Usually a newly placed trade in any particular market is placed with the greatest optimism and with
human elements of hope for it’s correct movement. Perhaps the hope for the correct movement is
what keeps new traders mesmerized by the market’s inability to comply more times than not.
Can it be possible that it is easier for a trader to do the wrong thing or is it that when a trader makes
a trade all the other information comes out two minutes later?
We will explore Phantom’s insight on why things seem to change rather quickly when a new trade is
established. Why does the market seem to know when we have placed a new position? What does it
take to expel this type of thinking and reaction to our newly placed position?
At what point do you feel that it is the other traders against you in trading? Why should you feel
that someone who is giving objective advice is now your new enemy and on the other side after you
have just positioned. Doesn’t everyone?
Is it possible to do just the opposite of what we think is correct and come out ahead since we seem
to do what we think is right and get slapped too many times? We are talking emotion here and that
is the one element that no one seems to have at the time of researching a position or entry.
Once a position is placed, emotion becomes an element we don’t like to deal with. We get excited
when the position moves our way but become complacent far too often when it totally ignores our
hard earned research for positioning.
ALS – Phantom, I know that you have said that you are not an expert at anything except on your
own trading. I also realize that we are only talking about your insight and that you have said it is
important for each trader to grow and develop his or her own ideas from insights they formulate
from observation and research.
Sometimes it helps other traders to know other points of view on a subject. We know that everyone
has his or her own ideas on what a particular market is going to do. Do you think it is important to
view other people’s insights as a way of understanding our own behavior?
Phantom of the Pits – I’ve read good books on the adult-child theory in trading. We start out as the
child and often times, traders never go beyond that point. Our thinking must become adult in trading
and that is from understanding and knowing what is correct.
As a child, we often don’t need a reason but just the rule. As an adult, to be effective in trading, it is
important to know why and not just the rule.
It is difficult to convey to someone an insight of what happens when a position is placed unless the
person you are trying to convey the information to has the same position on and effectively has the
same environment. Just a simple thing as changing a flat tire for the one whom changes it, is a good
example of what I mean.
If you are not the person who had to change the flat tire, the effect of frustration is not the same.
Because of this you are going to be more removed from the important feelings of such an event.
Trading does have the same type of removal from a situation of a particular point of view as
changing that tire.
Most trades are placed with good reason and backed with good research. If the trader didn’t feel
they had a good chance of being successful with that trade, they would have never made that trade.
That feeling of better than average probabilities is self defeating because with that feeling alone, it
is possible to miss the big moves by being wrong first.
I view the nature of entering positions a little differently and I feel that is a key in better trading. It
is not natural to feel other than optimistic about a trade. What must be done is that the optimistic
view must be projected beyond the initial position.
The most important point of a newly established position is to understand that the initial entry of a
trade is only a small part of the expected process of trading your position. Look at it as if you are
going to make a series of trades anytime you get a signal.
You must have the latitude of knowing and doing what it takes to correctly end up with a position,
which reaches to your goal. Your goal is the important part and not the trade you have just entered.
If I were to tell you that your signal to enter a market has the criteria that you must also be swift in
protecting that position and correcting that position as quickly as you can. Would you be able to
reverse your position as many as three or four times.
You would be more agreeable to that prospect by being alert to the possibility of having to reverse
your original position. That thinking would make it easier for you to make the needed adjustments
to your position. This is what you must do anytime you enter a position. You must know that the
initial entered position is just the beginning of your trade.
Rather than taking a position and letting emotion enter the picture, you must understand that
position does not justify any emotional modification of your thoughts. Stop that position before
emotion even enters the trade by removing the position. You can re-enter the position correctly
again and again until you have no emotional affect from that position.
If your position brings emotion into the picture, it is usually wrong or the wrong way. The market
will seldom comply with your position at first but that in no way says not to trade correctly. Your
entry is a lot of times at the place where many think the same as you. Don’t ever feel bad about this
because you’re not alone in your thinking. It is that you seldom can all be right at the right time.
