Discretionary Day Trading: Maintaining Focus

Discussion in 'Psychology' started by NoDoji, Apr 23, 2011.

  1. NoDoji


    “The only thing that is as it seems is the chart. If you cannot figure out what it is telling you, do not trade. Wait for clarity. It will always come. But once it is there, you must place the trade and assume the risk and follow your plan.” - Al Brooks

    The discretionary day trader looking to extract profits from intraday price swings is required to maintain focus for several hours each day and be prepared to act without hesitation when a setup appears.

    It's critical to be able to stay focused during "noise" such as back-to-back dojis, narrow range consolidation, and triangle pattern formation. Out of these boring times come the strong and profitable moves.

    “If you want to compete, you must minimize all distractions and all inputs other than what is on the chart in front of you, and trust that if you do, you will make a lot of money. It will seem unreal but it is very real. Never question it. Just keep things simple and follow your rules. It is extremely difficult to consistently do something simple, but in my opinion, it is the best way to trade.” - Al Brooks

    Missing a strong price move because a stretch of boredom leads to distraction can quickly throw you off your game. You can easily become tempted to trade the next stretch of noise instead of waiting for clarity. This can lead to "death by a thousand cuts" as you trade right into one extreme of a range, get stopped out, then chase entry into the other range extreme. The resulting frustration can even lead to an abandonment of your trading plan altogether, which almost always leads to a losing day.

    During times of price indecision, take time to focus on what's in front of you. If price is taking a breather in a trend with reasonable strength, continuation is the statistical probability. If you're bored during consolidation, trade value entries to position yourself for the next push. For example, in a prevailing uptrend, look to enter long on dips to the lower line of a flat or down-drifting channel (bull flag formation). You may scratch a couple trades or take tiny losses if price continues to channel down, but when the continuation breakout occurs, you'll be positioned, rather than left in the dust.

    If price is narrowing considerably (triangle formations) prepare orders in advance to take advantage of the breakout either way.

    If price retraces to the point that a key trend line is about to break, again prepare orders to take either side, letting price take you with it, no matter what your opinion is of where it "should" go.

    "Don’t trade what you believe should be happening. Only trade what is happening, even if it seems impossible.” - Al Brooks

    If you're undergoing brain surgery, you don't want your neurosurgeon losing focus during a tedious process leading to the main procedure.

    Your trading account doesn't want you losing focus during the tedious price action that precedes a strong profitable move :cool:
  2. Picaso


    Excellent advice, as always. Thanks, Nod.
  3. Who is that guy, Al Brooks?
    He seems to be publishing some of my trading rules without my permission.
  4. Beautiful :)
  5. How do you separate noise?
  6. NoDoji


    Noise tends to occur after a strong trending move. Strong trending moves normally have 2-3 pushes before a relatively long period of consolidation. In a 5-min day trading time frame, "relatively long" is 30-45 minutes of consolidation which can be in the form of a range or channeling range (flag), a developing triangle formation, or (less often) back and forth price moves around a flat moving average that print as dojis, indicating confusion and indecision between the bulls and the bears, hence my ET handle "NoDoji" :p

    If a trend is rather young and the previous move quite strong, consolidation may only last 5-15 minutes before price makes another strong push.

    Noise can also occur in the price zone of a larger time frame where clarity is lacking. If price has made a strong push on a daily chart or an hourly chart, there may be an extended period of back and forth price action in a wide range on a 5-min chart.

    You can trade noise by buying support and selling resistance.

    Inexperienced traders often hesitate on trade setups that lead into strong trending moves, because the chart can look ugly during pullbacks in a trend and periods of consolidation, and entry into the direction of the trend may seem counter-intuitive at the time.

    They then regret missing the move and when price settles down during the next consolidation period, they do the opposite of what they should be doing and chalk up back-to-back losses. Then in sheer frustration they put on a trade without a stop because they believe the market is out to get them by hunting their stops.

    Usually that's right about the time consolidation is over and price breaks out for the next trending move. The inexperienced trader is usually positioned the wrong way because they believe price went too far on the last push and they construe the consolidation pattern as a sign of weakness in an uptrend and a sign of strength in a downtrend.

    So they're now positioned without a stop and feeling relaxed because they're not going get whipsawed again. "Only amateurs use stops," they think. The breakout occurs against the position they now have on without a stop and they end up riding a large loser, maybe even averaging down, and either puking near the top/bottom or holding through an awful drawdown to finally get out near break even after saying the Trader's Prayer 30 times during the breakout run ("Dear God, please let me get out of this trade break even and I promise to NEVER trade without a stop again.")
  7. cornix


    Yes, staying focused is one of the key components of successful discretionary trading.
  8. jalee25


    awesome quotes from al brooks... and nice post. thanks nodoji :D
  9. jnbadger


    I did a search for "focus", and of course, Professor Donna's thread is one of the first, and the best I see.

    I run automation in the morning, and I thought that would be it for me for the day. But I can't simply quit manual trading just because it's hard. After all, I have a strat which works just fine. The signals just don't trigger very often. And I finally have my scanner set to find just the best stocks. The statement from above "If price is taking a breather in a trend with reasonable strength, continuation is the statistical probability" pretty much sums it up. Pretty simple stuff, really.

    Examples: I caught FNSR for a couple of quickies today in the morning. A beautifully weak stock in a slightly up market. Down move, attempt to rally, pause, continuation down. Perfect.

    DKS, same thing. Missed it. RCL, missed two of those.

    That's all I look for. Stocks trading unusual volume on relative strength/weakness, then a strong move, and a possible continuation. Like I said, simple stuff. Just limited opportunities throughout the day.

    I just get so damned bored. Yes I have audibles on my alerts, but I must have gotten up from my desk today around 30 times. I work out every day after the bell, but maybe I need to start running in the morning or something. It's like I have more energy and less of an attention span as I get older. I just can't sit still.

    I'd give myself an A+ for focus in the first hour and a half of the day. Then it slowly diminishes to a solid C- by the close. And I'm thinking you need to maintain at least an A to catch all of the opportunities you want to catch.