Discretionary Trading
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Temptations
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Temptations

by The MoleMay 9, 2017

I had to kick that mythical German discipline into overdrive today as I kept tripping over juicy looking but yet immature setups. Practice what you preach they say. If you read yesterday’s post then you recall my thoughts on why premature (discretionary) entries can lead to early stop outs, that they will affect your position sizing, and that they affect you psychologically if you let them. Another perhaps more obvious aspect I didn’t delve into was the fear of missing out, a.k.a. greed’s ugly cousin.

Now if you happen to be married or in a long term relationship then you surely know how the sweet nectar of temptation smells like. As this is a family friendly blog (in an Addams family kind of way) let’s not get hung up on specifics and instead focus on the subconscious risk/reward calculation we constantly are faced with in real life. Your mileage may vary but let’s just agree that some people seem to be better at resisting those forbidden fruit than others. However given the rather brutish realities of U.S. (and European) divorce laws I’d dare to say that some people are simply better at math 

Seriously though – in the end it all boils down to a deceptively simple equation and it is one we as traders should be intimately familiar with: Risk versus reward. Sounds pretty straightforward but real life and trading activities share a commonality which is that there are no easy methods for assessing neither risk nor reward.

On the trading front of course we can employ various technical measures to for example assess the probability of mean reversion within a certain price range. Or so we think at least, in reality the faster price descends (or runs up) the higher the probability that it’ll just keep running. So static indicator based measures alone will not suffice especially when it matters the most. I could elaborate on that front but if you have been visiting here on regular basis then I think you’ll get the idea.

Rules Getting In The Way?

No matter how sophisticated and stringent your trading rules, there is always the possibility that you’ll miss an entry and will have to adjust. Perhaps it’ll just run off and never look back. Yeah, that never happens, does it? Now it seems to me personally, your humble host of market domination, that some of the best entries are often crystal clear but at the same time stand in conflict with at least one of my basic entry rules. Soybean oil was a good example I posted yesterday. I looked at that one on Friday and just knew it would take off. But my entry rules did not allow even an early ‘exploratory’ position (how’s that for analytical babble). How do you deal with that?

2017-05-09_soybean_oil

No easy answers there to be honest. The math and the statistics may say one thing but unless you’re running an automatic system geared toward catching trend break outs I’d hazard to say that it’s a personal decision. Because as I suggested yesterday – even the most thought out decision chain can affect you psychologically. Some of you presented excellent arguments in the comment section offering various perspectives on what I posted a few weeks back about scaling into positions. But that only addresses grabbing entries once your (discretionary) system rules have been satisfied. They do not address situations like this one where you, for some reason or the other, have extremely high confidence that a break out pattern is in play while your system rules do not yet permit entry.

Stick With What You Know

Having come to that fork in the road many many times over in my trading career I settled into sticking with my comfort zone, which is ruled by immutable entry rules and campaign logic. Which resulted in having lost out on quite a lot of ‘easy plays’ in my time but I am also proud to say that I avoided a lot of nasty traps this way.

Watch Lists

2017-05-09_crude_watch

Apologies for the long introduction, now let’s talk about them’ temptations. I think you would agree that crude looks like a bona fide floor pattern at this point. But that spike in volatility near the lows makes me very very suspicious and let’s just say that this is not my first dance with CL. Although tempting I’ll have to just wait and see a bit longer here. A drop toward 45 may give me incentive to think about a long position.

2017-05-09_copper

The sell off in copper has slowed down a lot but still seems incomplete. The daily panel shows us a support line which is barely technically mature. The daily 100-day Bollinger is on the tipping point and may just lead us lower into a more extended sell off. So no cookies here either until I see something I can stick a fork into.

Campaign Updates

2017-05-09_EURUSD_update

The EUR/USD campaign is reaching its ignominious end. It has neither been fun nor profitable but at least we’re getting out at break/even. Should have bought bloody bitcoin. Actually I’m still holding a few in some account, if I could just remember that damn password.

2017-05-09_soybeans_update

Soybeans got taken to the cleaners again overnight and I’m out now with a meager 0.5R profit. Better than nothing but hardly worth all the excitement.

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About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Copper has been slow to deflate.
    I see potential support at 2.46.
    maybe a scare-the-children moment down to 2.41.

    https://uploads.disquscdn.com/images/1bfd02974106d4334bbfef6941d3bfb0c47a9ed72314a808d01dee036490cbb9.png
    -GG

  • BobbyLow

    “Stick with what you know”. Excellent!

    To which I would like to add, – Know what you don’t know.

    Great tunes BTW. I’ve seen the Temptations live along with the Four Tops in a joint concert and they put on quite a show. They are quite old by now but their music lives on. . .

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb
  • Darrell Osgood

    The most fascinating math class I ever took was Nonlinear Math, aka chaos theory. If you look at the structure of the human brain, it is verifiably nonlinear.

    Linear math is where y = something, such as y = x^2. But nonlinear math is where the dependent variable y is nonlinear; that is, the y term is anything but a simple y. It could be y^2 = x or sin(y) = log(x). You can see that if y^2 = x, then solving for y gives two sets of answers; the solution bifurcates. Given the same starting conditions, you can come to one of two conclusions, both equally valid.

