A Good Lesson Learned
I remember taking a trade a couple of years ago where I followed my trading plan to the letter, and the trade turned out to be a loser. After going over the trade, which was a short, with Al our Head Trader, he said, “why did you take that trade with the market still strong?”, in a tone that implied I had just dove into 2 feet of water head first.
I was a little confused by his observation, as I had waited for everything to line up per my trading plan, which is essentially the same as his trading plan.
While their is plenty of advantages to learning to trade the old fashioned way, which is by word of mouth here in Chicago, there are disadvantages also. It’s not always very scientific, in fact sometimes there is not even a specific language for it. I was truly stumped by Al’s reference “with the market still strong”. Before I said a word I went back to studying the chart and after a full minute still had no answer.
“Aw’right”, he nodded, “see this bar”, and he pointed to a long green candle a full 3 hours before my trade. “See how strong that bar is?”
It was a candle some might call a Marabozu. Both of us still sometimes refer to candles as “bars”
“Yes” I answered.
“Well, when you see those, you don’t take a trade short until the market clears the low. All’right?”
I loved how he would tell me something for the first time, as if he had told me many times before. Afterwards I figured out that because he had taught so many traders that he couldn’t keep track of who he told what to when.
It was a good lesson, and like any lesson that cost money, I did not forget it. I thought of his lesson the other night when I was reviewing a market. Everything looked good for a short, except that price was still above the low of that Marabozu.
I posted the chart below to show you all because it is definitely a lesson worth noting. The candle I referenced was the one circled on the right.
Jay Norris
That is very good lesson!