Today’s Lesson: Lethal Biases.
Have you ever looked at your trade result and said to yourself “If I had a bigger stop it would have been a winner” or “If I don’t use a stop I’ll see more winners because this market just swings back and forth"?
What you’re experiencing is hindsight bias. It is our tendency to look back at an unpredictable event and think it was easily predictable. It is also called the ‘knew-it-all-along’ effect.
Yesterday’s short suggestion stopped out for a 5.75-point loss. Eventually, it went all the way to the next level for a 22.25-win. However, the adverse move was huge at 19.25 points against. This may be a bit exaggerated to alert you to hindsight bias but it happened yesterday and that’s what we’re reviewing.
It's not uncommon to feel this bias. When you combine it with small sample size the pair become lethal. You see something unpredictable happen a few times and now you think you can predict it. Nope.
Don’t beat yourself up over these feelings. Do recognize them. The trigger words I’ve found that lead to these illogical biases are “coulda, woulda, shoulda.” Get in the habit of stopping yourself when those 3 words enter your mind or vocabulary. Analyze the situation for hindsight and small sample size bias.
For Tue 211012 (Plenty can change by the open, be aware.)
Globex Review: Two very small winners and another entry missed by a tick that ran 20+ points.
Day Session Analysis: World sentiment is solidly bearish. We are leading it UP. Stats are mixed. Willing to trade either direction with longs likely stronger. Tuesday (both sessions combined) garnered 20% of all the gains over the past 5 years in dollars. Reversals and Breakouts are about even. Trading ES/CL/GC using BB Rev with filters (download the new Edge). Looking for credit spread ladder opportunities after the open settles down.
S&P 500 Futures CPL: 4368/4371.50. We’re trading BELOW the CPL (short edge below, long edge above) and BELOW the equilibrium 4366.25/4367 (open below = short edge, open above = long edge).
The World Index: (+100/-100) PLUMMETS from +21 to -50 with all major world markets bearish EXCEPT our S&P futures (longs should outperform shorts).
Catalysts: JOLTS @ 10:00. Energy demand and prices growing. Inflation delaying the economic recovery. China focuses on financial regulation.
Trends: 60 min UP, daily DOWN (shorts outperform longs).
Low outside day: Win% and Stop% remain normal, longs CRUSH shorts earning 10X the profit. Opening around +0.20%. $TRIN XMA up to 0.96. Long term outlook stays long.
Globex: The range of 42.25 (likely higher by the open) suggests a day session range around 57 points on a LEVELING ATR of 60.67. Prior forecast around 50 points, actual 61.50. Trade Well,
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