Out of Sight, Out of Mind
By Ralph Russell
One reason traders have difficulty in trading is the assembly, or perhaps
we should say presentation, of the information required to make trading
We will use my own poor performance for the first three weeks of January
2000 as an example. We have discussed it before and I readily admit that
in my opinion a Bear Market does not end in a few weeks or a very
few short months. I again want to state that I have a decidedly bearish
viewpoint for reasons we have previously discussed including profits
we made on the downside move of the market in late 2000.
Each evening the days trading is over. We have written and submitted
to The Bulletin our comments for the next trading day. I also write a
simple paper that includes other indexes commentary from my perspective.
This update for the next day lists bearish and bullish conditions by
outlining price levels where I think the change can take place.
They are specific. For example:
"For January 19, 2001 DECEMBER Nasdaq 100 Futures: We
are somewhat bullish above 2611 and truly bullish above 2645 and 2670.
We closed in a very bullish mood today!
"We are somewhat bearish below 2645 and truly bearish
below 2611 and 2586."
Is this simple statement written in a language that I don't understand?
Is it I that wrote this information after inputting the necessary data
in my computer? What is so difficult for me to understand?
I came to the conclusion that I and many, if not all my subscribers,
are ignoring this simple statement when the market opens and we go into
the trading day, oblivious to a very important piece of information.
"For January 18, 2001 DECEMBER Nasdaq 100 Futures: We
are somewhat bullish above 2597 and truly bullish above 2620 and 2536.
"We are somewhat bearish below 2620 and truly bearish
below 2597 and 2581. We closed in a somewhat bearish mood today."
Same thing. The above statement is very simple. We are bullish above
2620 and 2536. When I look at that day's movement on the 18th, I find
that we were above 2620 before 11:00, tested it exactly in a retracement
right around noon, and then broke above 2636. On the second time above
we went on to 2691, and a bit higher, as that level was very important.
(All times are Eastern time).
There was an opportunity on the 18th to take a trade from say 2641 to
2690 or thereabouts making about 50 points per contract in gross
profits, yet I believe I lost on this day, January 18th, 2001!
"For January 17, 2001 DECEMBER Nasdaq 100 Futures: We
are somewhat bullish above 2482 and truly bullish above 2506 and 2522.
We closed in a somewhat bullish mood today.
"We are somewhat bearish below 2506 and truly bearish
below 2482 and 2466."
On the 17th we opened at 2616! Is that bullish or what? Because of the
big gap the market churns as traders are stopped out, cover shorts, or
new longs enter. The market then usually sells off because of the size
of the huge gap, unless there is a substantial happening that caused the
I conclude that we must have these numbers in front of us if we
are to survive. We cannot go through the trading day without their presence
in front of us, so they do not leave our sight.
My son states that he tapes my levels on his monitor, so he will not
forget them during the day. Does it help him? I'll have to ask him, but
I believe it would help me.
In my own case, I have created code for TradeStation that plots the four
(4) levels on the screen with appropriate colors to remind us of bullish
or bearish numbers. I have done this now as I finally realized this information
was out of sight, out of mind, as it is said!
Is this the "Holy Grail?" I do not think so. If you look at charts that
have these lines plotted, you'll see and understand how the market uses
them and how the charts respond to them.
Some days we are completely above or below the four lines. You will note
that in most of these cases, should you test this out, we have a tendency
to go the way of the indications.
In some cases, once we stretch the range, we sometimes then begin to
retrace toward the level of the numbers. In some cases, we have an announcement
such as the Fed rate cut on the 3rd of January that makes this and other
tools next to useless the next day. This is due to the exaggerated range
caused by the announcement.
In other cases, after a volatility decline, and a corresponding decline
in range, we may get a day that chomps all over these four levels without
regard. We know that volatility has picked up!
As I stated, this is not the Holy Grail but it will add something to
our decision process during the day of trading. I believe we can go forward
from here, content in the fact that if we use this information, some days
will actually reveal their personality to us before the fact.
Copyright Ralph Russell 2001