Sometimes It’s the Trades You DON’T Take

There’s a perception that a professional trader is someone who is constantly tossing contracts into the market, going long and short on the tip of a hat, trying to catch a move. 
 
While some could be like that, I like the idea of trading like a sniper, waiting for the right moment to pull the trigger. In some ways, effective trading could be like musical composition. I believe that it was Mozart who said something to the effect of: “The music is not in the notes, but in the silence between.” 
 
So then “trading” could be defined as: “Profitability is not in the trades, but in the pause between.” 
 
Let’s show an example; in August and into Mid-September, we were quite busy with our non-directional trades since the market was in a low-volatility condition and nicely range-bound. But two problems started to emerge: 

• The price was starting to converge into the apex of a triangle
• The daily chart “energy” was spiking, showing the potential for a big move. 

 
We closed down all of our trades and waited for the Market to make the next move, and “move” it did! Over two hundred S&P points to the downside, and counting in just a few days. 

​In this chart, the red circle shows the energy peak, and the yellow arrow shows the triangle apex; while we’re not in the business of predicting the future, we know from experience that this is a condition that likely brings about big moves that we’d prefer to avoid if we’re trading non-directional strategies. 
 
Had we just kept trading those strategies, undoubtedly a number of them would have been closed for a full loss. 
 
While you’ll miss 100% of the shots that you don’t take (Wayne Gretzky) sometimes it’s better to let the silence between the notes (or your trades) play out. Know when to wait vs. when to act. 
 
In your corner……..Doc Severson