Professional trader Richard Dennis told me in a recent interview that it's hard to know what "the hard thing" is to do anymore, meaning a decision most traders would resist and thereby making it a likely winner. Momentum, for example, has taught people to blindly buy the highest imaginable high, or sell short at the ultimate market depth. What then is harder to withstand: (1) the gut instinct to buy lower/sell higher, or (2) the resolve to follow that which has become a mechanical cliché, momentum? Mr. Dennis is probably right on the money. But I wonder if the flip side of his argument is equally true. That it's also as problematic recognizing "the easy thing." Here I have doubts. Don't most long players get encouraged by an Upside Reversal, an Island Bottom, a Rounding Bottom, or a Three-Day Cup? Don't most overnight shorts relish an especially weak close just off the low or something resembling a Head-and-Shoulders Top?
Mental note to myself â€"- start broadening the either-or indicator search to include more than what exhibits a persistent win-loss ratio; incorporate promising drivers as well. What if one could pinpoint probable "comfort moves" which could then be converted into "fade" indicators? What actually would constitute reflex trader long action? What type of pattern, setup, relationship, etc? Do longs want higher highs? Overdone selling? Would one expect to find biases in each individual plus/minus indicator, or would imperceptible biases only manifest themselves once one has constructed an abundance of them working together?
I don't regard this column as a mere teaching or advising center. It's kind of a personal "walk-though" of my theories as well as clearinghouse of ideas. As such, I encourage feedback. This "no-brainer trade-fade" hopper may be something worth building. Say tuned.
Art Collins is the author of Market Beaters, a collection of interviews with renowned mechanical traders. He is currently working on a second volume. E-mail Art at artcollins@ameritech.net.
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