Basic instinct!

Am sure all the traders might have experienced this.

When you decide to enter or exit a position, the very moment you think about it, there will be a flash of decision in your mind in a lightning speed. This is purely from your instinct. But, we always ignore that decision and go with the decision after many analysis which is mostly contrary to the instinct decision. Always the consequence go against your analysed decision but favoring the instinct decision which popped on first hand. We then curse our self for not following the instinct. Later, we used to do mind calculations, “if I could have followed that, I must be sitting on this much cash! Phew! I missed it!”. 

I experienced this many times especially on the option contracts before expiry. The moment I think about taking a option position on the expiry day or 1 day before expiry, I skip my instinct and go for the contrary position which always failed. If I could have taken all the positions as per my instinct, then I would have made more than 100% every time :)

It’s a simple logic. Brain is the best programmed software of mankind. Since the trading is in your blood and you think about it all over the day while eating, talking and even in sleep, your brain stores all the information you read, hear, discuss and your own analysis and keep it in the priority racks. It also stores all your past good and bad experiences from your everyday trading life. When you face the situation of decision making in trading, your brain do the quick analysis based on the experiences and link it with the information stored. It immediately trigger your instinct saying “go for this” or “ leave this”. But, we poor traders never listen to it and goes for own decision making after so called many analysis which mostly fails.

We all know why techincal analysis is so famous and getting you some money. Reaction of the mass crowd against particular price movement never changes. It may be another day or year, but the reaction of the traders at certain price levels after a specific move in any given contract, never changes. It’s a balance of greed and fear. TA captures this beautifully and generate signals at appropriate places to enter or exit. Core fundamental for any TA indicator is based on this concept only. You can take fibo, waves, RSI, MACD, Pivot or anything else.. you will understand this simple concept.

Combination of your basic instinct and sincere obedience to TA will never let you down!

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Ok..why this post now! Because, my instinct saved me some 20k . I was carrying crude oil long positions which was actually bought at 4976 on Tuesday. My stop loss (SAR) for the same was at 4916. INR had a big role yesterday with its  volatile move, caused MCX crude prices not to run parallel along with its mother contract in dollar prices. After my buying at 4976, crude oil spurted to 5025 in a quick time but later fell heavily and exactly made low of 4916 i.e, at stop loss. After taking a support there, it again bounced to 4940-4950 and left me in a dilemma to take a decision whether I should reverse the position to shorts or to remain in the longs. As per TA, I can consider both option.

I can say either price has hit the stop loss so I should reverse or I can consider that stop loss actually gave the support to the price hence I should remain long. Price was swinging between 4920 to 4950 but it never came off. So, I didn’t reverse the position and closed the day with long position. After market is closed, I was thinking that I should have reversed to shorts as only due to  INR volatility, my stop loss was missed by a whisker!. If  INR was in the normal range, then prices should have gone way below the stop loss. Incidentally, the moment after our market is closed, I have seen that dollar prices were diving down heavily.

Next day, my stop loss has gone down to 4865. I am still in the long position and if I have to reverse to shorts today, I should wait for another 50 points from yesterday’s SAR. My instinct asked me to go for shorts when the prices going down below yesterday’s SAR and low i.e, below 4916 today and I responded to it. Lucky! Prices fell sharply and closed at 4855 yesterday and now it is trading at 4800.

If I skipped my instinct, loss of 55 points must be added to my wallet now.