The Obstacles to My Success Part I: Outside Influence

Those of us who believe in Elliott theory, understands that markets move with human psychology. We are all easy pray to “Irrational Exhuberance” as well as “gloom and doom”. If you owned stock in the late 90’s, you would probably remember the confidence of the man in the street that during minor setbacks would say… “I am in for the long haul”, this even at the time when Alan Greenspan was calling the market moves “irrational exuberance”. Even in those days, I was aware of the impending doom to come from the end of “wave 5” But I did not know when the exact moment of reversal would be, but I had enough sense to exit my stock trades and limit my trading to short term call options, which, at least, had a limited risk profile. Perhaps I should have been out altogether, but the truth is, one is easy pray to the bullish forecasts and opinions of the TV gurus. I imagine that many people were buying high and selling higher. Just like the Real Estate flippers, just a few years later.

Rule number one of trading should be to keep a system that limits risk and maximizes reward over very specific market conditions, so that you are able to identify good opportunities, regardless of what the public sentiment is. Yet you also capitalize in the market sentiment, so one needs to be able to identify this sentiment, without allowing one to be swept by it. This is a very difficult, yet very essential thing to do, if one is to become a successful trader. Your system should be objective. It should show the good opportunities, but also keep you out of the markets when they are morphing, as they often do.

Very much in the same way that during the peak of 2000, it was hard to be bearish, it was very hard to be bullish in 2003. In fact, it was extremely difficult for me to be bullish al through these years, culminating with the highs of 2007. I am surrounded by outside influences from the most unlikely places. Even my wife, over the last 6 years, has been constantly brings to my attention reasons why the market is due to continue the decline of the 2000-2003. If you are an Elliottician, you understand zigzags and Flats, the most common forms of corrections. Both are A-B-C sequences, with only one difference: the price length of wave B in the Flat should approximate, match or even exceed the price length of wave A. In the zigzag, wave B is limited to less than 60% the price length of wave A. This makes the correction quite ambiguous, and thus difficult to predict unless wave A is completely retraced. Then you know more or less for certain that wave B is completed, and that wave C is in progress. This is not to make a forecast, I have learned to stay away from predictions, but to make the point that no Elliottician could have predicted with certainty how large was going to be the rally between 2003 and 2007.

My point is that during those years, I kept waiting for the reversal. At first, it paralyzed me. I did not trade effectively. On one side I had the bearish crowd telling me that wave C was soon to begin, and on the other side the bullish crowd of CNBC, always being overly optimistic. If you are a vertical trader (delta trader) it is essential that you have an estimation of the directionality of the market. Once the opportunity shows up, you should be able to trade without hesitation. If you don’t have that minimum of confidence, any incursion into the markets will likely result in failure, which invariably ads to your lack of confidence. You must ignore any ones opinion and make up your own mind as to the direction of the market, of then give up even trying to figure that out by simply following Delta Neutral Strategies.

I was fortunate to find the PCCRC, and implemented because now I know that I can very well ignore outside influences and profit regardless of market direction. If the market goes up, I will largely profit from Delta appreciation, if the market goes down I will benefit from implied volatility. So I can sleep well at night, assured that this period will also pass, but I will be ready to profit without much caring what the bad or good news of the day may be.

Common influences: CNBC, Family, friends, the news, Gurus, seminars.