This year demonstrated more than any other year the intervention of computer programs. Pre-set trading programs influence the majority of the S&P and bond futures moves. This is an interesting environment to observe. The tape clearly shows when their presence is most influential. These major programs actually do not mask their intent or presence. Actually, they flaunt their activities like someone flaunting their big diamond ring at a party. The key to success in trading is tape reading. I have always maintained that belief but now it is even more essential. Evaluate the present not what was or what you think will be. One of the rules of survival must be ‘lose your opinion not your money’. The computer programs have longer durations than the normal ebb and flow of a ‘true’ market. Sometimes it is infuriating to see the clear circuit overrides of up moves or down moves. I continuously say to myself, “It is what it is. Deal with it. Do not fight it.”
Each year I construct a new business-trading plan as I have done for 2012. The key for the upcoming year is recording the winning versus losing percentages. I noticed in 2011 that all trades would be winners if you complied with the flow of the programs. Bucking the flow resulted in all trades being losers. These were no days of split winners and losers. The reality was that the market direction would continue and to fight this fact was counterproductive.
The last interesting observance for 2011 was that the computer programmers appear to be amateur traders. The programs are allowed to progress farther than is a common sense move which results in a greater counter trend move to work back to equilibrium. Therefore, I increased my profit expectations, which did result in larger profits realized per trade, as the swings are wider.
In conclusion, go with the tape, as it is a clearer window to see where all the aces are to be played in the game.