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Tackle Today: The Continuity and the Fallacy

May 15, 2020

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Is the bear back? Or is this just a market “hissy fit” from the FED not spreading all sunshine and rainbows? If you look at the current chart of the SPY, as of this writing, we are perched precariously at a support level that has the bears hanging out with nary a care in the world, see below for proof.

And of course this has the bulls a wee bit on edge!?

This is the neverending struggle between the Bulls and the Bears or as we like to call it, a typical day in the markets. This struggle not only happens in the markets but it happens inside the heads of all traders, especially traders that are new to the game. In honour of this internal struggle I have decided to write about it and some truths that we must come to accept if we are to rise above the constant struggle and find inner peace with our trading.

As a mentor and coach, I hear lots of new traders say they want a steady income from the markets. They come to the market and expect it to provide a paycheck similar to maybe a job they are currently holding or have held before deciding to trade. They still have a mindset and a need for that steady flow of income that a J.O.B. provides. In my opinion and experience, this is a FALLACY. The markets don’t really work that way. Don’t get me wrong there are strategies that can be employed that produce more regular income than others but it still is not exactly like a paycheck and this perplexes a lot of folks. I see trading more like running a small business and I find that folks that come from that type of background have a better grasp on how the income flows when it comes to trading profits. You see most small business owners don’t really know how income they will have at the end of the week, they just work hard and trust that the income will come in if they produce goods and services that people require. The small business owner doesn’t necessarily know how many patrons will walk through the door at any given time but they are fully prepared for when they do walk through the door to give them the best service possible. Then at the end of the day or week, they tally up the receipts and dole out the paychecks and see what is left at the end of it all. They do this for a variety of reasons but in the end its because they believe the reward for their hard work will be bigger than the paycheck they gave up.

It is this small business type experience that most remsembles trading in my opinion. The profits don’t necessarily flow in a steady drip type fashion but they come in drips and drabs and at the end of it you take “stock” of what happened and you see where you stand from a profit perspective and then you take your paycheck from whats left over. Therefore as traders, our jobs are to CONTINUE to provide the our service to the markets in the belief that it will reward us more than that steady paycheck that we left behind. We as traders have to CONTINUE to put the pieces in place to create the profits and minimize the losses so that when everything shakes out we are on the right side of this thing called trading.

There is something called the pareto principle, or the 80/20 rule. This rule essentially says that 80 percent of the gains will come from 20 percent of the trades we put on and this again feels more like a small business instead of a paycheck. Like a small business owner might have few customers on Tuesday, Wednesday and Thursday but is swamped on Friday and Saturday and still have a pretty good week.

This may happen in your trading as well. Even if this is not your current experience you may have this experience at some point in time and your job as a trader is to CONTINUE to trade and trade smart! If you do this you will reap the rewards you desire even it if doesn’t come in the way you expect it to!

Chart of the Day

Equity Chart

Take a look at the chart of the day, this is what a good equity curve looks like. It has its ups and downs but over time the rewards are available to those who provide service! The red line is what we want but the blue line is what we get!

Happy trading All,

Coach Holmes

5 Replies to “Tackle Today: The Continuity and the Fallacy”

  1. Avatar Kerk LeBlanc says:

    As a former small business owner I know this to be so true. I was in the oil field and that is very true for that industry. One of my business mentors told me long time ago it is ‘feast or famine” So I had to have that mind set for trading also.
    Thanks, great blog.

  2. Avatar JocelyneGrzela says:

    Thank you Greg, great blog!

  3. Avatar MarthaEnriquez says:

    Thank you, coach Greg! I think I understand, though from a slightly different point of view. A paycheck is still safe because any “loss” comes only from the number of hours worked in a given period of time. Though I’m not a small business owner, as I understand it, the mind set needed in trading is not unlike manning a flea market stall every weekend. You’re filled with excitement and an expectation for the potential of extra money from selling your goods in a period of 2 days. So you load up, drive out to the market, pay your fee, unpack and wait for the flux of people you see as they walk the grounds. Then, for whatever reasons, not one person buys from you. You pack up and drive home with the sting of the loss from that day: your fee, the gas in your car and, probably most importantly, the loss of your time. Day 2 comes with a sense of deflation but, once there, you sell out of everything. You not only recoup the day’s costs, you also make up for the day before. While day 1 was a wash, it is the weekend on average that was profitable. The following weekend comes and is an unknown all over again. Whether you’re an established LLC or weekend Flea Marketer, this is a very hard perspective to keep into focus. Perhaps, as new traders, it is good to aspire to trade as a small business and simply begin in a weekend Flea Market stall.

  4. RyanDiaz RyanDiaz says:

    Thanks Coach, I needed to read this..

  5. Avatar robertstockholm says:

    Good stuff, I couldn’t said it better

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