Trading Confidence – How to Trade with Conviction

Trading Confidence

How to Predict the Coming Trading Day with ConvictionLet’s pretend we’re in the same room trading together, as if we were all trading this one big hedge fund. At this moment, what level would your trading confidence be on a scale from 1-10?

Visualize a morning meeting where I outline a scenario for the coming trading day. I end the meeting with the following words:

I have absolute confidence accepting risk with this prediction for today’s price action…

I’m not saying I am right, what I want you to believe is a concept, something which in my opinion, is crucial to your trading success.To achieve trader status, or whatever you feel comfortable calling it, you need to have scenarios of what you expect to happen in the coming trading day.

That is the very definition of probabilities. You have to go into today, especially on a day like today, (November 13, 2015) and when I say a day like today, I am referring to the fact that the tone of the market has changed dramatically over the last seven days. (From a roaring 5 weeks of buying, to selling)

Trading Confidence – How to Trade with Conviction

I’m not saying I am right, but I am saying this is definitely what I’m looking for. There is a big difference there because a lot of people get hung up on, “well you said this is going to happen and it didn’t.”

Therefore you are wrong…

That’s not what I’m saying. What I’m saying is, and what I encourage everybody to learn and do, is to have a model of price action. A crystal clear framework of what price needs to look like for you to accept risk.

Then, and only then, if price unfolds according to your plan do you to accept the trade scenario. I am predicting what I expect to happen based on my tape reading ability, then I only execute the trades that do exactly what I forecast.

I don’t care of 7 out of 10 do not “work.” I only care about the 3 that do!

The key lesson here, is you need a structure for what you expect to happen. You need the tape reading skills discussed in the podcast. Otherwise, all price action will be random, and so will your results.

How to Predict the Coming Trading Day

Marian asks; “What would the circumstances be, for you to be a buyer today?”

I know that most people prefer to only buy, or to be long, so most people would want to hear the bullish case. I’m not saying there’s not a bullish case, you can definitely make a caseĀ  the stock market declined and we are due for a bounce.

But again, just from reading the tape, no fancy indicators or tools, I see it a little differently because I see it as the first day down, outside of the most recent three-day trading range.spy 3

This means I am immediately shifting from trading a trend to a breakdown of the most recent consolidation this is the core, the essence of learning to read the tape applying the correct strategy within the context of the most recent price action

Again I’m not saying I’m right. I am telling you how I am looking at price action, to come up with a picture of what I want to force it to look like, in order to trade with conviction.

To the untrained ear, this can sound like I am hedging myself. I am not. I am explaining what I want price action to look like, to accept risk with confidence.

** I recommend downloading and playing this podcast a few times, there is a lot of actionable information.

SPY and FB Charts Discussed in the Podcast

SPY Weekly and Daily | 11.13.15 (Click to Enlarge)

How to Predict the Coming Trading Day with Conviction

SPY 10 Minute ChartĀ  | 11.13.15 (Click to Enlarge)

How to Predict the Coming Trading Day with Conviction

FB Chart 11.11.15 (Click to Enlarge)

How to Predict the Coming Trading Day with Conviction

Pete Renzulli

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