Wednesday February 13, 2008 - 13:08:19 GMT
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Black Swan Capital - www.blackswantrading.com
Reflecting on trading in a tough market
FX Trading â€“ Reflecting on trading in a tough market
The tune from Wizard of Oz, one of my favorite movies of all time, plays in my head during these kinds of markets. The scene, you may remember, is when Dorothy, Scarecrow, Tin Man, and the Cowardly Lion are all together getting freshly quaffed in order to see the Great Wizard of Oz. The beauticians are singing merrily in the background as they work on the rag tag crew:
Clip, clip here
Clip, clip there
We give the roughest claws--
That certain air of savoir faire
In the Merry Old Land of Oz! -- Ha!
That's how we laugh the day away
In the Merry Old Land of Oz
I think the Wizard of Oz is a movie that is a pretty good overall representation of the ups and downs we face in the market; we have our good days, and we have our bad. And we are continually searching for something better, not realizing we have within us all we really need to be successful in trading.
If you have been at this game for awhile, you can relate to the disappointment in Dorothy when she finally learns there is no Wizard of Oz; she doesnâ€™t think she will ever get back to Kansas to see her beloved Auntie Em. In trading, we search for the Holy Grailâ€”that one technique, one indicator, one simple idea that will print money on a regular basis. But just as Dorothy learns the man behind the curtain is no Wizard, sadly we learn there is no Holy Grail in trading. The reality is that the Wizard of the Market is a reflection of all usâ€”the collective pattern of hard wired human nature in all its peculiar glory.
We need to focus on the important things we can understand and not look outside ourselves, or as they say in sports, we need to stay within ourselves and do what we do best. As a new trader you have to find that sweet spot.
As an old trader, you have to admit you do some things better than others and would be much better off if you were more selective and waited for the setups you understand. Good hitters donâ€™t swing at every pitch. They wait for the right count. Hitting with a 3:1 count they know is a way to inch the odds of success ever so slightly in their favor; and a guy can stay in the majors a long time pushing the count to 3:1 on a consistent basis.
We have to viscerally understand that â€śevery moment in the market is uniqueâ€ť (thank you Mark Douglas) because there are millions of players reacting to millions of inputs in different ways depending on their individual/institutional objectives, fears, and needs. You will never be able to get into the head of all the players. Thus, no matter how good you are at math, you just wonâ€™t be able to build a model to capture all of that.
Think about those simple things you know. Those indicators that give you a glimpse of the real kernel of information in the marketâ€”the daily battle between the bulls and bears reflected in price action. I think that is about as close to those magical ruby slippers we can hope to get.
Black Swan Capital
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