ES Emini Trading: Is Your Trade Logical

I can remember years ago working on math problems in high school and coming up with odd answers and having my teacher ask "does you answer really make sense?"

Often times it didn't.

When trading the ES Emini we often get so wound up in the myriad of oscillators and chart configurations that we through common sense out the window.  You may have the perfect set-up for a long trade, every indicator screams "buy now" and you become excited about the possibility of the trade.  Of course, you may not have noticed, in your excitement, that the market has been on a downward spiral all day and is trading significantly below the 89 period SMA.  In my mind, anytime the market is well below the 89 period SMA I concentrate ONLY on short trades.  Why?  Counter-trend trades are often very low probability trades and best avoided.

And trading is like math, or like using a calculator.  If you don't include all of the variables in your trading equation, you are very likely to come up with an answer that just doesn't make sense.  The problem for me is that I am so wound up in my technical analysis, that I neglect to ask myself this very basic question...."Does this trade really make sense?"

It's not an art, or even hard science, the process of examining what you are trading borders on common sense.  Though I should warn you that common sense and the market are diametrically opposite.  The market need not make common sense to be successful.  But your technique for evaluating a potential trade has to make common sense within the parameters of you own trading system.  It's important to note the difference between these two definitions, too.

The market moves in a semi-random manner and, in the long or intermediate run, is very difficult to predict.  Common sense is of little value in this scenario.  However, you should have a distinct method for evaluating trade set-ups and, regardless of you system, you should be able to make common sense out of your trading system.

Yet we are often blinded by our over attention to our systematic approaches and leave important variable to the side.  This is a recipe for disaster.  Your trade evaluation needs to be thorough and complete, and then ask yourself, "Does this trade really make sense?"