INSUBCONTINENT EXCLUSIVE:
The aspect of fading signals or chasing requires a mindset that is able to veer 180 degrees without missing a beat! While learning technical
analysis, we go through different techniques
As we read books, we find that almost all techniques have some validity and based on our own choices, some have greater validity than others
Since we learn them discreetly (most of the time), they also get embedded into our minds as distinct elements.
While trading, we try to
apply what we have learnt
So we begin the process of chart analysis and can pretty well make out some stocks trading into the support or resistance zone and others
breaking out of some formation or the other.
Then we try to implement them
denouement and then when we see it again after a day or so, it looks clear once again!
How is that possible, you wonder? Not getting any
clear answer, you continue to do what you did earlier, hoping that the confusion will clear itself
For most of us, it never does
Few of us continue to search for the answer while others just abandon the pursuit and the practice altogether.
I am no stranger to these
problems, having faced them numerous times in the past and continuing to face them in the present as well, despite many, many years at the
I do not know about others, but one of the answers I found was this: The difference between analysis and practice lies in the conflicting
nature of the signals!
When we look at the charts, we see two different sets of signals -- some where we have to fade the signal (i.e
support-resistance) and others, where we have to chase the signal (i.e
breakouts).
This aspect of fading signals or chasing requires a mindset that is able to veer 180 degrees without missing a beat! Think about
How many people can really do this efficiently?
At one moment (with one stock) you are going against the trend (fading the move into support
or resistance) while with another stock, you need to be trading the breakout
So you are long in one and short in another.
This is a lot more difficult than what it looks like on a chart, when it is being viewed
offline in the comfort of your home with the market shut
But when we try to do this in a live market environment, the mind suddenly is incapable of dealing with the conflicting and opposing nature
of the action to be taken and either freezes or fails to act efficiently.
Here are all the outcomes that happen from inefficient action
confidence.
Once confidence is gone, you begin to hesitate at the execution of the next signal; consequently, you end up trading further
away from the actual point of entry, creating a larger than acceptable risk levels
Lowered confidence and incorrect entry creates a psychology of fear in the new trade that makes us abandon it at the slightest sign of
trouble, not able to wait for a logical, pre-planned conclusion.
I suggest reading the above list of consequences once again
Almost all of us go through one or several of those many times during our trading career
We all have different ways to deal with these
to turn 180 degrees in thinking without hesitation.
What do I mean by this? Dealing with a stock that is dipping into a support zone, for
example, needs us to evaluate the probabilities of (a) the support holding and (b) the prices rising from there.
Now, these are different
considerations as we are trying to do two things at one go- define and track the move into support (where we have to deal with the
possibility that it may not hold) and second, estimating the probability of the stock rising from there (which is really a function of new
demand that needs to appear at what we have defined as support).
This is quite different from dealing with another trade that is on a
Here one is dealing with (a) defining a breakout zone correctly and checking that it has happened (so you need to check volumes and price
action and momentum and sentiment, news, events, etc) and then you to check for follow thru price action (and here volume, momentum and
price action hold the key).
Note here that we are speaking about a Buy trade in both cases
another that is undergoing a breakout downwards.
This will require applying the factors mentioned above in the reverse way! So here now you
have your brain processing two sets of technical information and variables in opposite sides.
The skill sets needed to deal with these two
types of trades are totally different
We are using the same technical analysis approach but the deployment is quite different
Unless we can become enabled to think both ways at the same time, one of the two trades will suffer
This is why I state that a skill for 180-degree thinking has to be developed.
I guess you know what I mean now.
This takes some practice to
It is better to stick to just one kind of trade (either buy supports or buy breakouts OR sell resistance or sell breakdowns)
Once you have internalised the thought process that is required to do this efficiently, then you can start working on the opposite trade
while being in another.
Realising that it is the thinking that is really driving the trades is very essential to successful implementation
So get your thinking right- the implementations will soon follow with practice making it better.