The edge you have over everyone else’s thinking is that you know you are quicker than the eye. You
can remove your positions quickly because you are alert to the idea of knowing you can re-enter
immediately quicker than the eye. A bad or incorrect position is the best opportunity to do the
correct thing. You are going to always do the correct thing. Be swift! You can stop this emotional
feeling of always getting in at the wrong place immediately and it will soon become second nature
If you find that you feel you are wrong as soon as you enter, remove that position because you are
right (in removing that position!) Why do I know this works? I know that some of my best days and
trades are when I started out wrong with a position. Learn to understand that an existing wrong
position is the best excuse to get a good position. So what if your are wrong and wrong and wrong
The best part of being wrong is that you are going to do the correct thing by removing that wrong
position. Listen to your inner thoughts on being wrong and when emotion becomes an element,
remove the position. It really works. Emotion has no place in a trade. If emotion is in your trade, it
is a wrong position.
ALS – It seems easy to say but how about execution of that idea of getting out when emotion shows
its face in your trade?
POP – You must make it a mechanical thing. It can be done in various ways. Most new traders don’t
have enough funds to properly diversify so that they have several positions which give them the
opportunity of throwing out the bad and keeping the good with lower overall risk proportionally.
There are other ways of making the removal of emotional positions mechanical such as when you
use rule one. You are going to not become as emotional when a position proves correct as when it
What you need to do is listen to yourself and your emotional distress of knowing that you and not
the markets are going to tell yourself that you are wrong in a position. Your emotional distress is
telling you to remove the position immediately. Do that without hesitation and it becomes
mechanical to you.
Isn’t the purpose of rule one to also listen to yourself and not the market on telling yourself when
you are wrong. If you let the market tell you, you have an elevated emotional distress, which now
will affect your judgement and decision to properly remove a bad position.
Since we don’t allow the market to tell us we are wrong but only when we are right, we must have
something tell us when we are wrong. What do you think that is? There is probably not a better
signal to get out than the beginning of elevated emotion in a trade.
I know it take practice and a method of behavior modification, which you must devise to help you
work with the implications of emotional elevation when wrong in a trade. You can do it and make it
a habit after a little practice. It is no different than if you were to go to a stranger each day and say
good day. After a period of doing it you would find it second nature.
ALS – Aren’t you going to give us your methods or suggestions for helping with the behavior
modification on getting out of bad positions?
POP – If you have to unbutton your top button on your shirt, you had better get out. If the phone
ringing irritates you, you had better get out. If you are beyond your reasonable time frame to hold a
position, which does not prove correct, you had better get out.
We know that a broken clock is right twice a day. You could assume that when you don’t know the
position is correct, you just as well reverse as you still won’t know but you can be sure that you will
soon know one way or the other. Of course this isn’t a very good assumption so it will actually keep
you on your toes more than anything else will. This can also be a dangerous way to position but
believe it or not, I have seen day traders position this way in order to establish a position when not
having an established trend.
I don’t personally recommend it but I don’t advise against it if you do it with good research of nontrending
markets. Sometimes your best opportunity comes when you have initially entered a bad
trade. The opportunity is that you correct a bad position and profit from that wrong position being
corrected. It happens more than not if you are alerted to this thinking.
Be swift is all I can say to impress you to this possibility in markets. The surprise is often the other
side of our current position. Just because we have the expected side of a trade does not prevent us
from going with the surprise side when we know our position is wrong. In a correctly proven
position, we never go against that position though.
ALS – Do you feel it is easier to put the wrong position on rather than the right position?
POP – Actually it works out that what we have just done is often times not proved correct but that
does not mean putting on the wrong position is easier than the correct position. There is another
element, which gives us the feeling that we seem to see the market go against us as soon as we enter.
That element is timing.
Timing will cheat us more than not. An inexperienced trader will fail to recognize the importance of
persistence in our re-positioning after removal of a position. Just because we exited an unproven
position in no way says that we were wrong. It is our intentions to keep the drawdown small and
allow us a better entry when we are not proven correct.
Isn’t it better to get out if you don’t get the expected move? You want to be swift when the market is
working for you but and you want to have the least exposure you can have when it isn’t working for
I realize that most markets spend lots more time going up than down and your exposure will be
longer in a bull market than a bear but why diddle in the middle when the market is doing it’s chop –
hop. You use the chop-chop to better position and to cheapen your position.
ALS – Just as soon as a position is placed we seem to hear all the news which does the opposite of
confirming our entry. Why?
