Trading Opinions Vs Trading The Charts

by Olivier on December 9, 2010

Although I have addressed this topic numerous times in the past, today is a great day to expand on that idea. I decided to do so due to LNG – Cheniere Energy’s price action. So far the stock is simply not acting right. My job as a trader is not to rationalize holding on to losing positions. Here is a Quote from old Partridge mentioned in Edwin Lefèvre’s book about Jesse Livermore. Although the context is a different one the rule certainly applies here as well:

But I myself can only trade in accordance with the experience of many years. I paid a high price for it and I don’t feel like throwing away a second tuition fee.

As I have written in my chart annotations, I certainly do have strong opinions about lots of things. Call it common sense, macro analysis, doing extensive research, going for a fundamental approach, big picture approach, whatever. This is what helps me generate trading ideas. But in the end it all comes down to combining fundamentals with technical analysis. I base my final decision, i.e. the actual buy and sell decision on technicals exclusively. If a chart tells me to get out, I get out. No questions asked. I simply swallow my pride and move on. Here is the chart annotation transcript:

Do I have strong opinions? Sure. Does this mean I stick to my opinions if the market proves me wrong and my stop loss gets hit? Certainly not.

LNG Cheniere Energy AMEX Natural Gas Trading Opinion Technical Analysis Price Chart

Up-to-date LNG – Cheniere Energy chart on my public list

That being said there is really not much else to say. Either my macro analysis assumptions are wrong, something with the company is wrong or my timing is wrong. If my timing is wrong and I get stopped out, the stock will ultimately prove me wrong at some later point in time. That’s when I will happily reenter if it provides me a sound entry set-up. To make a long story short, my stop loss will take care of everything. Let’s see what happens.


Great trading comes down to the following 3 things:

  • Emotional detachment
  • Discipline
  • Focus on the process (not the outcome)

Most traders stick to their ideas even though the technicals tell them they are wrong. That’s why one of my favourite recommendations is to ‘never trade against the charts’. Way too many traders also focus on the “WHY?”. This is a waste of time and a losing proposition.

A trader should have no opinion. The stronger your opinion, the harder it is to get out of a losing position. – Paul Rotter

The stock market simply doesn’t work that way. Stocks move up and the answer ‘why?’ a stock moved up is given later. Often the true reason why stocks move are obvious very late in the game, so that you cannot profit from that knowledge anymore. That’s a concept I have addressed in my post where I suggest to embrace uncertainty and ambiguity. Great traders are content to listen to the charts and do not ask the ‘why question’.

Stick to your best ideas until you are proven wrong. – Andrew Horowitz

My public list with all my charts can be viewed here:

Buenas noches!

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