What to do when something unexpected happens?

January 4, 2010 in Reflections

Today the TF gapped up and moved to a level of 634 – 635 and stayed on for a while before moving up again.

While it stopped at 634-635, a number of signs occur:
- It was at a 20-day high
- T&S showed a series of huge buying

The 2 signs do not support each other – one shows a potentially high-risk, low-return trade, the other shows increasing demand.

In times like this, would you be tempted to just go with one of the signs? In this case, the 2nd one which is the right one eventually?

If u do that, u will be committing a mistake called “Subjective Analysis”. It is not the wrong thing to do, but it can kill your consistency.

Subjective Analysis is as good as going with your guts. If you constantly depend on your gut feel, you better make sure that your gut feel is damn good. But you can’t trust your gut feel all the time. Sometimes it’s best that you do nothing at all.

When you develop a system for yourself, it’s best that your gut feel and emotions are kept out. This is to ensure consistency – you’ll do the same thing and achieve similar results over a period of time.

I made too many subjective analysis in the past, which costed me a lot of money. In trading, it’s best not to deal with the unexpected, but the expected. We’re not out to prove that we’re smart.

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