All posts tagged trend

In Market Mind Games, Denise Shull makes the observation that emotions and feelings share characteristics with fractals. What happens in one context may repeat itself elsewhere and in a smaller or larger variation. Having been exposed to Ken Long’s regression line fractal framework for trading, I’m certainly used to thinking of a fractal nature of the market. Van Tharp’s says that “people do not trade the markets; they trade their beliefs about the markets.” My a-ha came when Denise Shull connected these two ideas to demonstrate that traders have fractal behaviors, especially as it pertains to feelings and emotions.

Denise Shull starts with research that demonstrates that actions require feelings. No action takes place without some sort of feeling or emotion connected to it. For trading to be a psychological game, the psychologies driving the market must come from the traders. I’ve known and understood for a long time that my feelings and emotions influence my trading results. What I don’t think I appreciated until Shull pointed it out was how there is a much deeper crossover between my behavior as a trader and my behavior in other areas. Here are some of my own fractal behaviors that I spotted as I came to understand her point.

I am a musician, and my main area of interest in music is improvisation. I create music as I go. There may be a chosen theme, structure, or intention, but my primary goals are to create a competent, coherent, colorful, and convincing piece. I’m not looking for perfection and am certainly not stuck with following a written score. In trading, I recognize this as my reluctance and difficulty to write out a formal trading plan with hard rules for entry and exit.

Here’s another example of my resistance to formal rules. As an undergraduate, it was possible to take Music Theory 4 before Music Theory 3. The two classes covered different material, so while they had a normal sequence, it was possible to take them in either order. Because the best professors were teaching them in the same semester, I wanted to take them both at the same time. It made sense to me, but the Theory department wouldn’t allow it. Rules prevented me from doing what I wanted.

Someone shared the following on a Facebook post, and I resonated so much with it that I now have it posted on my refrigerator:

When I started to look for it, it became easy to see how my improvisation mindset manifests in not only a resistance to rules in music, but in many other areas of my life. Including trading.

Having gleaned this insight from Denise Shull, I’ll be watching and looking for other behaviors from my daily and professional life that might influence my trading.


Markets Trend.

What this means to me:

Markets establish a direction (up or down) in which prices will tend to continue over time.

What this belief gets me into:

This will encourage me to build and explore trend-following systems.
I expect to buy high and sell higher (or sell low and buy lower).
I expect to have multiple losers for every winner.
False breakout entries.
Trades that are in the red after entry but then continue as expected.
Looking to catch the meat in the middle of a move.
Need to define a way to identify a trend or start of trending behavior.
Looking at longer term trades (multiple bars of the time frame considered).
Exploring different markets.
Considering big picture (fundamental) ideas.
A way to classify markets: trending up, trending down, not trending.

What this belief gets me out of:

Picking bottoms or tops.
Following trends may keep me out of sideways markets.
If there is no trend, I may not be in the market at all.
A high win percentage for the system.
Concentrating on prices (trends) could distract me from psychological work.

Limitations of this belief:

Markets are not always trending. Looking for trends in a sideways market is bad for my account balance and bad for my personal psychology. I will need to give back profits before exiting a trade. I need to have reentry rules for both change of direction and continuation patterns. It could limit my ability to trade in a sideways market. No specific time frame is required, so any classification of market by trend needs to match the expected trade time frame. (A market could be long term up and short term down.)

Utility of this belief:

This will enable me to develop a way to classify markets: up, down or sideways (none). Having suffered losses when trying to pick bottoms (or tops), it is useful to keep me trading in the direction of the (longer-term) trend.


While this belief is a key for making sense of prices in the market, it raises many more questions. Time frame is important in determining trend. What do I need to see happen to believe a trend exists? How far must price move to reverse the direction of a trend? What identifies a non-trending (sideways) market?