    It gets even crazier if you are sin(y) = something, particularly once you realize that sin(y) is shorthand for x -(x^3)/3! +(x^5)/5! -(x^7)/7! +…

    The neural paths grow like a tree, which is whole lotsa-furcation. Since humans design and constantly fiddle with the financial systems of the world, no rules-based system will ever be spot on. I recommend that we accept this crazy life for what it is, take it seriously, but enjoy the ride.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    Hence,
    “Slope of No Hope”.
    😉

    https://www.youtube.com/watch?v=jUuy442qvGA

  • http://evilspeculator.com Sir Mole III

    What an awesome comment. If memory serves me right what you describe is also referred to as an nth degree polynomial. Polynomial regression fits a nonlinear relationship between the value of x and the conditional mean of y, denoted E(y|x). It’s uses for example to describe nonlinear progression of tissue, the distribution of isotopes, virus growth, etc.

    In general human beings have a hard time wrapping their minds around non-linear models/ideas/concepts. Plus they have a tendency to focus on yesterday’s problems as opposed to what may lay ahead of them. It’s a huge onion and I’ll probably keep peeling it until my time is up.

  • Mark Shinnick

    Miners got interesting long from earlier.

  • http://evilspeculator.com Sir Mole III

    Are you a sub? 😉

  • Mark Shinnick

    LOL, fair shot :)

  • http://evilspeculator.com Sir Mole III

    You know what to do. Besides you how can you sleep at night knowing that my sweat shop slaves are malnourished?

  • Mark Shinnick

    Maybe its because I’m calloused by abject capital warfare?

  • Darkthirty

    Don’t be talking down on slopes….I know some good ones

  • http://evilspeculator.com Sir Mole III

    That shit just doesn’t get old, does it? I don’t know about you guys but I am almost constantly wearing earplugs or insulating headphones when I’m at the gym, out shopping, etc. The sorry excuse for popular music that you get exposed to these days is simply not tolerable. Boy were we spoiled in the 80s and 90s – so much good music. And of course in the 60s and even in the 70s (not my favorite period though). Since the turn of the century popular music has turned completely empty and without soul. There are fortunately some exceptions: Metal is experiencing an amazing revival plus you can find amazing stuff in DnB and other electronica genres. And unfortunately rap is going through a dry period with a few exceptions (Boozy Badass, Kendrick Lamar, Schoolboy Q, just to name a few)

  • CandleStickEmUpper

    Ive been hearing a lot lately regarding trading cryptocurrencies. It just seems too unregulated for me to put money into it. Its “brokers” are also not regulated by the SEC or some other entity, are they? I feel like they could take your money and close up online shop any time.

  • http://gerb-reloaded.blogspot.com/ Gold_Gerb

    I’m going to take a few weeks off.
    Limited up-side. Price drift and jitter IMHO.
    As long as RSI is above 70, the ‘bull’ lives.

    https://uploads.disquscdn.com/images/93d0bd019e8f1f0e003a7010e860fedf957dc6515b4d22d1d97a2a92291eb3e7.png

    Price may be King, even if he’s a Douche-bag occasionally.
    😉

    -GG

  • randomuser6789

    You guys are ahead of me. It was only this year that I figured out why x/0 is undefined rather than equal to infinity. The reason being, we can’t determine if it should be +infinity or -infinity. You get different results depending from which direction the denominator approaches 0. Therefore, it is undefined.

  • http://evilspeculator.com Sir Mole III

    I hope you still drop by though.

  • http://evilspeculator.com Sir Mole III
  • CandleStickEmUpper

    Dont know what to make of it today. Bullish or low participation drift.

  • http://evilspeculator.com Sir Mole III

    Well, bearish momentum seems to be dissipating. If we see it pop > VWAP by the close then I expect follow up tomorrow assuming it holds overnight.

  • http://www.captainboom.com/ captainboom

    The cool thing is you can still work with it, using limits and indeterminate forms from calculus.

    https://en.wikipedia.org/wiki/Indeterminate_form

    Another cool math trick is using complex algebra, with a real and an imaginary part, to do some interesting real world problem solving. Used a lot in electrical engineering and in quantum physics.

  • Yoda
  • Mark Shinnick

    World lost a really great gentle giant of a person; RIP Jon Karkow.
    https://www.youtube.com/watch?v=NAkCqvwwW8k

  • http://www.linkedin.com/in/sharondsessions/ Sharon

    Have a ball playing. speaking of playing – I love to play with my grandchildren and great grandson – Koda. When Koda was on his way, I told them that I wanted to be called GG. But not because I was about to be a great grandma, but because I am GrandMa the Great.

  • Mark Shinnick

    Its another intangible delusion, worse than a Tulip; one nice EMP takes out any access to the tangible requirement of something of value to trade for little things like food.

  • Mark Shinnick

    yeah…some great rides :)

  • Scott Phillips

    That plane is so fucking cool

  • Scott Phillips

    A complete list of the traders who actually know what they are doing at slope.

    Dutch. Bleak, Closing Basis, Davis Ramsey, Blue Donkey ,DoktorStoppbrücke

    That’s it. The rest are delusional frauds.

  • Mark Shinnick

    You bet!…here’s another he was intimately involved with ….and many others.
    https://youtu.be/Ml73lXW_jLs

  • Scott Phillips

    And you might notice the absence of their fearless leader. One of the worst traders ever to sit at a screen.

  • Darrell Osgood

    Actually, I made a mistake which led you to mention nth degree polynomials which are almost always assumed to be polynomials in x. What I should have written is sin(y) = y -(y^3)/3! +(y^5)/5! -(y^7)/7! +… Having polynomial Ys is much crazier than having polynomial Xs. Fingerprints are another example of a nonlinear Y. Even genetically identical twins/triplets have different fingerprints. The starting point is the same, but the results vary.