One of the 5 fundamental truths (Mark Douglas) of trading the futures markets is that "anything can happen". Today's trading in the treasury futures is a poignant example of this principle. With the Fed's rescue of Fannie Mae and Freddie Mac, the treasury futures reversed between last Friday's close and today's trading. In fact, last night, the treasury futures continued to sell off, confirming the downtrend signaled last Friday. However, when the Fed intervenes into the financial markets, prices can reverse on a dime, as shown in this daily chart for the 10 year treasuries. Anyone who tries to tell me that they can trade without ever experiencing a loss or a reversal against their position, undoubtedly has a personal agenda, and knows that they are usually hedging the whole truth Surprises happen, and as a trader, I need to always be prepared for that possibility. Anything can happen!One more thing: from my experience, when a large counter-trend event occurs like last Friday (that long red candle), even if the original trend reasserts itself, that new trend is typically shorter-lived than the original. Such a strong, albeit temporary, reversal usually is a sign that the counter-trend forces are gathering strength. Often, the volume trend indicators will show a marked reversal at that point, as shown in the lower panel on the Klinger Volume indicator in this chart. That green reversal candle today is more likely to be indicative of a consolidation than a reinforcement of the previous trend. Then again, anything can happen!
I always get a kick out of pundits and traders who talk like they can predict the future price activity of a stock or futures instrument. I don't try to predict or forecast. I just strive to respond to market indicators and price action, reacting to the daily and hourly price activity. I intentionally try to restrain myself from predicting or forecasting. Sorry, but I have no crystal ball, and don't believe those who claim to have one! In fact, as soon as I hear someone saying, "The stock market is going to do such-and-such between now and the end of the year", that person immediately loses credibility with me. Are such people ever truly kept accountable for such predictions? NO!
Have you ever wondered why psychics only try to tell people about things that can't be explicitly verified? They predict nebulous things like, "I see a man close to you with the letter "P" in his name", or "someone close to you died tragically"? Hey, we all know someone with the letter "p" in their name, and someone who died tragically! The last I checked, we all die, and many -- perhaps most -- of those deaths are somewhat sad -- ie., tragic! Why are people so gullible to believe that stuff. Why don't those psychics ever become billionaires by accurately predicting financial market moves? Answer: because they can't! They don't have any crystal balls, either!
I just do what the charts tell me to do! That's my edge! By keeping tight stops, I can exit quickly when I make a bad trade, and that's how I keep my head -- and money -- in the game long-term. Exiting quickly on a bad trade also keeps me from becoming emotionally attached to a losing trade. It's amazing how quickly my thinking and my emotions clear when I jump swiftly out of a bad trade. Emotions are the enemy of traders, and getting out of a bad trade with a small loss is the best therapy for them. Predicting the future, I have found, doesn't pay very well, and it leads me to make lots of very expensive mistakes.
