Market Slice: Bite-sized Insights for Independent Traders

In today’s Market Slice: Bite-sized Insights for Independent Traders, we discuss where the market is headed, professional traders, and the perils of second guessing your strategy.

Where is the Market Headed?
As the stock market continues to chug higher, questions remain about the strength of this endless bull market. Traders who tried to call the top got squeezed again last week. The sharp decline of Thursday, like the sell-off a week earlier on August 19th, was quickly reversed, and the week ended with new highs across the board.

In our previous issue we discussed the importance of liquidity in the market. We noted that the Fed’s continued dovish stance – meaning there is no sign of increased interest rates in the near future – means the chances of a rate-induced correction is still low. But this doesn’t mean that there are no risks on the long side.

Gordon Long of MATATII.com continues to sound a warning about the unmistakable signs of a market top.

Market Slice: Bite-sized Insights for Independent Traders

The parallels with previous major downturns, especially considering the very fragile current economic situation, poses serious ongoing issues for traders.

Of course, other experts make the opposite case. You can go anywhere to find “double down,” “all-in,” or similar buying recommendations. What is a little harder to find is fundamental (or technical) analysis that demonstrates how this bull run has significantly more upside.

If you are a short-term trader, you have different considerations than swing or position traders. In any case, it is critically important to find reliable and unbiased information sources. The biggest problem with following trading advice is knowing who to listen to. That’s why we put together the ultimate guide to navigating the markets, How to Avoid Getting Burned in the Markets. You can get your free copy here.

Market Slice: Bite-sized Insights for Independent Traders

Working With Trading Professionals
There is an overwhelming amount of information in the trading education market. This glut of knowledge, expertise, hype, and outright nonsense is too much for any trader to sort through… we all face the challenge of trying to figure out who to listen to, and why.

One way to separate the good from the bad and the ugly is to ask the simple question, “who stands to profit if I follow this advice?”

The most obvious example is with brokers, who get paid when we enter and exit our trades. It is well-known that “churning” accounts, that is, overtrading, is a disreputable practice. Smart traders know better than to hand control of their accounts over to any but the most trustworthy broker. And these days, many traders serve as their own broker, trading directly on platforms like Robinhood or Thinkorswim. 

Knowing exactly why you are making the decisions you make regarding trade management is one important step for getting a handle on your information strategy. It’s the same with newsletters and other subscriptions. Buying based on a sales pitch is usually not the best way to make a decision about any information source. You want to know in advance, before your buying decision, what kind of information will help you the most. Signal services and specific trade recommendations is another category you need to master. Promises of outrageous returns, with corresponding claims to trading success, are everywhere online. You can’t turn around on YouTube without some 20-year-old proclaiming himself as the newest stock market millionaire. Knowing how to vet out professional traders, confirming track records and back stories, is absolutely essential before you invest serious money with a trading advisor.

At FFR Trading, we created a proprietary 8 Step Certification Process for identifying real professional traders and valid trading systems.

To gain the benefit of our extensive research, and to identify the proven strategy that makes sense for your unique situation, speak with one of our expert Strategy Team call (800) 883-0524 today. There is no cost or obligation for this impartial consultation.

The Perils of Second-Guessing Your Strategy
Everyone knows that emotional trading is one of the fastest ways to blow up your account. For discretionary traders, who make decisions based on “soft” considerations such as current news or isolated technical factors, this problem is obvious. Without a system in place to identify trade setups that provide a definite edge, you are bound to make mistakes. That’s why so many prefer algorithmic approaches, with hard-wired rules for entry, exit, position sizing, loss stops, profit-taking, etc. With system rules firmly in place, it’s easier to execute decisions in a timely, unemotional way.

Except When You Don’t. You see, second-guessing can still be a problem when you depart from your trading plan. Many times, traders with solid strategies will start jiggling their parameters when they experience a run of adverse trades.

While it is important to monitor system performance, and adjustments are sometimes in order, it is a mistake to overreact just because of a short-term losing streak. “Recency bias” refers to the tendency to over-weight the most recent outcomes when evaluating a data series. When recency bias leads to overriding your trading system rules, you are in danger of undermining your long-range success. Second-guessing a tested, valid strategy for emotional reasons (“I don’t want another losing trade”) carries two real risks.

1) If you are wrong and the system-generated trade you rejected is a gainer, you are limiting your ROI and generating even more self-doubt; and,
2) If you’re right and the trade was a loser, you reinforce the mistaken notion that subjective, emotional decision-making is a better guide to the markets than your proven system. You will be more likely to intervene again, and soon you are back in the realm of discretionary trading.

This is why it’s so important to have an impartial, trusted trading advisor. Someone who not only has the knowledge to help you sort through your options, but who will tell you when you are going off course.

FFR Trading’s Strategy Team are trading industry pros who have “been there and done that” when it comes to trading systems and trading psychology. Find out for yourself how we can help by clicking here for a free no-risk consultation.

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