Intra-Day Update: Can we trust it?

UPDATE 10:06am EST: I think after several days of whipsaw and chop in combination with broken correlation indicators (e.g. TNX and Yen) nobody really trusts this tape too much. However, the sad reality is, my dear rats, that these are usually the times when the market makes the biggest moves. We always kick ourselves when we get caught in a morning trap and pay for it. We ask ourselves: ‘How could I have been so stupid? I should have known!’. Well, if you had known, you probably would have gone the other way, right?

What then happens is that we step back and go into cash – rightly so, I might add. However, staying in cash can also be a trap. What often happens after whipsaw fake outs, is that the market suddenly picks a direction and makes a big move. Then we ask ourselves: ‘Damn it – how could I miss out on this monster move?’. So, you wind up chasing the market and get what you deserve.

Then you are frustrated. You look at all the money you lost and you feel you are always one step behind. You doubt yourself and your entire trading approach is falling apart. You step away from trading for a few days, a week, maybe even a month. In the meantime the market keeps moving.

These is the mental theater we go through as traders. There is nothing wrong with stepping back and waiting for a better opportunity. But do it with humility. Meaning, if you missed out on a move, smile and wait for the next one. Never chase it. But also don’t let your emotions keep you from trading. You might get faked out once or twice, but don’t let recency bias get the better of you.

• Recency bias is to think that the market will do today what it did yesterday.
• Recency bias is to think that a stock hates you because it has gone against you every time you picked it up.
• Recency bias is to get faked out yesterday and expect the same today.
• Recency bias is to double your portfolio in a month and expecting the same to happen this month.

I think you get the drift. Recency bias can swing both ways and it’s a silent killer. Every day is a new day and the only constants in your trading should be your patience and the realization that the market is going to do its thing with or without you. You are just along for the ride.

Here are today’s weekly/daily retracement levels:

UPDATE 10:47am EST: My apologies for the ‘zero outage’ but  the damn screen grab uploader crashed this morning (you know – Windows…) and I didn’t expect all the settings to be wiped on a relaunch. So, it was just storing the images locally – the ftp settings were inactive. Anyway, should work now – my apologies for any inconvenience but you know how it goes with Windoohss.

UPDATE 11:16am EST: Okay, let’s try something new. I think we as a group should put together a list of our top 50 stocks that we like, trust, and are conducive to option trading (e.g. volume, slippage, 5% + 10-day ATR, etc.). So, for our TOS users I have put together a CSV file of my current favorites (comma separated values file – there are actually no commas in the Prophet format, but whatever), which you can import as a watchlist into TOS like this:

• Download this file to your system: http://www.screencast.com/t/jhxv1s8GogK
• Click Watch Lists -> Import… (select file above you downloaded to your system)

If you don’t use TOS, do not despair as you can just open the file in your favorite text editor (e.g. notepad on Windows or TextEdit on OS X). Let’s go through these over the next few days and add some more and maybe remove the ones which we agree might not work going forward. Of course this is a ‘living list’ meaning that we should keep it evolving as market conditions change.

Thoughts would be appreciated.

UPDATE 11:23am EST: In that context, there is a wonderful watch tab in TOS. Just go to heart beat icon and then select the favs watchlist you just imported. Should look like this:

Now you have a ‘world view’ of what your favorite stocks are doing. It’s also easy to find ‘pull backs’, for instance if you missed out on DRYS’ morning rally and expect the market to go up today (which I don’t right now – but just hypothetically speaking), then you can tell that it has pulled back quite a bit. So, that might be your chance to get a good entry. Anyway, just to be clear – I’m not going long here – just a good example 😉

UPDATE 11:55am EST: Well, I guess I just ate my own words (see above). Market is forming a nice reversal right now but I’m not sure this is turning into a real rally just yet. Let’s keep watching those RLs – we are approaching 833 which is a meek short RL. If we push through that one we might go all the way. But in order for that to happen we need to see more volume/conviction. Doesn’t feel like buying pressure, more like lack of sellers. What do you guys think?