{"id":39125,"date":"2015-05-17T10:42:40","date_gmt":"2015-05-17T17:42:40","guid":{"rendered":"https:\/\/brookstradingcourse.com\/?p=39125"},"modified":"2015-08-14T09:55:14","modified_gmt":"2015-08-14T16:55:14","slug":"fundamentals-mathematics-computers-and-my-job-as-trader","status":"publish","type":"post","link":"https:\/\/www.brookstradingcourse.com\/es\/ask-al\/fundamentals-mathematics-computers-and-my-job-as-trader\/","title":{"rendered":"Ask Al: Fundamentals, mathematics, computers, and my job as trader"},"content":{"rendered":"

BPA trading room Q&A: May 25, 2011<\/h2>\n

Where did all that selling come from? (Bars 70-81). I know big traders and computers will short above swing highs expecting points like bar 28 to be tested, and to take profits, but it just keeps going. I don\u2019t understand why.
Did bears just hold because bar 76 was strong? Or was it the wedge? Or no-one left to scale in?
Audio duration: 9min 44sec \u2014 Scroll down for images<\/em><\/p>\n

 <\/p>\n

Audio transcript<\/h2>\n

Where did all that selling come from?<\/h3>\n

That is a really good question and really important question. He\u2019s asking, \u00abWhy?\u00bb He\u2019s asking fundamentals. Trading has nothing to do with fundamentals, for the most part. At least nothing to do as far as most traders are concerned. You hear the idiots on Fast Money, and the pundits all the time talking fundamentals. A stock can be going up for 6 months, and then you\u2019ll hear, \u201cOh, the world population is growing, there\u2019s going to be a demand for corn. And therefore, Monsanta should go up.\u201d But the world was growing yesterday, it was growing a month ago, it was growing 6 months ago. And the demand for food was there 6 months ago as well. So why today, all of a sudden, should we buy Monsanto, or Potash? To me, it\u2019s all craziness to argue fundamentals. Most of the time, even if you know the fundamentals, you don\u2019t have the ability to understand them. So when you\u2019re asking, \u00abWhy?\u00bb to me it\u2019s kind of asking fundamentals. And they\u2019re irrelevant.<\/p>\n

\"es-chart-fundamentals-mathematics-computers\"<\/a><\/p>\n

Most of the trading that we see during the day is done by computers. And the computers are basing their trade decisions on mathematics. And it\u2019s not like all the firms are using the same algorithms, and everyone is coming up with exactly the same prices. A lot of the measured move targets are the same. But big moves and crazy reversals like down from 70 take place only because a whole bunch of computers had the same algorithm, or comparable algorithms. Some might be shorting because of the 51 \u2013 60 wedge. Others might be shorting because of yesterday\u2019s 72 and today\u2019s 28 wedge. Others could be shorting because of measured move targets. It doesn\u2019t matter. As long as enough computers are doing the same thing, the market will act in a certain way. Once a move starts to pick up speed, like 67 \u2013 68, you get computers that are trading purely on the basis of momentum. \u201cEight of the past 10 ticks were up, therefore we are going to buy. We are going to keep buying until we get some down ticks\u201d. So the momentum traders piggy-backing onto what the other computers are doing on the move up from 66. Now when the momentum starts to slow, the momentum traders take profits. When the momentum starts to build on the downside, 76 \u2013 77, those momentum computers, they don\u2019t care about fundamentals \u2013 they don\u2019t even care about mathematical targets, or measured moves. They\u2019re just trading momentum. They see the momentum on the downside, they just start shorting. And they keep shorting all the way down until the momentum stops, and then they\u2019ll buy back their shorts. But as they are shorting, they\u2019re triggering signals for other traders to short. \u201cOh, the market moved below the 68, 67 strong signal bar\u201d. So some computers will short there. \u201cIt moved below 66\u201d – other computers will short there. \u201cIt moved below 62\u201d – other computers will short there. \u201cOh, it fell 4 and a quarter from the high\u201d – some computers will short there. \u201cIt fell 6 points from the high\u201d \u2013 other computers will short there. \u201cIt broke a trend line… It broke a trend channel line.\u201d And if enough computers are placing trades in the same direction, you can get a move that can go very far and very fast.<\/p>\n

