Trade The Journey

Trade The Journey

Reflections VII

Top of the Morning! Study long, study wrong is a phrase used by many people. For years, I never understood the meaning of this phrase. Initially, I took it to mean that studying for long hours was wrong. How can someone hope to master their craft without long hours of study?

That’s akin to telling Tom Brady to avoid the film room or throwing passes to work on his mechanics. Repetition and study are the keys to mastery. But what I missed was the “action” or the “doing” part of the equation. I missed the purpose of the quote, which was to inspire action.

To find out what works in your craft, you have to perform and accept the feedback that reality gives you. Without applying what you know, what you know is simply a theory.

I fall into the trap of learning and learning more without testing the knowledge to see if it works. Without interacting with the environment, you are unable to assess if you understand the information.

Nowhere does the quote ring more true than in the market. I read book after book, thinking that each book’s completion would add a new level to my trading.

One day, I decided to apply the information I learned from my daily reading to the charts I was analyzing, so I left a post-it on my desk reminding me.

So the next day, I opened my trading platform and went to a stock I was trading to analyze the chart pattern. I was determined to apply some of the strategies and perspectives I had read the night before. As I stared at the charts, I became confused.

The book said if the pattern and the volume matched along with indicators pointing upward, I’d be in a profitable trade. At first, I felt comfortable with the rising stock, and then I became uncomfortable with the sideways trend developing. The stock’s sideways movement wasn’t covered in the book, and I could not establish a reason for the action.

In the book, the strategy worked perfectly. I do remember the book mentioning what to do if the stock failed to make the desired movement. However, the other side of the trade wasn’t covered in-depth, only briefly mentioned.

I couldn’t tell if the sideways trend was legitimate or accumulation phase. It turned out to be an accumulation phase but I closed the position before the stock resumed its trend upward.

After that experience, I begin to read books on trading from a different perspective. After reading about a strategy or market perspective, I open my trading platform and experiment with paper trading.

I want to see in real-time how the strategy works. Paper trading is the closest you can get to developing market experience without real money on the line.

Often, by paper trading, I begin to find the nuances in the strategy. Nuances are small details, seemingly insufficient details to the inexperienced market participant.

What is something likely to do is the basis of probability, and trading is a game of profitabilities. Over and Over, I find the pattern and watch what happens around reference levels, volume levels, and the moving averages.

What you are likely to see is that the book knowledge doesn’t necessarily translate to market success. The variables are too random to know with any certainty.

The best way to apply the information is to track and analyze the results based on what happened. By doing this, you get to interpret what you find and see the patterns in your results.

For instance, I noticed that I lost most of the option’s value way before the expiration date on an out-of-the-money option by tracking the greeks. Months later, I found the same information in a book I was reading on advanced options strategies.

Had I exclusively read about the strategy only, I doubt whether I would have picked up on the information while looking at the greeks. The market, like real life, is unthinking and unconcerned with your personal feelings about being wrong or right.

However, it offers something no book can, experience. Experience is what actually works through trial and error.

It’s painful being wrong and learning that the knowledge you have acquired may be useless. To grow and become a skilled trader, you must embrace being wrong and release your ego from being tied to results.


This past week in Review:

I am in the process of paying off my credit accounts, and it feels good watching the balance decrease, albeit slowly. I participated in Robinhood’s IPO with high hopes that failed to materialize. Instead, Robinhood had one of the worst IPO’s in history.

I sold some crypto, moved some money around to participate in the IPO, and Robinhood dropped 8%. Market Lesson: There are no free lunches or certainties.

The night before the IPO, I dreamed of what I could do with the extra money. I briefly considered a failed IPO but quickly replaced the thought with a positive one. This was my first time participating in an IPO and I was excited.

Grade: F
Reason: Pie in the Sky Dreams. Failed to accurately assess the risk and environment.

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