There Are Two Types of People When It Comes to Stops. Where Pain and Rationale Interweave.
I bet you're a bit like me:
You've seen countless iterations of the image below...
Go long if price moves up from the yellow rectangle or go short if below.
And if we've seen it countless times.
You know most everyone else has too - including people not yet consistent.
Now imagine you're a developing trader looking for: guidance - direction - ideas - support for your trade idea...
Just that little something extra to get you across the line to commit to making a trade. And up pops the previous guidance and boom! Finally! You're in!
But there's a danger for some people. It's subtle - did you notice it? Now that it's highlighted look again.
The word 'both' implies the market can behave in only two ways.
Guess what?
Simplification hurts people
In a minute you'll see real market pain resulting from simplification.
Capitulation describes the gut-wrenching phenomenon of when a whole lot of people simultaneously decide to escape the unbearable pain of their positions and exit en masse.
And rubbing salt into your wounds - you'll almost certainly see slippage - where prices traded are worse than the advertised bid or offer prices.
You can see slippage (fuchsia) in the Time & Sales.
Plus the footprint gives you a great view of the concentrated selling happening all-at-once.
It goes your way, it goes against you, it goes your way again...
👇
"I got stopped out and it reversed! That's it I'm not using a stop"
"I reversed short and it went up - it's definitely a buy"
"I exited for a loss twice already - that's it I'm holding firm long now" Right?
Do you know what will make this clearer?
In just a second you can watch capitulation in real-time but there's a twist.
The twist
If you know how to spot people's behaviour as expressed through their trading - you have the foundation of a trading business that can prosper every-single-day.
Watch knowing how to take advantage of people's behaviour patterns in 90 seconds
👉 https://youtu.be/VMyZiUM-s14
Covered Today is one example of emotionally driven actions. But the truth is:
"too often, stop loss levels are defined by pain, not rational assessment of risk" Brett Steenbarger
In case you missed it the previous report uncovered the hidden forces driving market pain. The latest in brain studies reveal how people behave when a perceived reward is on the line - without knowing it's happening.
And as anyone with a deep understanding of the trading game will tell you - the degree of intentional preying on human behaviour is extensive.
Consequently, trading emotionally fuelled actions of other people is a lucrative trading approach because it's so prevalent.
See trading the behaviours of people who capitulate.
To finish...
Can you see the irony?
A simple approach to get into the market followed by a significant mental workout managing the trade.
The often glossed-over aspect of professional trading is developing expertise that removes you from having to act based on what you're feeling or thinking you should do. There is no mental workout required to manage the trade.
It's not about turning off your feelings - that's nonsensical. But there's a way your human behaviour can work for you.
Seeking out reward is your natural inclination
You see:
With the right expertise and understanding of the game - you notice two things:
The cues that lead to actions you know reward you.
Your natural feelings and thoughts about what might happen.
Part of my role in mentoring is to build your repertoire of rewarding experiences - game planning, playbook trades etc - to the point where acting on the best practices is so strongly associated with receiving a reward, it overpowers the mumbo-jumbo occurring in your mind. Make sense?
You can trade in a manner that nourishes you mentally throughout your development phase and into the more experienced phase - you just need the right guidance to show you.
That's all for now.
Related reading:
👉 Origin of the "floating-stop-loss" - how former days of broking shaped a trading career