My job as trader<\/h3>\n

But I never worry about \u00abwhy?\u00bb My job is to be very good at following what the market is doing. I don\u2019t care about understanding why the market is doing something. I just accept that it\u2019s all mathematical. And if enough firms are doing something similar, you can get a move that goes far and fast. My job is to focus on what the chart is doing in front of me, and try to do exactly what it is doing. If it\u2019s going up I want to buy. If it\u2019s going down, I want to sell. I never have to understand \u00abwhy?\u00bb All I have to do is be very good at following. And my job is to follow. My job is not to predict. My job is not to anticipate. My job is not to hope. My job is not to worry. My job is simply to follow. If the market is going up, I want to buy. If it\u2019s going down I want to sell.<\/p>\n

\"ask-al-fundamentals-mathematics-computers-job-as-trader-es-chart-yesterday\"<\/a><\/p>\n

But I understand that it can be disturbing to see crazy things like the move up to 69 and then the move straight down. It\u2019s a low probability event. But every event has a probability. And most events have a probability of at least 20% to 30%. No matter how crazy the move appears at the moment that it\u2019s taking place, it still has its point to 30%. At any point during the day, I always think there\u2019s at least a 20% to 30% chance that the next bar could be the start of a trend in the opposite direction. Always, always, always, always. And I never worry about \u201cHeck why – how can that be?\u201d I always say that. Even if I think the market has a 70% chance of going up. Back over here [yesterday’s chart – below] I probably said something like a 60% \u2013 70% chance of higher prices. That means a 30% chance of not higher prices. And a 30% chance that that\u2019s the top. How could it possibly sell off? It doesn\u2019t matter. If the computers make it sell off I don\u2019t need to know what their algorithm is. Nobody knows what anybody else\u2019s algorithms are. And it doesn\u2019t matter. I just follow the flow. And if you look at higher timeframe charts, a lot of times things, patterns look clearer. This is the timeframe I am trading. I could look at a 1 minute chart and everything could look confusing and I might not be able to take the trades fast enough. But whatever confusion I see on the 1 minute chart, I\u2019ll probably see clarity on a 5 minute chart, or 15 minute chart, or 60 minute chart. So whenever we see stuff that looks confused here, higher timeframe traders see it as very clear. This channel down yesterday from 22 to 50, is very sloppy, I\u2019m sure that on a 15 minute chart or 60 minute chart it was very clean.<\/p>\n

The music of the markets<\/h3>\n

Anyway, back to your specific question, as far as why is this craziness happening. I just smile, I sit back and I smile and I say \u201cWell that\u2019s really fascinating how a low probability event just took place.\u201d I smile and I never worry about it, because if I worried about why, all I can do is get myself upset because the reality is it\u2019s all mathematics. And everything has a definite, real probability. And the opposite of what you believe has a real probability. Probably at least 30% at all times. A lot of times it will be 60% opposite of what you believe. You think you\u2019re 60% certain, the reality is the market is 60% likely to do the opposite of what you believe is 60% certain. You just never get attached to an opinion. Never get convinced that the market is going to do something. Always accept that no matter how confident you are – even the craziest idea has a 20% – 30% chance of happening. And no matter how confident you are, it\u2019s hard to be more than 60% confident, but that means a 40% chance of the opposite happening. And 40% is a large enough percentage that you have to be very respectful of it. You have to be willing to change your opinion within a bar or two. And I do that all the time. But that\u2019s Ok. For me, that\u2019s one of the enjoyable things about trading \u2013 can I just kind of float all day long on the waves, and ride the waves wherever they\u2019re taking me. And not fight it, just go with it. And I like that, to me it\u2019s personally satisfying. It\u2019s very challenging, but it\u2019s very satisfying. To be able to listen to the music of the market, and then being able to move with it. To me it\u2019s very pleasing. However, there are all kinds of things that when you\u2019re starting out \u2013 they\u2019re upsetting. I mean they\u2019re crazy. Like the sell off from 70, you look at it and say, \u201cThat\u2019s not fair.\u201d But it doesn\u2019t matter. There\u2019s no way to program fairness, so it\u2019s not a consideration in the computer algorithms. Should a trader have shorted below 70, given it\u2019s a bear inside bar after a breakout? I\u2019m sure lots of traders looked at it and said, \u201cYeah, low probability trade. But it may trade down 4 or 5 points and I\u2019m risking 7 ticks to make 4 or 5 points on a 30% bet. I\u2019ll go for it.\u201d And the traders that took that trade, they did just fine.<\/p>\n

