As a young girl growing up in the northern suburbs of Chicago, I found competition and pressure regularly. At first it was who had the cutest shoes (or if you were a boy, who ran the fastest). Then it was who had the biggest house and the most expensive car. In high school depending on who you were friends with it was who had the best GPA, class standing, or who could be the craziest and have the most fun. Throughout most of high school I was a straight A student and it was important to my family (and me, I guess) to get the best grades.
It was also important to be involved, so I was a cheerleader (my voice served me well while filling orders on the CME trading floor in the S&P500 Futures pit) and yes, I was a synchronized swimmer! Once I applied to colleges and got accepted at all of the schools I applied to, I let go a little. Or maybe a lot. As soon as I took my eyes off my schoolbooks I found an unbelievable amount of fun. And, peer pressure. When I got to college it was no different, but this time my parents weren’t there to lay down the law and straighten me out if I veered off course. I am sure you can relate to my story in one way or another.
After college, the peer pressure did not end, and when I got into the working world I felt something different. It was grown up peer pressure and I called it “society says”. “Society says” we are supposed to do this and supposed to do that. We are supposed to go to college, graduate, get a great job, marry a great guy/gal, have children, work really hard to put our children through college and then off to the promised land. It rarely works that linearly, and is not so easy for most. The pressure can be unbearable. Believe me, I am a rule follower by nature, and these are the adult rules, but they can also cause someone to collapse under pressure especially as more and more people depend on that person.
Mostly I have followed along the “society says” path; however, I have questioned it a few times and chosen the road less traveled. As only 1 of 7 females in the S&P 500 Futures pit (population 600 men) I chose to go against the norm and competed successfully in a male dominated society. One “society says” rule I won’t challenge has to do with the markets themselves. When it comes to the markets, they are all ABOUT society. As a trader I am here to capitalize on market movement and this is where I accept whatever “society says”. The markets are driven by emotions all over the globe: Japan’s, China’s, Europe’s, Britain’s, Australia’s, New Zealand’s, Switzerland’s, Canada’s, Mexico’s and many others. We often refer to this as the “mindset of the masses”. You can agree to disagree with the masses, but you cannot deny the influence on the markets. Whatever you think the market is going to do may vary greatly from what it actually does. Price action tells us what is really going on. Someone (whether it is an institution or a retail trader) is actually putting real money on the line. Real buying and selling causing pressure in one direction or another. I monitor this price action and as a day trader I get involved using a 15 minute chart. I use this chart mostly because over the 20+ years I have been around the markets, I have found the majority (mindset of the masses) uses anywhere from a tick chart to a 30 minute chart. I take the middle of the road, and this gives me a great picture of the market- not too close where I might get a lot of false entry signals and not too far away where I might not get any entry signals. I use the 15 minute chart for entry and exit and I do not use any other charts. I like to keep my system/strategy as simple as possible.
In order to build my bullish or bearish bias on the day I look at what I call the market mood. I am a momentum trader, in other words, I go with the trend of the market. If the market is rallying I prefer to be long. If the market is breaking I prefer to get short. I let “society says” dictate my bias and I will explain further. In the past I have tried unsuccessfully to be a contrarian trader (going against the trend). Some of our students use our strategy to identify contrarian trades, but picking the high or low is not something I like to do and I prefer to stay away from this type of trade. Again, I like to follow society here.
So let me explain more about the market mood. It is more than just buying when the market is rallying and selling when it is falling. I use a simple calculation, which gives me the confidence to go long or short. I take the high of the day, add it to the low and then divide by two. This gives me the midpoint of the day and I use it as the market mood indicator. I am always interested in who is winning – the bulls or the bears. I try to jump on board with the winning team because they are the ones with the strength and the capital to push the market. When price action is above the midpoint I look for an opportunity to go long (bulls are winning, bullish market mood) and when it is below the midpoint I look to go short (bears are winning, bearish market mood). As price action develops over the course of the day, I adjust the midpoint as new highs and lows are made. I also concern myself with the market mood of the week. By this I mean I look at the high and low of the last 5 trading days, add them together and divide by two. Now, if price action is above my midpoint of the day AND the week, I have more confidence to go long, and vice versa. But, you might be wondering where I actually consider getting in. If price action is above my market mood on the day and above my market mood on the week, I wait for the market to pull back from the current day session high, get as close to my adjusted midpoint as possible and enter with a long. If price action is below my market mood on the day and below my market mood on the week, I wait for the market to pull back from the current day session low, get as close to my adjusted midpoint as possible and enter with a short. There are times when price action is above my midpoint on the day, but it is not above the weekly midpoint. I consider this a mixed indication and tend to stay away from that market and move on to another one. This is one reason why I love Forex. I can move from pair to pair with such ease.
For my clients that are longer term traders (meaning they hold positions overnight, for several days, several weeks or several months) we look at daily charts and the highs and lows for the year. I recall teaching one of my clients about the market mood and the different time frames. He thought he was a long term trader, but after observing him, I pointed out he wasn’t. When he came to me he had been following the advice of a well-known newsletter and the trade recommendations. He was getting very discouraged with all of the money he was losing. I was familiar with the newsletter and told my client the newsletter author tended to be a longer term trader and held positions overnight, for weeks and sometimes months. When I started to work with this client I realized he had no patience tolerance and could not hold onto a trade for more than several minutes. He was using trade recommendations to enter trades that were expected to develop over the days and weeks ahead and he did not have the patience to hold onto these positions. I told him it did not make sense to follow a trade entry recommendation and then not hold it until it was recommended to be taken off. I suggested he use an indicator that adapted to the market as the market unfolded within the day. This finally put him on the right side of the market and the right side of his personal time tolerance. I always stress to my clients the importance of knowing their own patience tolerance when they trade, and to use indicators, strategies and/or recommendations that suit their personalities.
In the end, the market mood has continued to help me stay on the right side of the market and I will apply it for time to come. It gives me a great sense of market direction whether I decide to put on short- or long-term trades. In trading I will always look to society as it gives us the real and true picture of the market from price to price. “Society says” will dictate my trading, and as long as I follow the law I will always question it for personal use. I want to be true to myself.