One thing I have come to recognize is how much inherant "HOPE" is baked into our theories surrounding trading, even those of us who think we're the most disciplined of traders.
An old saying is that there's "No such thing as an athiest in a foxhole", and the same goes for trading, when we are really down on our luck, when we are threatened with some major losses, we tend to "hope" for a favorable outcome so that we don't have to take the loss.
But when you turn on CNBC in the morning, and watch the economic reports come out, you are "hoping" for a beat of expectations if you are long and vice-versa if you are short. But why do you do that? Because you want to be PROVEN RIGHT by the current positions that you've recently taken.
I can tell you for certain, that as traders, we should not be getting whipped around by economic reports or any other external announcements that are announced each morning or afternoon.
If you are a swing-trader or investor, your objective should not be, how to trade off of these reports, or how to predict them, because they are always geared toward analyst expectations, not whether the report itself is good or not. So you are really trading against analysts and their ability to predict. And who knows what these guys do to predict their numbers or what kind of drunkenstate of mind they might be in when doing so.
Now since we don't want to trade off of those reports due to their unpredictableness, we need to trade in light of them. Meaning, how we swing-trade and invest has to have their impact eliminated from the equation, and thereby "hope" as well.
That doesn't mean you won't have positions that won't be impacted by these announcements from time to time, but that the impact they have, doesn't change or influence how you trade in the markets as a whole. Your approach should remain glued to the charts, not the tube. Yes, you will be stopped out of a long position from time to time because GDP was way off, but on the whole, you're trading system and the rules that you abide by, must be designed and determined in such a way that you're able to trade your system, regardless of what these economic reports are coming out and saying on a daily basis.
If you find yourself shrugging your shoulders off of the latest employment number, or doing the Tiger Woods fist-pound on better than expected consumer sentiment, then the time-frame in which you are trading in is not for you, and you're looking for the market to throw you a bone rather than taking from the market what it is willing to give you through research and homework, then you strongly need to look at trading a different time period, or developing a completely different trading strategy more suitable to your mental makeup.
Next week, I'll be covering the fallacies in breakout plays, market stressors, and the general mindset we shold have when attempting to extract profit from the market.