Prepared To Make The Play


I recently went to watch my 13 year oldnephew, Joey, play in a baseball tournament. Every parent / grandparent / uncle is quick to brag about theirson / grandson / nephew?s athletic ability. I am no different.  Joey is anexceptional baseball player.  He isexceptional in that he is a switch hitter with power from both sides of theplate.  Besides that, he has an amazingability to draw walks because is so patient at bat.  He has roughly 150 at bats with 40 walks and an on basepercentage of 600.   When I asked himhow he was able to be so patient and draw so many walks, he said with aprofound simplicity, “I don?t swing at crap. It?s not that hard.”  (I couldwrite an entire article about that as it pertains trading). 

 Joey?s baseball abilities don?t surprise me.  My dad played baseball through college andthen played one year of minor league baseball. My brother held the record at his college for the most homeruns in aseason for more than two decades.  He alsoheld the NCAA record for hitting four consecutive homeruns in one game (as hetells it, the fifth one went foul).  Soto see Joey?s athletic ability flourish on a baseball field does not surpriseme in the least.

On the weekend that I went to watch Joey?sgame, my dad also came to see his grandson play in this baseballtournament.  My dad, always the coach,watched as Joey tried to field a hard groundball hit to him at second base.  With a runner on first, Joey bobbled theball just long enough to disorient him as to where he should throw the ballonce he regained control.  The runnerswere safe at first and second.  Justthen I heard my dad ask under his breath, “If the ball comes to me, what am Igoing to do with it?”

“If the ball comes to me, what am I goingto do with it?”  Wow, that took me backin time!  I had not heard that questionin over 30 years.  My dad used tocontinually remind my two older brothers and me to ask ourselves that questionon the baseball diamond with every pitch that was thrown against ouropponents.  And now he was asking it,albeit under his breath, to my nephew, his grandson.

The intent of the question is to keep theplayer focused and ready for action at a time when heightened anxiety canoverwhelm thinking and interrupt successful execution, like when Joey bobbledthe ball for a split second.  That onemoment, not much more than a blink of an eye, created sufficient confusion inJoey?s mind to prevent what could have been a successfully executed doubleplay.  A momentary mental rehearsalbefore the pitch may very well have changed the outcome of the play.

In the current electronic tradingenvironment, it is equally important that we ask ourselves a like-mindedquestion throughout the trading day. “The [electronic trading] environment created is one of a very spasticnature where we move in a direction very quickly?You tend to blow through yourrisk parameters very quickly” (Collins, Daniel. More volume doesn?t equal liquidity. Futures Magazine. February2010, page 56).  In the electronictrading realm, the market can move very quickly, even in very liquidcontracts.  Now more than ever, we needto be continuously attentive.  We needto ask ourselves, “If the ball comes to me, what am I going to do withit?”  I?d like to look at two benefitsof asking ourselves just such a question throughout the trading day:

  1. Greater attentiveness to an existingposition
  1. A heightened state of readiness toenter a trade

Let me present a real-life scenario and askif something like it has ever happened to you:

I was in the process of accumulating a long position in theEurodollars after a head and shoulders bottom. I intended on being long 20 contracts and was able to accumulate 8contracts at the price I wanted over the course of a day.  My profit objective was 30 pointshigher.  I went to bed that night withmy buy order in for the remaining 12 contracts and a stop in place for the 8that I was long.  When I woke up earlythe next morning the market was 40 higher. It had been 47 higher at one point, but I did not have a sell orderin.  Who would have thought that theEurodollars, which typically have a seven or eight point range, would rallyover 40 points overnight? 

Instead of getting out of my 8 contracts that I was long at andabove my already generous profit target, I searched the chart for an evenfurther out profit objective.  When themarket dropped below my profit target, I held firm that, “It?ll come back tothe highs.”  You have a pretty good ideahow this ends, don?t you?  I let themarket run back far enough such that an $8,000 profit turned into a $3,000profit.  $5,000 slipped away because Idid not know what to do when the ball came to me.  

Incidentally, this story exemplifies why I tell my students thatthey need to have an accountability partner (AP) who will not be influenced bythe dollar figures.  If you choose an APwhose response to this story is, “Wow, you made $3,000 dollars overnight?” thenyou need to find a new AP. 

Of course it?s impossible to come up withevery variation of the question “If the ball comes to me, what am I going to dowith it?”  But certainly included in thelist should be, “If my position blows through my distant profit target, whatwill I do?”  To prepare for a spasticmove in the market, this is the type of question you can ask yourselfthroughout the day to stay engaged. 

If you are one who does not automatestop-loss orders but rather you manage them in real time, you especially needto ask yourself, “If the market gets to _______, what am I going to do with myposition?” or “If the _______report comes out above/below ___________, what amI going to do with my position?”  Youranswer to this question will help you to stay in tune and aware of yourplan.  This will prove especiallyhelpful when sudden market movement heightens your anxiety and can disorientyou just long enough to keep you from successfully exiting your trade at yourloss parameters.  The hardest trade tomanage is a losing trade.  Askingyourself the “If the ball comes to me” question will help you to keep yourtrading plans before you and prepared to manage a losing position.      

Aheightened state of readiness to enter a trade The answer to the question, “If the ballcomes to me, what am I going to do with it?” can prove to be the groundwork foryour next trade entry.  As you answerthis question, you identify and plan a course of action, a checklist if youwill, that you will execute once the ball comes to you from an unexpected movein the market. 

Just as the unexpected rally I describedcaused me to forgo my trade exit strategy, an unexpected move in the markettowards your trade entry level can scare you away from executing.  If you have been patiently waiting to getshort the market at a particular level above the current price action, a suddenmove up to your level can cause you in a moment to question the validity ofyour entry point and scare you into thinking the market will blow right throughit.  The reality is that the speed atwhich the market reaches your entry point is not an indicator of the validityof that point.  If the answer to thequestion, “What am I going to do when the market gets to 98.75?” is “Getshort”, then the speed at which the market reaches 98.75 is completelyirrelevant. 

In a previous article I wrote for Trade2wintitled, Simplify Your Trading, I talked about the power of a checklist whenentering a trade.  In his book titled,“The Checklist Manifesto ? How to get things right”, author Atul Gawandeconfirms a checklist?s power as a strategy for successful execution.  A checklist helps to alleviate the anxietyassociated with all processes, including the trading process, and keeps you instep with your rules for market engagement. And when you ask yourself throughout the trading day, “What am I goingto do when__________?” you bring your attention back to your checklist for theanswer.

Bill Provenzano can be contacted at UpsideBreakout

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