‘Why?’ is never important<\/h3>\n

Anyway, I\u2019m sorry about going on about this, but I think it\u2019s really, really important. \u00abWhy\u00bb is never important to me, \u00abWhy\u00bb in the fundamental sense. To me it\u2019s all mathematics. There are magnets all over the place. The market gets vacuumed up to prices like the 69 high. It gets vacuumed down, like the 9 low. And that happens all day long. Once the market reaches the vacuum area, the target area, bears appear out of nowhere. \u201cWhat? How can that possibly be?\u201d It\u2019s because the bears expected the prices to hit 1,324 for whatever reason, and they were not going to short until they got there. The bulls thought it was going to hit that price, for whatever reason, and they were not going to take profits until it got there. Once it got there, the bulls sold out, they took their profits, and the bears started to short. And the bears were going to scalp out lower, they were going to buy back lower, at the first sign of a bull flag triggering. The bulls were looking to buy lower, as soon as a bull flag was starting to set up. It never set up, so the bulls never bought. And the bears never bought back their shorts. The market just kept selling off. To me I just admire it, I just look back and I enjoy it. To me it\u2019s like looking at a garden, watching the stuff grow. To me it\u2019s very satisfying, I like it. And I like being able to move with the music of the market. And it takes a long time to be able to just let go. To become a follower, and just let the currents move you around. And not fight them, and just let them take you wherever they\u2019re heading. I think that is a very important character trait to develop in becoming a successful trader. Alright, sorry for running on like this. Hope everybody has a good night.<\/p>\n

Al Brooks<\/em><\/p>\n

Information on Al’s Online day trading room<\/a><\/p>\n

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BPA trading room Q&A: May 25, 2011 Where did all that selling come from? (Bars 70-81). I know big traders and computers will short above swing highs expecting points like bar 28 to be tested, and to take profits, but it just keeps going. I don\u2019t understand why. Did bears just hold because bar 76 […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[159],"tags":[],"class_list":{"0":"post-39125","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-ask-al","7":"entry","8":"has-post-thumbnail","9":"override"},"featured_image_src":null,"author_info":{"display_name":"BTC Admin","author_link":"https:\/\/www.brookstradingcourse.com\/es\/author\/richardhk\/"},"_links":{"self":[{"href":"https:\/\/www.brookstradingcourse.com\/es\/wp-json\/wp\/v2\/posts\/39125","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.brookstradingcourse.com\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.brookstradingcourse.com\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.brookstradingcourse.com\/es\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/www.brookstradingcourse.com\/es\/wp-json\/wp\/v2\/comments?post=39125"}],"version-history":[{"count":0,"href":"https:\/\/www.brookstradingcourse.com\/es\/wp-json\/wp\/v2\/posts\/39125\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.brookstradingcourse.com\/es\/wp-json\/wp\/v2\/media?parent=39125"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.brookstradingcourse.com\/es\/wp-json\/wp\/v2\/categories?post=39125"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.brookstradingcourse.com\/es\/wp-json\/wp\/v2\/tags?post=39125"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}