Anticipation Manifesto by Jimmer 10/2001
A great trader talks about anticipation. This article may change the way you
trade. It has for me. Thanks again Jimmer.
Presently you can find Jimmer in Victoria
Pearson room on Paltalk.
Date: Fri Oct 19, 2001 8:41 pm
Subject: Anticipation Manifesto
In recent days there has been discussion in the
chat room about the
issue of confirmation versus anticipation. Some traders prefer to
refrain from entering a trade until they see price action which they
believe confirms the direction of the intended trade, such as
penetration of a particular bar or previous swing high. They feel, I
gather, that this confirmation reduces the risk of the trade and to
enter the trade before confirmation is taking too big a risk.
Without totally rejecting that thinking outright, I do beg to differ
and do trade differently most of the time.
Let's try an illustrative example which (big surprise) will
hopefully support my argument. 5 minute chart. Suppose NQ makes an
orderly decline from 1330 to 1305, then in a final surge drops
another 5 points to 1300 and slightly penetrates the Bollinger band.
Then in the next few bars there is a dead cat bounce back to 1309.5,
followed by another 3-4 bars of decline to 1302 and here is again
brushing the lower Bollinger. At this point there is a pause with
price vacillating for 5 minutes between 1301.5 and 1303, with bar
close at 1303. Now, confirmation trader sees a higher low may have
been put in here, but wants confirmation of a trend change by waiting
for penetration of the minor swing high of 1309.5, so he puts in a
buy stop at 1310.
Anticipation trader sees things differently. Price may not have
bottomed here at 1301.5, but other buyers will start coming in if
they think it has. After a decline of 30 points early shorts that
aren't already out are getting very itchy. From the close of the
first up bar to the 1301.5 possible bottom is 1.5 points. To the
previous low is only 3. Entering at 1303 risks 3.5 points to find
out if a long trade will likely fail. He peeks over at the 2 minute
chart and sees that stochastic and MACD have already turned up. He
hits the enter key. And price proceeds to go up to 1309 where
confirmation trader is beginning to hope for a fill at 1310. He gets
it. Both traders in.
Now at this point confirmation trader with his 5 point initial stop
is hoping not to get stopped out for a loss. Anticipation trader, who
only risked 3.5 has moved his stop to 1305, locking in a 2 point
profit. You finish the story. The end doesn't really matter. If
other confirmation traders pile on and run the price to 1315, we are
now at 50% retracement of the last downtrend. Confirmation trader can
move his stop to break even and anticipation trader can choose
between taking 12 points and running or raising his stop and going
on. Is confirmation trader guaranteed something by having waited for
that confirmation. If you say yes, why? Did he take less risk than
anticipation trader? Clearly not. How long will it take for early
long scalpers to sell and generate a dip? Does confirmation protect
anyone from this happening?
Confirmation does only one thing for sure. It means price exceeded
some other price by one tick. Nothing more. I like the odds of