TPS E12: Predicting Market Move is Dangerous, Know Why.!

Do you believe anything can happen in the market at any time? This is what being objective is all about. You need to constantly be thinking that the market can do whatever it wants whenever it wants at any time. Many people get into trouble by thinking the market can’t or won’t do certain things.

Many people will put mental limits on where they think the market should go. These mental limits can have some very bad results. I remember a time a few years ago when I was in a trade, there were about 4-5 minutes left until the market closed. One trader told me he thought the market was going to break another 200 points in the BankNifty Futures. I said there was no way this was going to happen with only 4 minutes left until the market closed. He said that it didn’t matter if there was only 1 minute left, for the market to move, all it has to do is be open. And you know what, he was right. In the next 4 minutes, the market dropped 200 points just as he predicted. If I hadn’t limited my beliefs, I could have made money on that trade.

But unfortunately, I was not objective enough to believe the market could really break that far in that short amount of time. My limited beliefs prevented me from making money in that trade. But in the long run, that situation helped me to be more objective in the future. It was definitely one of the stepping stones for me to realize anything can happen at any time in the market. All it has to do is be open.

If you believe anything can happen at any time, then you release yourself from distorting market information. When you distort market information, you are obviously not acting in your own best interest. For example, let’s say you usually look at a certain indicator to help you find profitable positions. Let’s say this indicator got you into a short position a little while ago. You’ve been sitting with this position and the indicator is still telling you the market looks like it should go down. But the problem is the market is not going down.

And now some of the other tools you use are starting to look like the market is going to start to rally (go up). But your indicator still says down. So you ignore the things that are saying the market is going higher. Now you have conflicting signals. As I’m sure you know, most people will not be objective. They will hope that the indicator is right and the other stuff is wrong. In fact, they will probably try not to look at the stuff that says the market is going higher, or they will dismiss it as not having as much weight as the indicator because it doesn’t conform to what their expectations are.

Normally, if they weren’t in a trade, they wouldn’t even put on a position with these conflicting signals. But since they are already in a trade, they distort the information right in front of them and hope and pray that the market does what they want it to.

But is that the objective thing to do? No, of course not. The objective thing to do is to get out of the position and reevaluate. (Or at the very least, move your stop order very close to where the market is trading to take less risk.) That would be acting in your own best interest. But instead, most people ignore the information and hope and pray that the position will work out the way they think it should.

This happens because most people get locked into their opinions of the market and have a lot of trouble facing the fact that they could be wrong. It’s O.K. to be wrong about which way the market is going. But it’s not O.K. to be wrong about the market direction and ignore signs that it’s time to get out and start over. That lack of objectivity will kill your trading.

To be objective, you cannot put your demands and expectations on the market. First of all, you cut yourself off or distort vital information that the market offers to help you decide which way it’s going. Second of all, you don’t have enough power to control the market to make it live up to your demands and expectations. Thus, you must learn to be objective in your market observations.

This doesn’t mean that you can’t have an opinion about the market. It only means that your opinion can just as easily be wrong as it is right. And you need to be completely ready and comfortable for it to be wrong just as much as it could be right. You need to release yourself from having to be right. The more objective you are, the less you will distort the information that you receive.

Mark Douglas, author of The Disciplined Trader states there are seven characteristics of an objective person. Here they are so you can recognize it when you’ve achieved it:

1) You feel no pressure to do anything.

2) You have no feeling of fear.

3) You feel no sense of rejection.

4) There is no right or wrong.

5) You recognize that this is what the market is telling me, this is what I do.

6) You can observe the market from the perspective as if you were not in a position, even where you are.

7) You are not focused on money, but on the structure of the market.

If you can see any of the above qualities in yourself, you’re on the right road. Again, you need to release yourself from the need to be right. If you constantly need to be right, you are unfortunately in the wrong business. To be a successful trader, you don’t always need to be right, but you always need to be objective.