Saturday, August 07, 2010

The Tao of Trading

I just sent out a Weekend Update to subscribers, titled, The Tao of Trading.

1. In Taoism, the basic, eternal principle of the universe that transcends reality and is the source of being, non-being, and change.
2. In Confucianism, the right manner of human activity and virtuous conduct seen as stemming from universal criteria and ideals governing right, wrong, and other categories of existence.
What is the Tao of Trading?  It is the way.  Our indicators line up and we take a trade.  The outcome is not important.  If we are detached from the outcome, we can more easily do our job.  What is our job?  To implement strategies designed to generate profits.

Enter our Trend Models:

SPX_Daily Trend Model

We have seen this sucker before, it along with it's weekly counterpart, defines the dominant trend of the market. 

SPX Weekly Trend Model

Such has been the nature of our summer.  Our parenting unit, as represented by the above two SPX Trend Models, has been squabbling.  One is Yin, the other Yang.  Oh cruel fate......

Friday was a callous hoax.  The SPX_240 minute went SHORT, but the market refused to follow-through on the downside and recovered nicely into the close:

SPX_240 Trend Model

Yet we had to take this trade.  That is our way.  The 240 minute model is our heads-up and head-start on what is usually a pending Daily reversal.  But apparently not so in this case.  What did we do wrong?


Such is the Tao of Trading.  If you are looking for perfection, marry me.  But as far as our trading strategies go, we are batting about .500, which means that half of our trades are like the one above, busted.  It's the other half that provides our sustenance.

In an ironic twist of karma, taking losses are part of the winning trading paradigm:
In order to take wins, you have to take trades;
In order to take trades, you have to take losses.
Was it Yogi Berra who said, "Half of psychology is mental"?  Well, at least half of trading is psychology and its never easy to take a losing trade in our accounts. But if successful trading was easy, everyone would be doing it.

The point that I made to my subscribers and which I am sharing here today is that successful implementation of a trading strategy isn't defined by taking profits alone, its defined by taking the trades that your system generates, all trades, regardless of the outcome.

The Tao of Trading.



Unknown said...


This is a good post, and applies to life as well as trading. Well written and to the point. Thanks.

Anonymous said...

Ahh,youre such a great fellow,I hate to be the first responder and playing the devil's advocate.... plus I'm on your team as a supporter.

but here is how the other side of the coin goes

"The spx 240 went short but the "Market" refused to follow thru,etc..."

The 'market' the devil says,you must be talking about my beautiful plunge protection team.
my powerful goldman sachs super computers,my wizard behind the curtain.

my totally rigged game.
that does what I tell it to do.

The TAO of the Rigged game.

"What is the Tao of Trading ?It is the Way..."

What is the Tao of the Rigged Game...? It is the Government's Way.

When you can design your system with a 'rigged game decipher code' and a sensitivity meter,and a blinking light and a wizard switch to flip when the governments switch flips.....THEN you will have the Tao of all mighty trading systems.

Until then, you will have these whipsaws,and a nice moderately winning profit system.

I keep trying to feel the pulse of the wizard.thats why I sold my SDS play earlier in the week and didnt jump back on yesterday.

but maybe Monday....maybe soon.and then maybe not...if the wizard says no.


Unknown said...

great stuff Allan....great stuff...

-Mike <kicking and screaming

Anonymous said...

Well, NNVC is busted for a while. I think Alan is *way* with his optimism on this one.

Anonymous said...

NNVC continue to head south ...

Anonymous said...

Actually,its not heading south at all !!
do you know how to read charts?read candlesticks? fibonacci ?

today...this is what NNVC has done so far 3/4 th of the day done....

it dropped and held at 1.06
it rose from there and currently is holding at support at 1.10

It has not plunged anywhere - today, at least.

and the candlestick (so far) is a DOJI...meaning watch for a change of direction. i.e. possible Bottom here at 1.10

Know the trading signals and you'll understand stock movement better.

NNVC sits at major support low,here at the 1.10 area

It Could drop more,to 1.00...and maybe even down to 85to 95 cents.

OR it could turn around here and blast up to test 1.50

If I was a first time buyer waiting for the decent buying opportunity,I would buy my first tranche now at 1.10

Personally,I have the luxury to wait to see if it drops to 90 cents area and that would be my own buy opportunity.

thats the end of my comment about NNVC.

and it harkens back to what I mentioned the other day....folks ought to stop worrying about NNVC and start looking at other great homerun stocks that are like NNVC in their potential....I named some....and today,as expected....UPWRF has soared again off of last fridays drop down to its up another 11%,retesting its blast off highs from last week.

Maybe it will make a 'double top' now and drop back to test 1.95 again.but I'm not worried because I know the story and investors are discovering UPWRF now.

and you should too.

your chance to get in was the middle of july at the 1.30 area ....then,the end of july at 1.60 area....and then last friday at 1.95 area.

Now,2.00 may become the next best bottom base.1.80 -2.00

Look at
......explore investment opportunities,
buy a newsletter like casey research,or Patrick Cox's biotech, instead of whining about nnvc.

go examine BTIM and UPWRF

....ok,thats it for me banging the table,nobody's listening.
(disclaimer:I guarantee nothing. do your diligence)


Anonymous said...

Do you know how to read stock closing prices?

Aug 2 - 1.33
Aug 3 - 1.31
Aug 4 - 1.29
Aug 5 - 1.25
Aug 6 - 1.14
Today - 1.13

Looks down to me.

Anonymous said...

where is Allan, I am worried ...

Anonymous said...

To my view,its not the stock's 'closing' price that matters....its the support/resistance level breaking or holding that matters more.

closing price means nothing in reality. Why? because 'closing price' simply means an arbitrary moment in time, new york at 4 pm. on one day in the course of a week,or a season, ....its arbitrary. the true energy of a stock movement hasmore to do with elliott wave structure,fibonacci retracements, support levels/resistance levels and trendlines and ...what price folks paid for the stock and where the next target might be . and triggered by news to some degree,decides to go in a certain direction....not bound by 4 pm new york...nor by 4 pm friday new york...