Page 32 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

“… Can’t go much lower …” you say to yourself. It does go lower and now you’re
worried but you do not want to sell and take the large loss, so you hold on. After all, the
MACD divergence is still bullish, but not as much as before.
Soon the divergence turns into no divergence and instead the trend down becomes
apparent, and you now must sell out. You feel depressed, frustrated, and betrayed by
your MACD oscillator. If the oscillator had not been there, you would never have taken
the trade to begin with.

2. Opinion – Stochastic Example

You get a trading signal to go long, but this time your stochastic oscillator indicates that
prices are overbought already, so you do not take the long position. The so-called
overbought stochastic oscillator formed an opinion in your mind to not take the trade.

Now you sit there and watch a great uptrend happen right before your eyes and the
stochastic oscillator remains overbought during the entire 10-point uptrend. Had you
never looked at the stochastic oscillator, you would not have had an opinion, and would
have gone long.

3. Opinion - MACD Example

You see bearish divergence on the MACD oscillator, so you form an opinion that the
uptrend is ending and now you look to get out of your long position right away. You then
use a trailing stop and exit the market—only to find prices reverse and go higher and
the MACD oscillator turn bullish. You are left scratching your head.

Examples of how opinions distort reality could go on and on, but you get the idea. And
the idea is that oscillators form opinions, and opinions are not in the best interest of the
successful trader. Instead, with this course, you will learn to listen to what the market is
saying through price action and volume.

Strive to create an environment without opinions. That means avoid reading financial
newspapers, watching financial TV, or listening to financial news in any form while
trading.

News programs form opinions, trading oscillators form opinions, and market analysts
form opinions. We do not know how the markets will react to news and financial
recommendations. If we think we do, then we are forming an opinion about the news.

How many times have companies come out with great earnings and sold off right after
the announcement. And when the market does sell off, the news commentator comes
out and says “… the stock had run up already in expectation of the good numbers and
then sold off. …” If instead the stock continued upward, the news commentator would
say, “… good earnings drove the market upward. …” News commentators operate on
20/20 hindsight.

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