Trading Psychology with Jason Jankovsky

[Soultrader 12]

For those of you that missed it. Check out the interview on trading psychology with Jason Jankovsky through our TL! Audio. It's given me new insights on my trading. What fascinating is his setups are based on trader mistakes. I have yet to completely organize my thoughts but will keep this thread updated on some new ideas and trading strategies.

[notouch 10]

Listening to that made me remember that I've thought in the past about developing a strategy to take the opposite side of common losing trading strategies. We all know that a lot of traders will use MA crossover strategies on 5 minute charts and that these strategies are always losing strategies. A consistent losing strategy is just as good as a consistent winning strategy as long as you buy when the strategy is telling you to sell and sell when it's telling you to buy. It's difficult to find a way to incorporate that into a trading strategy though.

[wsam29 10]

Jason Jankovsky is the man!

 

Mark Douglas' stuff is great as well!

 

JAJ has three great CBOT webinars.

 

its scary to hear JAJ took 10 years to understand this stuff.

 

Just survive the learning process everyone the end of the tunnel is your pot of gold.

[GCB 10]

I wish he would have shared something more specific on how to exploit what he was talking about. He basically said losers move the market (a variation on JC's "the market's move because they have to"), but he didn't say anything on how to know when this is happening. I sensed this frustration in the interviewer as well.

 

Is the answer in his book?

 

 

I'm not sure I buy his point about zero-sum markets either. The cash market is not zero-sum, the futures market is. But the index futures market is based on the cash market. If trade SPY or I trade ES I'm trading essentially the same price movement. So if I'm trading SPY is it not zero-sum and if I trade ES it is zero-sum? If I buy an index mutual fund or a future contract and keep rolling it over I'm basically doing the same thing. Is one zero-sum and the other not? That makes no sense.

 

Technically an index future contract is "zero-sum." But it's based on something which is not. The whole zero-sum thing is a carnard. Everyone gets something out of the markets. The winners get money and the losers get lessons. It's win-win if you want it to be. The problem is losers don't gain anything from losing, that's why it seems like an ultimate loss.

[Soultrader 12]

Perhaps we can ask him the next time he stops by in the chat room. I am also very interested in picking up his book as I have not yet read it myself. I have decided to take a deeper look in understanding the psychology behind price action. I am slowly starting to realize that all these pivots, fibs, etc.. may not be the ideal way to trade. They only work because of the imbalance of supply vs demand at these levels. I figured the heck with them... might as well keep a chart naked with volume only and determine supply vs demand and the psychology behind the losers. (of course I am not ready to do so yet but perhaps in the near future?)

[GCB 10]

Looking at the chapter names of his book, its mostly pretty standard stuff. Solid, but nothing spectacular.

 

Soul, see my points about zero-sum below and tell me what you think if you are of a mind.

[wsam29 10]

Perhaps we can ask him the next time he stops by in the chat room. I am also very interested in picking up his book as I have not yet read it myself. I have decided to take a deeper look in understanding the psychology behind price action. I am slowly starting to realize that all these pivots, fibs, etc.. may not be the ideal way to trade. They only work because of the imbalance of supply vs demand at these levels. I figured the heck with them... might as well keep a chart naked with volume only and determine supply vs demand and the psychology behind the losers. (of course I am not ready to do so yet but perhaps in the near future?)

 

He sees the light, sort off.

[wsam29 10]

I wish he would have shared something more specific on how to exploit what he was talking about. He basically said losers move the market (a variation on JC's "the market's move because they have to"), but he didn't say anything on how to know when this is happening. I sensed this frustration in the interviewer as well.

 

Is the answer in his book?

 

Its an intangible skill in my opinion.

 

If you've ever had a losing trade get out of hand, you'll know what he's talking about. If you've never had one trade get out of hand, you'll never understand what one goes through mentally.

[MrPaul 10]

I'll be interested to hear what he has to say

 

I am a bit confused because I thought he did use fibs and MA's and S/R etc. etc. in his trading.

 

Is this just to get an idea of what everyone is looking at?

