How The Pros See Things

Amateurs control the open, professionals control the close.

A popular saying on trading floors in NYC. So popular that one of the largest prop trading firms in NYC built a lucrative strategy around this one concept.

Their traders would scan for surging volume in the last 30 minutes of the day, and stocks closing in the top ten percent of the daily trading range. Pretty easy to understand, and even easier to execute.

The goal was to buy on the close and exit on the next day’s open. Best case the opening push higher. You accepted overnight risk for quick profits the next day. Some traders in the firm traded only this one strategy. 

It was lucrative, but a different time. Information from the close to the next day’s open wasn’t as available as it was today. Anyone anywhere has instant access to news from across the globe. There was a time that information was for hedge funds or Bloomberg terminals (If you could afford one).

But that doesn’t stop us from using that information today. Five out of the last six days the SPY ETF closed above the open, four near the highs. But five out of those six days opened lower.

So lower opens, but strong closes. Ahead of the FED. Why are amateurs selling the open in a panic, and the pros buying the close with intent? Have everyday folks given up after directionless trading?

Are the pros positioning for a big move higher and accumulating a position? Do the pros believe that the worst is behind us and it’s a risk on trade?

I’d love to tell you that we’re about to blast off higher. 

But the truth is the market is stuck in a tsunami of conflicting data. And the market hates indecision. Some smart people saying “this” shouldn’t be happening. Meaning the economy is fragile and the tech rally amid higher interest rates doesn’t make sense.

What you’ll eventually learn is that what “should” happen doesn’t matter. What matters is having a roadmap for price action and not second guessing what you see. 

When your beliefs about the markets conflict with reality we disconnect from price action and we don’t trade what we see, we trade what we believe. And that’s a very expensive place to live.

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So getting back to amateurs versus the pros.

There’s another famous quote that you need to know. “There’s old traders, and bold traders, but very few old bold traders…”

Veteran traders accept risk when the odds of profits are stacked in their favor. When that’s not happening, they lower risk, trade for cash flow and keep themselves prepared for when the road opens up. And when it does, they’re ready, and they make the big bucks. 

Amateurs trade for the action. They trade because they are excited and because the market is open. They’re like excited puppies who see their family come home from church. Thinking “let’s play let’s play let’s play!!”

Pros also have patience. And they don’t get frustrated. They’re playing the long game, not getting paid by the hour. Trading is the most beautiful business in the world. As long as you actually treat it like a business.

Something to think about.

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