A pattern like this usually stays idle till the close.

A lot of shaking going on right now...stop is holding ground...

Bought YM at 12480 with stop at 12450...let's see how it goes...

The market (YM Futures) is advancing smoothly from this (chart) overnight session from the Globex.

It now advances by 100 points plus.

As always, the market make its big move in the overnight session.

Lucky for those from the overseas participants.

I guess it might not make a big move (anymore?) in the regular open, if it does, timing is important to place an entry.

UNDERSTANDING IRRATIONAL EXPECTATIONS

11 January 2012 by Cullen Roche

In this morning’s note David Rosenberg asked an interesting question – what are the bulls seeing? Recent economic data has been good, but it hasn’t been off the charts by any means. But the market seems to have this impervious floor underneath it again. We’ve seen this a lot over the last few years and I think the underlying cause is a relatively simplistic, but often overlooked effect that occurs in markets.

Markets are based largely on forward looking irrational expectations. They’re irrational because the summation of the decisions of the market’s participants are irrational. Human beings just aren’t built for life in the markets. We are built to survive. That’s why controlling your emotions is the #1 hurdle in the markets. Contrarians try to overcome this hurdle by taking the other side of the mainstream perspective, but being a contrarian is easier said than done. I always like to say that once you can eliminate your own brain from an investment strategy that you’ve won the investing war.

Fight or flight? Harvard physiologist Walter Cannon discovered the fight or flight response in 1915. This is an innate and very primitive reaction that occurs in humans when under stress. Interestingly, what happens in such a scenario is a near transformation of our thinking. Our thinking changes from a broad focus to a narrow focus. Fear takes over our mind. Everything is a potential threat to our survival. We are quick to respond and often inefficient to respond. And more often than not, it is easier to flight than fight. We don’t stay and fight the bear when it attacks (even though studies show that fighting or rather standing up to the bear is the more likely survival technique). We run. It’s innate. It’s a survive first mentality. And it’s often self destructive. In the markets, we are often slow to react. We will actually stay and fight the bear and then run when it’s too late (if you’ve been around long enough you’ve sold at the bottom – I know I have).

The key point to understand in a highly volatile environment such as the current one is that irrational expectations are constantly shaping our expectations of the future. They are based on an unknowable and unpredictable future, but we place the bets nevertheless. So we run from the bear for 10 minutes. Then we stop and look around, are comforted by the fact that we can’t see him (he can smell you though!) and we get complacent for 30 minutes. Then the bear reappears, we panic, run, rinse, wash, repeat. It’s an endless cycle in the markets that will never end (except some people get caught by the bear!). The key to understanding market movements is understanding this dynamic of irrational expectations.

Right now, the bear is nowhere in sight. But who knows where the next bear will come from? He could reappear in the form of the Euro crisis, earnings disappointments, or some other unforeseen event. But the key is understanding why the bulls are seeing what they’re seeing because in fact, it’s not what they’re seeing that has them buying, but what they’re NOT seeing….

Think Less & Keep It Simple

Thursday, January 12, 2012 at 03:34 PM

Every once in awhile I read something from another trader who I respect that I really wish I wrote myself. Here’s one such example:

“One of the most difficult things to get investors and traders to understand is that no matter how much they investigate an investment, they will probably do better if they did less. This is certainly counter-intuitive, but the way that our brains function almost guarantees that this will happen. This kind of failure also happens to those investors frequently regarded as the smartest. In essence, the more information that investors have, the more opportunity that they have to choose the misinformation that suits their emotional purposes.
Speculation is observation, pure and experiential. Thinking isn’t necessary and often just gets in the way. Yet everywhere we turn, we read and hear opinion after opinion and explanation on top of explanation which claim to connect the dots between economic cause and market effect. Most of the marketplace is long on rationale and explanation and short on methods.
A series of experiments to examine the mental processes of doctors who were diagnosing illnesses found little relationship between the thoroughness of data collection and accuracy of the resulting diagnosis. Another study was done with psychologists and patient information and diagnosis. Again, increasing knowledge yielded no better results but did significantly increase confidence, something which the smartest among us are most prone to have in abundance. Unfortunately, in the markets, only the humble survive.
The inference is clear and important. Experienced analysts have an imperfect understanding of what information they actually use in making judgments. They are unaware of the extent to which their judgments are determined by just a few dominant factors, rather than by the systematic integration of all of their available information. Analysts use much less available information than they think they do.
This underscores the value of using a simple method. I didn’t say easy – I said simple!” – Jeff Cooper

I could not have said that any better than Jeff. Well done!
* This report was originally posted at the members’ only site on July 20, 2011.

The market will be closed come Monday due to official holiday.

Showing the daily chart for the YM Dow where the trend overall is moving upwards.

I can say that the perception for the market is now positive for the days to come?

I guess that's what the chart shows, the big drop the last two months already waned out.