Enigmatics

CLDX with a nice 9.18% move on this excellent FOMC afternoon.

It would appear I've been neglecting my own thread. :o Been more preoccupied with my Stocktwits account I guess. Plus keeping up with my old blog. At any rate a quick glance at the 2hour chart of CLDX. A little lazy right now and didn't mock up the daily chart too, but the stock is currently trading at a near 50% discount to February's highs. Look for a reversion back up into the demand test around the 20.00 level if the trend line is breached. EDIT: Actually there is some slight resistance at 17.45 as well.

In this case, the "mental edge" I'm referring to is that mindset where you're confidently trading your method and outside factors are not affecting how you execute. You don't meddle. You just let each and every trade do it's thing win or loss.

I think you pegged me pretty well. I won't lie. I'm still not comfortable with the amount of non-trading reserves I have. I'm prone to letting it seep into my positions when they're taking longer than I'd prefer.

Ironically that is what I like about Stockcharts and their volume-by-price. It already does that, so I'm not looking at a pile of micro POC's and balance areas. I typically view them through a 3month, 6month, and 1 year lens if I'm identifying a possible trade from the extremes.

Hey guys, a few quick questions about how you approach your VAL's and VAH's. 1. What cues do you look for to determine whether or not they're legitimate and a trade in the opposite direction is to be taken? 2. If you take the trade, which major previous POC's do you target? 3. What's to stop it from slowly building out a new value area with a POC or large HVN? For me, it's much easier to differentiate these things on an intraday chart than it is on a long term chart because the activity happens more swiftly, but I would like to improve on the latter.

See I believe this plays a major role. Lack of confidence in oneself in life in general is naturally going to attempt to seep into one's trading ..... regardless of statistical evidence. Remember, we're still dealing in probabilities, not "certainties". So it can be easy for someone to slip into the "Well I got my signal, but what if this is one of the ones that doesn't work?". This is especially true in situations where we layer arbitrary time constraints (i.e. paying oneself at the EOM), if we have limited non-trading capital reserves, etc etc ...... and I just think it's easy to talk ourselves out of a trade even if the numbers are in favor of it.

And it's nonsense because ......

One of the primary reasons I brought this is up is because of a conversation I've been having recently with someone in my life who is of major influence. He has routinely made it clear that he believes "this trading thing can't be done." He knows of all of my trade executions, the price targets and the stops. At the end of the day though, he cares not about what those stocks did. He only cares about the bottom line and what my performance was. Not once has he said to himself, "Hmmm he seems to have a knack for target selection, so why is he still having troubles maximizing his system?" He proclaimed if I had a bonafied system then I wouldn't be having those issues. I felt that statement to completely naive. I tried to explain the nature of non-chart related influences that can wedge their way into the psyche of a trader. You know things like time opportunity costs (needing to hit the monthly nugget), adequate reserves, a previously conservative relationship with money, etc. etc. He simply thinks all that other stuff is nonsense.

This particular part of your response is what I relate to the most. I definitely did not have the mental edge before I got into trading. I wasn't a natural born risk taker. I'm not talking in the reckless sense of the word, but moreso just putting myself out there and taking reasonable, natural risks in life. I have always been more passive-aggressive and reactionary in nature. Coming up with a method after nearly 10,000 hours in this market studying it's behaviors wasn't the hard part. I'm very much suited for it because I've always had a mind for that kind of analysis. Re-wiring my mind to acclimate itself to the nature of the beast been most difficult part of this process sent I set out on the trading journey. I'm still nowhere where I'd like to be.

Theoretical question and wanted to get everyone's thoughts. Can we assume a system with a significant statistical trading edge will naturally bring out the "mental" edge required for trading? Or is that question too simplistic?

Ya, if that trader is simply watching candles and the squiggly MACD line. That's where there rest of the analysis comes in via volume histogram, volume profile, Market Auction Theory, Volume Spread Analysis. It reminds me of people over at the Stockfetcher forums. I use that service to conduct my scans and I'm constantly seeing people looking for the magic filter, avoiding the inevitability that they will have to monitor/manage/analyze that trade as it's in progress. They want the RSI or any other magic indicator to hit a certain number in order to tell them when to buy and for it to hit a certain number in order to know to sell. The whole "oversold/overbought" issue with indicators is a trap if someone doesn't understand when a stock is being marked up as opposed to "ranging".

What's funny is, do you know how many times I've seen reports like that come out after I've correctly identified a long term positive divergence on a daily or weekly chart?

JCP on fire right now .... hit 8.12

The main idea behind all of this goes as follows: Volume POC's are "auctions" where the most buyers/sellers of that time frame agreed on price. Once one side takes over the auction, there is only so far it can move price. Two things can then happen. 1. It can consolidate and form a POC around the new level for support or 2. It can hit an extreme which Market Auction Theory calls a VAL(Value Area Low) or VAH(Value Area High). At this "extreme" we look for when the dominant side has exhausted itself or the other side took back control. Then we let the natural mean reversion to previously marked volume POC's happen. In my humble opinion, most traders get caught attempting breakout trades at these "auctions" I speak of. They have no idea it's going on because they do not use volume profile and are essentially trading within major "congestion". Trade the "extremes" not the "middle".