POP – After we enter a position, we are more open to listening to news, which makes us more
sensitive to doubt of our position. The answer of course is to remove our position if the market does
not confirm our position.
If we see that the news is against us, we surely are having doubts about the position and it hasn’t
proven correct in the first place. It is just another signal to ourselves that rule one must be foremost
upon a new entry above all else in order to keep emotion out of our thoughts. That way you can
bring on any news and not let it directly affect your thinking.
ALS – Why does it seem that the market knows when we have just placed our position?
POP – It is true that it seems to happen to us. I think every trader feels that way at one time or
another until they learn to be mature in their understanding of how the markets react to waves of
orders. Price movement makes other traders decide to enter into a position.
We tend to take obvious signals and entries, which many others are taking at the same period of
time. Because of that, the market will appear to make a move against us immediately. Every trader
will eventually face this impression. That is not a bad circumstance to have happen unless we don’t
react properly to it.
It happens much more than you think when the market turns very close to our entry. To be alert to
that possibility is a must in trading at all times. To be able to have a plan to address that situation is
critical in survival long term.
To eliminate the feeling of the market knowing when you enter and immediately moving against
your position, you must know that the most critical time of a position is immediately upon entering.
That is when you must be prepared to be the quickest to protect your position.
I always consider the most dangerous time of a position is at entry because you do not have a
proven position at that time. Why is the most dangerous time of a position upon entry? My answer
is that it is because this is your only opportunity to keep your drawdown small if you aren’t proven
correct with the position.
Keep your loss small and quick, early while you have the opportunity, otherwise you will allow
bigger losses to affect your loss taking and thinking. This is why I call entry the dangerous time of a
position. It is your first opportunity to keep losses small. The first opportunity to keep losses small
is your best opportunity.
What you do immediately upon entry of a trade determines whether you will be a good loser and the
best winner you can be.
ALS – I have often heard traders make the statement that they should just do the opposite of what
they think and they would trader better. What do you think of that statement?
POP – I also have heard that remark. I know my Dad thought that was a good strategy in my early
trading days too. It does have merits. Don’t get this wrong! The merits are that it is good thinking to
have a plan for acting upon that thinking.
Plan to know that what you do is with a good possibility of being wrong and having a plan to do the
opposite as soon as you know you don’t have a proven position. This works better in non-trending
Let’s say you know that a big news item is going to come out or you have just been given a data
from a big report. Your thinking could be that the news is already in the market but you aren’t sure.
Most traders will trade accordingly and when wrong, get out and that is that! Well, doing the
opposite is the correct thing to do but you do it because you were the wrong way to begin after the
data. It is important to avail yourself of all sides to a market in certain situations such as reports.
So you must admit the merits are true in a sense of that statement. You can do the opposite of what
you think even though you did something that was wrong at first. Isn’t that the same as doing the
opposite of what you thought at first? In a round about way it is!
ALS – I have another question, which just recently became pretty important. On a news channel an
interview with a particular expert was like throwing gas on a fire. The traders who were positioned
counter to a remark made, felt the person making the remark was their enemy for making such a
statement. Is this appropriate to have such remarks made and is it destructive thinking to let it affect
a person’s trading?
POP – It happens all the time. That is the first assumption you must make for it is true you will be
more sensitive to a person’s remarks which are counter to your position. And I suppose that is ok to
be sensitive as long as you keep emotion out of it. But keeping emotion out of it when you see a big
slide or big runaway market is hard and almost impossible to ignore.
The true test of such remarks is what the market does in reaction. I have found over the years that
markets do react to such remarks. But here is the key. You will have more than one reaction. You
can use those reactions to your advantage if you remain swift in your market moves. In fact you
must be swift and you must use what the market gives you for your advantage to position or profit.
Here is why you will tend to have more than one reaction. The local traders will see the remark or
even a report of data first. Their reaction will be as a professional and they will position according
to their beliefs. At first it won’t be in unison but it will pick up a cadence of sorts and you will see
some kind of trend in pricing early. That is usually your first wave of buying or selling. Next flow
the orders into the pit from those who have just gotten the news and you see a further reaction to the
The third wave of news is the customer (public) who have been told the news and have contacted or
been contacted by their brokers. The third wave will usually be the strongest because the
willingness to fade the news is less prominent when their orders reach the pit. This is when you
have your thinnest market and when markets make new highs or lows.
