Trading Psychology: Playing Defense?

You are being watched.”
          Person of Interest


Except for the Tennis Channel, I never watch network or cable programming because the commercials annoy me. Instead, I’m one of those who likes to binge with well-crafted dramas on Netflix. Currently I’m enjoying the 4th season of Person of Interest.

And occasionally I trade Netflix (NFLX) stock.

Today was a good day for shares of (NFLX), but in my personal trading I under-performed. The reason is, I paid too much attention to the market context (Dow down 250 points!) and that made me too defensive in a situation where I should have been confidently aggressive.

Back in November I caught some of the NFLX pop with a full load. Today, however, the stock rallied almost 10% and I put on just a small position about half way through the move. My account was 100% in cash this morning so I had plenty of dry powder; that wasn’t the problem.

And as I was waiting for pullbacks I found myself being overly cautious again. I just couldn’t shake it. There was excellent volume and momentum, plus the pullback patterns were not tricky. They simply took out some stops and then the rally resumed. Since I trade index futures, this is a type of market behavior I’m very familiar with. 

What really threw me is that I was expecting more games on the pullbacks and more ambivalence in price action, yet NFLX was acting in a very straightforward manner, which is one of the main differences between trading futures and trading equities. Futures are gamey, whereas equities tend to behave well. Today, the game was in my head.

This reminds me of what can go wrong in a tennis match. The key thing to prevent in a competitive situation on the court is thinking too much. Thinking can ruin one’s timing and when that goes, other self-defeating behaviors follow, such as trying too hard. Nothing stiffens up a forehand and makes it misfire more than trying to hit a winner.

To play tennis well, one needs to keep things very simple. Watch the ball and let your body play the game. In trading, we face the same complexifying demon... the voice in our head that keeps a running commentary on the market and on our own behavior.

Today I was being watched…intrusively watched… but it was me that was doing the watching. Hmm… maybe that’s why I like that show so much.  (Peak performance coaching for private traders)  (Services for RIAs, banks and hedge funds)






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