Well, my time out west is nearly at its end. It’s back to the Northeast first thing tomorrow. I’m not looking forward to the transition back to the cold. I understand that it’s supposed to be in the 20s, whereas I’ve been enjoy temps in the 70s or better the last few days. Ah, well.
Actually, while out walking around the other day something occured to me. Being out here in Feburary (which it still was at the time) really had my internal mechanisms all out of whack. I have lived nearly my whole life in New England. From my perspective, the temperatures and sunlight I was experiencing here in the L.A. area were very much akin to late Spring back home. I had to keep reminding myself that it was still actually winter.
That got me to thinking about something.
In trading, as in life, we adapt to the way things are. We see the patterns that develop and adjust our actions to achieve maximum benefit (at least we should). After a while, things become fairly instinctive. We don’t even have to think about it anymore. We see something on the chart, or a particular action in an indicator, and we automatically know what the market is likely to do because we have seen it before many times. That is a big part of what Brett Steenbarger talks about in Enhancing Trader Performance – developing mastery through repetition. With enough experience, you reach a point where you trade on instinct.
My time out here in SoCal got me thinking about those instincts, though. Instincts can become useless if you take them out of context. For me right now, it’s being in a warm weather climate during what I normally consider winter. My instincts tell me things that are not appropriate for the environment that I’m in. The same can be true in trading.
You might be wondering how so.
Consider the stock trader who got in to the markets in the latter part of the 1990s. That was a time when stock prices were rising steadily. A trader who succeeded during that time basically adapted themself to that market environment. When things changed to a bear market, though, we saw a great many people shaken out of the market. Their way of trading, their instincts, did not work for them in the new environment.
As traders, we must always seek to understand the environment that we are trading in. What that means will be different for the various markets and ways of trading. For some folks, trading in a rising interest rate environment is different from a falling interest rate environment. For others it could be a question of high or low price volatility. It could even be as simple as using a new charting package with has a different scaling to it which changes the way they see things on the charts. There are any number of things that could be considered part of the environment one trades in.
Regardless, understanding your environment allows you to make sure your instincts are properly aligned. At a minimum, that could save you suffering losses from trades that perhaps shouldn’t have been made. At best, it could provide you with the perspective to see new trading opportunities.
Tomorrow I get my instincts and my environment realigned. 
If you like this post or find it informative, I encourage you to sign-up for the newsletter.
Also subscribe to the blog feed and/or follow via Facebook or Twitter.
About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
Similar Posts:
- Influences on Price/Earnings Ratios
Fixed Income and Stock Trading
Predicting Fed Rate Policy with Fed Funds Futures
