Morning Review - 09/15/08

In a trending market, Market Structure trumps all other indications. Market Structure being the series of higher highs and lows, or lower highs and lows. With large gaps, it is not uncommon for the market to correct 50% of the range between the previous close and the 0930 ET open, as it did this morning. The trend continues until the Market Structure changes.

Charles

Weekend News - 09/15/08

Wow! Where do you start.

Twenty-six Houston refineries are down due to Ike.

Lehman files for Bankruptcy.

Bank of America buys Merrill Lynch.

AIG seeks a $40 billion loan from the Fed.

Charles

Best Way to Learn and Remember High Probability Patterns

What is the best way to learn and remember high probability trading patterns? Mark up a chart and stare at it. Why?

According to research summarized in the book "Brain Rules" by John Medina, "... the more visual the input becomes, the more likely it is to be recognized - and recalled."

"Tests performed years ago showed that people could remember more than 2,500 pictures with at least 90 percent accuracy several days post-exposure, even though subjects saw each picture for about 10 seconds. Accuracy rates a year later still hovered around 63 percent. In one paper - adorably titled " Remember Dick and Jane?" - picture recognition information was reliably retrieved several decades later."

"If information is presented orally, people remember about 10 percent, tested 72 hours after exposure. That figure goes up to 65 percent if you add a picture."


Charles

Managing Risks Rather Than Eliminating Risks

Long, long ago in south central Louisiana near Morgan City, my grandfather worked for the Southern Pacific Railroad. His job was to do some bookkeeping and to open and close a railroad bridge for tug and barge traffic across a river called Bayou Boeuf. This bridge was about 3/4 of a mile long.

When I was about 10, my dad took me to the middle of the bridge. This bridge consisted of rails and ties, and the bare minimum of a support structure. When on the rails, you could look down and see nothing but a fast flowing river. My dad then showed me how to save my life if I found myself at this spot and noticed that a train was coming and not allowing me enough time to get to the other side. My dad never said, "Don't ever go on the bridge!" My dad did not try to eliminate this risk from my life; instead, he showed me how to manage the risk.

I believe that our modern society spends too much time trying to eliminate risks relative to the time spent on teaching how to manage risks. I cringe when the government passes laws trying to eliminate risks from the financial community rather than expecting the financial community to learn how to properly manage risks. As traders, to be succesful, we need to spent a lot of time learning to manage risks rather than wasting time trying to eliminate risks.

Thanks Dad!

Charles


"There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!"
Reniniscences of a Stock Operator by Edwin LeFevre

Turn in Direction - Morning 09/12/08

Just before 1000 ET on the 620 tick chart, the market made a higher high followed by a higher low, which is not confirmed until the previous high is taken out. Then we have a focus area for a long position on a correction.

This gives us two options on the 1 minute ES chart. Option 1 is a more aggressive trade entering on the first with a higher close. Option 2 is less aggressive. The blue line on the $TICK chart is a 2 period SMA of the $TICK pivot ((H+L+C)/3). When this SMA crosses the 38 period EMA (White Line) of the $TICK pivot, enter a long position.

Charles

" I never blame myself when I'm not hitting. I just blame the bat and if it keeps up, I change bats. After all, if I know it isn't my fault that I'm not hitting, how can I get mad at myself? "
Yogi Berra

Interesting Articles

This article on "Herd Behavior" questions on how rational our decisions are.

This article on the Mechanisms of Fear shows how we can control our anxiety.

Is what we remember a true memory or false memory?

Charles

Surprising Magnitude of Up Wave - 09/11/08

Hindsight makes us all geniuses.

I did not anticipate the magnitude of the up move yesterday. However, it turned out to be an almost textbook A-B-C Wave with proper market symetry. This is also the third time recently that an (S) day is followed by a nice up day move back to the moving average.

Charles

" I never blame myself when I'm not hitting. I just blame the bat and if it keeps up, I change bats. After all, if I know it isn't my fault that I'm not hitting, how can I get mad at myself? "

Yogi Berra