Bias in the Trading

We all have our biass. I am no exception. I have my personal bias on all things in life. Therefore, they affect my trading too, as it is part of my life. I try to suppress it all the time, as a short term trader having a bias can be quite detrimental and dangerous. If I say it is easy, I will be lieing. Today I traded something that I am not particularly proud of. It reflected my current bias on the US market towards the short side. I strongly feel in the near term to intermediate term market 'should' go down. There is no point is supplying evidence as that is not important. I am saying that this bias that I have is a TERRIBLE thing. I explained to you earlier that my trading style is reactive, happens within a day, and 'shouldn't' have any directional bias going into the trade. The day can decide the direction and ideally I should follow it. But it is easier said than done. Even after 28 years I struggle with my bias. Here is and example:

For a change, it is Nasaq 100 Index today. The Nasdaq 100 futures is called /NQ. I will tell you why I traded /NQ today. Above is a daily chart of Nasdaq 100. The March Covid low and the massive rally since then till early Sep is clear. Since then market is struggling in general, and there is a double top in place (although until we break below 10600 or so, that formation is incomplete). Currently the market is below 50-EMA the magenta line, and the looming US general election related turmoil is making me bearish. That is my bias. Yielding to my bias, I am looking to enter short trades more, and ignoring long set up! There! I said it. That is a confession :)

Just look at the inset real quick. This is from this morning. The major indices, Dow, S&P and Nasdaq normally move in tandem. When they are green, they are all green; when they are red, they are all red. Not today! I saw this, and interestingly the strongest index that is really fuelling the market rally is red! Huh!

Trading the Bias

I looked up my phone as I woke up. Damn /ES is up 40 points plus in the pre-market Asian Session! Damn! What the hell is going on! I normally don't check the news. More bias! I have my own already! Do I want any more bias? No, thank you! At that point /ES was trading 40 points above VWAP which is uptrending. Well I resigned, this is a day we look for long set up. Play the correction, and trade up. But then, I didn't like it. I just have a bias to the short side. Then I saw /NQ is trading weak. Whatever, the reason, /NQ is trading softly. So I better look for a set up there on the short side! (Please don't try this at home!!)

Above is the 5 min chart of Nasdaq 100. I watch the chart as I was drinking coffee.... yep it is selling off from its high. Still way above VWAP and no entry. I got ready. Dropped my daughter to school, and went to work. As the market opened, big volume influx as usual and the index ralled to high to the pre-market, but it sold off around 9am. It couldn't make a new high. It's a sign, I said to myself. Get ready!

As it sold off, I entered a full position as it went below the VWAP (blue line), right about the location of yellow arrow, with a stop just above at the high of the day (red arrow) and a target at the previous days low (green arrow). It started the slide and the trade closed right around lunch-time. Take you money and run! It worked out, but the market rallied into the close and finished almost green. Yeah, it worked out. But don't try this at home :)

Disclaimer: This is NOT professional advice, this is all just my own opinion and experience. I am NOT a Certified Financial Adviser. Consult professionals for any financial, accounting or legal related questions you have.

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