After all three waves of orders are filled, you still have your stranglers upon learning the news
whom take positions. This could take a day and a half to enter into the market. The news is seen on
TV, heard on radio and read in the newspaper after the market is closed. That is part of my day and
half theory on news items and events.
Upon the conclusion of day and half of response and reaction to data or a critical news remark, the
market usually comes to a Plato of understanding of equilibrium.
The second part of your question is that it is not constructive to become emotional about a news
remark but you should recognize the opportunity of such a remark being a mechanical reaction you
can make to capitalize on other peoples behavior to emotion from such a remark. This sometimes
will take a couple of days to play itself out.
It is important to understand that this can change the continuing trend, counter trend, non trending
or inter day trading and void some trader’s signals. To be alert to this is crucial in following your
protection of your positions. More times than not, you can cheapen your cost of your position by
using the knowledge.
You can improve your cost of positions by using the news to properly splitting half of your profits
and re-establishing on the waves of orders. Or you can use the news to establish a trading range in
order to have a better position than from putting it on all at once.
In other words you have the opportunity of scale trading due to an expected wider range of activity.
But keep in mind this must all be thought out in your trading plans and you should be prepared at
all times for these events in order to utilize them in your trading. Most systems do not take this into
account. The surprise side is created often by as you called it, fuel on the fire.
Its is sort of like watching someone pile logs up next to the fireplace. You with almost certainty can
say with high probability as soon as you gather additional information what is going to happen. If
the temperature is very cold you can say that there will be a fire in the fireplace from the knowledge
you have gathered. Well, news stories at critical turns in a market can do the same thing.
You see the logs and you are waiting for the temperature to drop. You certainly don’t use a squirt
gun on the match. You use the warmth to your advantage even if you don’t like fireplaces. Same in
trading, you use the warmth of news items to your advantage even if you don’t like the fact it is
against your current position. Change your ideas on events when you gather additional information
whether being fundamental, technical or tactical (as I call the mix.)
ALS – With a slide of the hand and quicker than the eye, we seem to get back to the same things in
successful trading, knowledge gathering and behavior modification. Isn’t this most everyone’s theme
POP – You know I don’t really know. I only know what I have learned over my years of trading. If it
isn’t most experts themes, I would venture to guess it soon will be. I know there are those who will
read this to improve understanding of insight into successful trading. I know they can understand
the problems of trading better because of what we are doing. I am not out to disprove any successful
method by presenting my views on trading but only to enhance the possibilities.
ALS – I think there will be critics of your views.
POP – Do you really think so? I disagree with you. I am wrong in the markets a lot of the time but I
don’t think you are right with that statement. It is like going down one of two roads. Unless you go
down both of them you can not say you chose to take the wrong one for the better view along the
way. It is the same in trading.
I have presented a view along the way. It is just that I have been down both roads and I can
accurately express which road I feel is the better one to take. I am presenting an opportunity to
expand horizons of trading within each trader’s mind. I am not presenting a limit or restriction to
improved thinking on trading systems or criteria.
To be a critic it is important to look at things from all views. You look in a mirror and you don’t
even see yourself the way others do. It is reverse image. To be a good critic you must be able to see
as others see. You must not rule out the reverse image as a correct view.
ALS – Is that what you consider your rules, reverse image?
Pop – Very interesting observation. I suppose you could call rule one a reverse image rule from
what others see. It is just the opposite of most people’s understanding of what is necessary in trading
rules. We do make the market prove us right rather than wrong and that is reverse of common
We do assume we are wrong and in an unfavorable game until proven correct. That is also reverse
image. In rule two we do press our winners and that is the reverse of taking losses or the other side
of the coin.
Yes, I guess that by looking in a mirror you could easily understand why others do not see as you
do. You really are looking at a reverse image. Sometimes it is important to see things differently
than others. I have learned it is better in trading to be different. You never need to conform to
anyone’s view but your own in trading. Don’t forget that! Use your own ability to improve your
behavior in trading.
” You really are looking at a reverse image. Sometimes it is important to see things differently than
others. ” —POP