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Trade Like Jason Bourne
I can tell you the license plate numbers of all six cars outside…
I can tell you that our waitress is left handed and the guy sitting up at the counter is 215 pounds and knows how handle himself…
I know that the best place to look for a gun is in the cab of the gray truck outside…
The Bourne Identity
That classic scene from the Bourne Identity is a prime example of situational awareness. Bourne may be suffering from full blown amnesia and may not know who he is, but his skills as field agent extraordinaire remain with him and will go on to save his life as the movie proceeds.
Situational awareness is not some random talent that few of us are blessed with, but is a skill that can be learned by anyone. It’s taught to policemen. It’s taught to soldiers ( especially the Marines) and it should be taught to every trader because just like in real life it often means the difference between success and failure.
When it comes to reading our environment we possess tremendous variety of innate resources that alert us in to the slightest changes in our surroundings. I remember when my son was young he lagged many of his peers in verbal skills, but he could walk into our building elevator and instantly notice that the overhead light was dimmer than usual. Now that he is fully grown his English skill are fine, but his ability to “read the room ” and the people in it is astounding in its clarity and precision.
When it comes to markets there are only two trades that you can make -- momentum and mean reversion. In low volatility markets mean reversion trades rule. In high volatility markets momentum trades dominate. Misjudge the state of the market and your best designed strategy will be torn to shreds. That’s why all algorithmic models eventually run into trouble ( at least the ones that don’t cheat) because while computers are far better than us at computation, they still perform poorly in making nuanced choices about the state of play.
As traders -- especially as day traders -- situational awareness means that we must be keenly aware of both price action and news. That’s why the best traders in the world are always consumed by the markets -- staying in touch 18-20 hours each day. More so, the best traders learn to adapt to volatility -- stretching or contracting their entries and exits as needed.
Situational awareness is a lot easier to master when you trade in a team environment where many traders are keeping an eye on different developments and alert the group key incoming data. If you trade as a true team, the group gets better much faster than a single trader ever could. This week in our chat room we managed to sidestep many volatility traps that tripped us up just a few weeks prior as our situational awareness improved dramatically.
We can’t all be as cool as Matt Damon -- but we can all learn how to survive from Jason Bourne.