Daily Archives: September 5, 2010

Market Jazz (by Market Sniper)

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This Labor Day weekend we have been treated to some very remarkable posts. Our illustrious host, Tim Knight, kicked it off with an after the Friday Bar post. In that post was a heart felt appeal to the Slope for some help. Tim, you;re a remarkable man. Such public openness and baring of the soul is extremely rare in a public trader. It rivals Don Miller http://donmillereducation.com/journal/  in this aspect. The community response was also telling. It is a very remarkable community that has coalesced here on The Slope. Following that, we were treated to a very insightful post by our Slope den mother and resident muse, Leisa. Market Shamans taking us to the primeval roots/aspects of trading..remarkable.

As traders, we are faced with an absolute fact. NOBODY knows what happens next. How then are we to deal with an unknown and unknowable future? How do we keep our sanity, retain our trading capital and add to that capital? We learn to think in probabilities. The market is constantly speaking to us, giving us information. In fact it often sings. The market's notes are prices. If we are tone deaf, the market will find us out and trading equity will suffer, eventually, driving us from market participation.

To me, most often, the music of the market is American jazz. It is both spontaneous and extemporaneous but within a certain form. The jazz musician plays a note or a short series of notes. From that, various combinations of those notes create a theme or "riff." From that riff comes additional new combinations with a final addition of a note or more at the end of the previous and a new riff develops. There other types of music, however! What happens when the type music changes? There we are, right in the middle of a superb composition by the great John Coltrane http://www.youtube.com/watch?v=S1GrP6thz-k and in the middle of a riff, we hear the beginning of a Brahms lullaby! We are not only disconcerted, we are confused which, if we are trading the music, we might even freeze with a loss of trading capital if we have not accounted for that probability which just happened!

In listening to the music the market is playing through price, we are fortunate that the notes the market is playing, price, has a memory. This is why we look at charts. The trader must know what kind of market he is in. It is either trending (up or down) or going sideways in a channel. When in a trend, it plays like jazz. When it hits support/resistance it continues to play jazz or we begin to hear the Brahms lullaby start as price channels sideways. Probabilities are in play at resistance/support. Does the market start a new riff and retrace or does the riff continue? These areas I have found to be very good places to do business. Regardless of your outlook, your in a price area that allows cheap stops. Relative minor price change will tell you whether correct or incorrect in following the riff. Gains, potentially great, if correct in your assessment. Listen to the notes. They will tell you very quickly to either exit the position with a relatively small loss or steadily garner gains as the notes you hear are the ones you thought you might hear. Always stay aware of probabilities as price unfolds.

In conclusion I would make the following observations. I am absolutely convinced that 98% of trading success is done by the creation of The Holy Grail between your own two ears. All the indicators, TA, sentiment, astrophysics, numerology, etc. is merely 2% of what makes a trader a success at this business. The construction of that Holy Grail is self mastery and discipline. The Holy Grail does not exist extraneous to self. If you undertake to search for The Holy Grail outside of yourself (99.98% of all traders attempt the search) you will be frustrated, disappointed, lose money and eventual fail. No trader has looked around and found it because, outside of yourself, it does not exist. That 98% is the hard work. Do your work there and you will find the trading business to be almost stress free and simple. The other 2% can be taught to and learned by any reasonably intelligent 12 year old. I find it telling that almost all traders spend 98% of their time on the 2% that can be learned competently and quickly and only 2% of their time and effort is devoted to what creates successful traders (defined as an individual that can extract constant profits from markets at will). Could it be that this is the root cause of the failure of 95% of the people who attempt to succeed at this business?

Yours in the eternal quest for the elusive trading edge, Market Sniper