Monday, November 7, 2016

SPX and RUT: Patience Isn't Just a Virtue, It's a Necessity

What's the one aspect of a trade that we can't control, no matter how hard we try?  Well, in order to answer that, let's start with what we CAN control.  We can control our entries.  We can (barring gaps), control our exits.  So we can control our risk for the most part -- and, with that, come all the aspects of discipline to achieve that control, of course: i.e. - Controlling our emotions, controlling our reactions, etc..

But the one aspect that we cannot control, no matter how many positives we have going for us, is time.  In other words, we can't control whether a winning trade opportunity will present itself tomorrow, three days from now, or three weeks from now.  And that, in my experience, is the area most likely to get us into trouble.  Because we don't like waiting for things.  We all have aspects of the spoiled kid from Charlie and the Chocolate Factory present in our personalities, and we all "want an Oompa Loompa NOW, daddy!"  Not next week; not next month; and definitely not next year!

The catch 22 is that if we can't learn to wait patiently for good opportunities, then we'll never reach our goals at all.  Because our impatience will constantly cause us to take one step back (or worse) for every step we take forward, and our accounts will go nowhere (again: or worse).  Our impatience to succeed becomes the very stumbling block that keeps us from succeeding.

So the aspect that we most wish to control -- time -- is the very same aspect that we can never control.  And we all know it, whether we admit it or not.  We know that we can't "make" opportunities in trading, we can only find them and try to position in the right place at the right time.  To the degree that we accept that knowledge -- or the degree to which we rail against it -- is the degree at which we master patience.  And the degree to which we master patience is, at least in part, the same degree to which we master profitable trading.

The problem is the psychological pressure we all feel to get our Oompa Loompas NOW.  That's part of the pressure that can keep traders from cutting and running when a trade goes against them -- if they cut and run, then they absolutely can't "win NOW."  They have to go back to waiting.  So "being in the action" is perceived as the better choice.  If we're to be consistently successful, though, then we simply must learn to overcome that pressure and the temptation to try and "force the market to let us win" -- there is no other option.  Understanding that acting on that pressure actually delays our goals even longer can help.  Something my dad used to say, which he attributed to Tony Robbins, may also be useful to keep in mind:

"Most people overestimate what they can accomplish in a year, but underestimate what they can accomplish in a decade." 

Just some random food for thought.

Let's move on to the charts, starting with RUT:


In conclusion, futures indicate a gap up in SPX, which will trap bears, and can be dangerous because those trapped shorts can potentially become rally fuel.  Thus, if various markets can sustain trade north of resistance levels, bears might have to play it cautiously and await more clarity.  If today's rally doesn't stick, or if the market is strongly rejected at resistance, then we may be dealing with a more simple backtest.  Trade safe.

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