A Worthwhile Habit

BarroMetrics Views: A Worthwhile Habit

For those of whose who were not short the CHF, say a prayer of gratitude…we were lucky…we did not join so many others in financial devastation: ‘there but  for the grace of God, go I’. For those who were long the CHF, congrats on the result.

Today, I am going to talk about a habit that has placed luck on my side…so far it has allowed me to escape the ravages of failed brokers – in some cases withdrawing my funds before the crash; in others, making a conscious decision to avoid the broker.

The story starts long before I started trading; it starts, in fact, when I was in my teens. In those days, I was an avid fan of JFK. I read that he had taken the Evelyn Woods Reading Dynamics Course and that he read a number papers to start the day. So, I took the course, (still one of the best reading courses I have ever taken), and started reading the daily papers to start my day.

Shortly after that became a habit, I read that cutting out articles of interest, and creating a scrapbook, was an ideal source of creativity. So, I added that to the habit.

Fast forward twenty years later to a course on Market Profile taught by Pete Steidlmayer. Peter taught that there were three types of fundamentals:

  1. Expected events: events that are events known and correctly anticipated by market participants. As a result, the underlying structure (which he called value) and price moved in the same direction. This results in a congestion market.
  2. Surprise events: events that happen out of the blue, ‘acts of God’ if you will e.g. Chernobyl  Here price move away from value only to return to value once the crisis is over.
  3. Unexpected events: events that are available to market participants; but these events are either ignored or incorrectly interpreted. Value moves away from price. When the events are recognised for their true impact, price moves to value, usually in a dramatic manner.

I added the lesson to my morning regime. So, the habit now is:

  • to read news events (this includes certain sites and email updates),
  • enter or snag a summary into Evernote (rather than cut and paste into a scrapbook), and
  • for each item of interest:
    1. rate the event as either expected, surprise or unexpected;
    2. ask what is the probable impact on currencies, gold, stock indices and interest rates; and
    3. assess the probability of the event’s occurrence.

      The process may sound like a lot of work, but so far, at least, it has kept me out of trouble. Tomorrow, I’ll show the process in action with the Swiss National Bank announcement.

      9 thoughts on “A Worthwhile Habit”

      1. Hi Ray

        You mentioned there are certain websites and email upates you will read everyday, could you give us a recommendation of them including financial related and non-financial related?

      2. Also, when we analyze an event, how we interpret it normally depends on our experience and knowledge, sometimes we cannot find internal relationship between events. How we practice the ability to find potential problem?

      3. Hi Ray, really enjoying the Break Through webinar and material. I remarked to Peter, with so much introspection and meditation, we will be known as Trading Monks. I am always amazed at your depth of knowledge. thankyou.
        I was in the right place at the right time, for once,!!, i was short CAD/CHF. Fortunately in Oz the accounts are segregated and several brokers have emailed that its business as usual.
        Could this be one of those black swan events you presage? cheers Baz

      4. Hi Baz,

        First, congratulations of you large win on CAD/CHF!

        Thinking further I think the best position during that day was no position at all. Becase in my thinking it could be easily the other way around.

        And this is a real problem for technical traders, at least for myself.
        Too many times I don’t care about news events beause since I try to analyse and trade EOD I think I won’t be affected that much. Wrong.

        Cheers,

      5. Hi Wenda

        Thanks for both your comments.

        I read the FT, Wall Street Journal and the local HK papers. If I flag a topic I want to follow, then I register for a news notification with Google.

        I subscribe to a couple of newsletters – Sentimentrader, McClaren. While these are not news items, they sometimes make reference to matters I have missed.

        Turning to ‘missing connections’.

        Firstly. we will all miss connections.

        Secondly, making connections is not something I know how to teach. I can show you the process but that won’t enable you to make the connection. The only way I know you create expertise is for you to practice and review.

        For what it is worth, in tomorrow’s blog, I’ll make a note of possible events to keep an eye on.

      6. Hi Baz

        Congrats on the CAD/CHF!

        I have not rated the SBN, on its own, as the Black Swan event that will derail confidence in the FED to keep a bear market at bay forever.

        But, it may be one of a series of events that nibble away at the confidence. We’ll see.

      7. Hi Sorin, I hope your child is feeling better.
        As to the position, each morning in Oz(end of day New York) i set my pending orders based on my system, then i may check them during Europe and USA sessions. I wasnt going to bother but you got to stick to the plan. I use a script to calc my position size and place order as well as my stop loss. i trade using tech analysis but i had been thinking about the Swiss fundamentally since their referendum on the gold standard. I had pictured another event like Soros did with Bank of England but never really expected this. So Im lucky i stuck to my plan, i write a journal too all thanks to Rays advice which he generously tells people if their willing to listen. cheers Baz

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