trend day.  I spend the opening minutes determining potential $SPX range using a combo of the early low/high and 1ATR in each direction plus those approaching 2ATR for trend days.  Great for perspective and balance.

3) Swing- another growth area, keeps me from forcing another time frame idea against what really drives the day to day movement.  It’s my belief that unlike trends that pause and restart, the swing frame is more likely to honor the direction from a solid pivot until abruptly interrupted by an opposing one, at which point it doesn’t pause but totally reverses. I keep a lot of breadth stats here because this is the frame where divergences truly matter.

4) Trend- I finally got wise enough to move this to the top of my sheet.  Trading counter-trend can work but there is no backup…both the entry and exit require precision.  I take counter trend trades only when trends go haywire, notably the transition from hope to panic in a downtrend or worry to euphoria in an uptrend.

I never had a mentor, so my trade process is a mish-mash of ingredients stolen over the years and made into my own recipes.  What’s been great about StockTwits is the opportunity to watch people execute their own process; instead of watching failure as I saw running a retail trade desk, I see people succeed in overcoming human wiring.  It inspires, clarifies, and drives the competitive juices to improve my own game.  I don’t recommend reinventing one’s style but instead spend downtime refining the way they accept information.  Curate, filter, organize, color code…whatever it takes to get our eyes on relevant clues rather than an infinite supply of noise.

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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