[Soultrader 12]

Looking at the chapter names of his book, its mostly pretty standard stuff. Solid, but nothing spectacular.

 

Soul, see my points about zero-sum below and tell me what you think if you are of a mind.

 

I honestly do not know GCB. I mean what about ETF's as well? Is that a zero-sum game? I understand what you are getting out in terms of everyone is getting something out of the market. But I do think Jason was referring in monetary terms. One loses money while one gains money.

 

This is definitely not a new concept to trading but has me thinking in a very new way. Strategies can be based on trader psychology. The shorter the timeframe, the more we see the shift in trader emotions. (through the constant swings in the markets) If traders buy at VAH for example but price fail to lift, those traders must sell to limit their losses or from the pain of loss. This will create selling presuure in the markets hence a short opportunity exists through their mistakes. Thus we see more probability of price cruising to VAL. Or if short term buyers exist at S1 and lifts price, they will need to sell eventually before the close to lock in profits or if they have hit their specific exit point. Which means we are expected to see sell orders by these traders in the near future. Hence, when they sell is a good time to short. Price will only lift further when new market participants step in to buy. So we need to see fresh buying either from the short term buyers or long term buyers. I know this sounds extremely simply with the basic concept of supply vs demand. But I have never fully incorporated trader psychology 100% into my trading. It was always about price action in terms of "market is making a higher low" or "buying volume exists at S1" but never entirely thinking about the traders who bought/sold earlier and will need to liquidate/bail. I truly believe that once I am able to master the trader psych side in price, I will be much better spotting out better trading opportunities. I hope this makes sense.

[GCB 10]

But I do think Jason was referring in monetary terms. One loses money while one gains money.

 

This is definitely not a new concept to trading but has me thinking in a very new way.

 

But I have never fully incorporated trader psychology 100% into my trading. It was always about price action in terms of "market is making a higher low" or "buying volume exists at S1" but never entirely thinking about the traders who bought/sold earlier and will need to liquidate/bail. I truly believe that once I am able to master the trader psych side in price, I will be much better spotting out better trading opportunities. I hope this makes sense.

 

It does indeed help to know that emotions are driving the buying and selling, because that's the only way to make any sense of it. I'm just never sure which emotions are at work in what combination and why they continue for the time periods they do. What for example, happens on those days when the market sells off and just keeps selling off all day? How come hardly anyone steps in and buys? And what about reversals days, just why do buyers step in? And what about reversal days that reverse twice? Why the heck is going on? Well, in a sense it really doesn't matter. It's really just people freaking out back and forth. He's right about that.

 

I'm not trying to be the devil's advocate. The market does what it does. It's really like a flock of demented birds, everyone just follows everyone else. It keeps going in one direction until it doesn't go that way anymore. The trick is to get in the move early. Takes nerve and a bit of insight, and the discipline to manage whatever happens.

[GCB 10]

Jankovsky does say in his book that 80-90% of price movement in the markets is just losers liquidating their positions. This is a startling statement, but worth considering.

[dalby 10]

zero sum game was a term invented under the umbrella of game theory and it has very specific meaning

 

the futures market IS zero sum. it HAS to be. the structure of the market determines that

 

the cash market is NOT zero sum. it cannot be. the structure of the market again determines that.

 

it is true that spy moves in concert with ES. But one MARKET is not zero sum. The other is.

 

I came to trading with a love of game theory.

 

What you have to understand about the term zero sum is it refers to the SYSTEM as a whole, not an individual traders experience. That is key. If you are trading Spy, you are not trading within a zero sum game system. If you are trading ES you are.

 

This says nothing about YOUR trading. It merely is a description of the structure of the system.

[Jakew 10]

Jankovsky does say in his book that 80-90% of price movement in the markets is just losers liquidating their positions. This is a startling statement, but worth considering.

 

 

It might be so, however:

 

1. We know from Market Profile that those short covering moves don't last, there is no real demand behind them.

 

2. We also know that it is precisely 80-90% of market movements and trades that don't amount to anything better than a total of zero, while the whole positive impact comes from the remaining 10-20%.....so.....