Trading Psychology

Chapter 1: Are you biased or are you neutral?

Some thoughts:

Now I am guessing that a lot of my subscribers have a day job to fund their trading, or maybe in a previous lifetime they had a different career. Whatever your field of expertise was, whether you were a doctor, homebuilder, plumber, or chef. You probably had some intimate knowledge of your field that would surprise a layman who wasn’t experienced in your field. Maybe you would at times hear certain axioms repeated, that you knew not to be true.

I’m a big wine lover, and I may or may not have had a couple glasses of Chablis before writing this post. A common saying I hear when it comes to pairing wine with food, is “white wine only with seafood”. But that doesn’t really hold up to an experienced palate. A nice flavourful, fatty fish like say tuna, or wild salmon is dynamite with certain light-bodied reds like a Pinot Noir from Burgundy or Beaujolais.

A common trading axiom I hear repeated often that just makes me shake my head is “don’t start your trading day/week with a bias” or “be neutral”. This couldn’t be more wrong. I will tell you why. The market itself has a bias. If you are able to read price action, it is telling you something. When markets were oscillating between 4100-4200 in mid February ‘23, the market was not telling me, it was screaming in my ear that it wants to go down! Now I urge you to reread my old weekly post from February 20, and you can clearly see I am bearish with high conviction. I don’t even consider upside as an option, and the 3 trade ideas I gives are all shorts. My Twitter reflects this as well. Lo and behold the market sells down about 150 pts in a straight line.

I think these axioms may have originated out of pure ignorance. To be frank, there are a lot of traders who log into their brokerage everyday just to get bent over and lose all their money. It’s people like that who came up with that phrase because they thought “if I am unable to predict a direction, no one else can either!”. That couldn’t be more wrong.

Now I won’t bullshit you, most traders will fail at making this full-time career. But I like to think some of you guys will succeed, if not just because you are reading this, but because you are investing in your trading education and career, seeking out new strategies, theories, and different perspectives on markets that help you form your own trading thesis. Mindset and psychology is everything in trading. There are probably 5% of traders that can take money out of the market at will. The first step to getting to that point is believing that it’s possible. That you can predict where the market is going to go next with reasonable accuracy. That you can time the market. Maybe not 90% of the time, but 70% of the time? Sure.

If you accept that you can in fact predict the market with reasonable accuracy, say 70% of the time, that’s a distinct edge. You can position yourself in a way that the big flows are coming after you. You can start off your trade in pure bright green and we all know that helps a ton psychologically. If you were short from 4150 with me, your short trade likely turned into a huge winner because the market never even traded above 4050 after the Feb OPEX. You were never worried about a green trade turned red, but on how far your massive winner could run. On the other hand, if you are someone who has to react to the market because you can’t predict it, you are getting chopped up trying to short right when the market is about to bounce, or your trade turns red right off the bat and you’re sweating just hoping to breakeven and you forget about even trying to make a profit. The most significant and cleanest part of the “move” is when (almost) no one is expecting it. Having a great entry is priceless in trading, and the way to get a great entry is being able to predict, because you had a bias!

Till next time, happy trading!