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You are here: Home / Trading Psychology / They Don’t All Work: UpThrusts and the Recency Effect

They Don’t All Work: UpThrusts and the Recency Effect

December 10, 2013 by DrGary Leave a Comment

Nothing is 100%.  That includes the Wyckoff Method.  Even the best trade setups will fail. That’s the nature of this game.  It’s all about probabilities.

12-10-2013 ES 3K TickThis morning before the US Open, we saw a good sell-off.  The market then pulled back and set up an UpThrust at #1.  Everything looked fine for a nice trade.  But a nice trade didn’t happen.  Instead, a minor Spring propelled the market higher.  The Spring was not expected to produce higher prices because of the background, but it did.  The short at #1 had to be scratched.

At #2, another UT set up.  Again the background was good for a short.  This one worked, and worked well.

We have to trade the chart and not what our minds might be telling us.  Many traders would pass on the second UT because the first failed.  That’s a cognitive error known as the recency effect.  The mind weights recent events more heavily than they should be weighted and this affects our actions.  Here, the mind is saying that because the last UT failed, this new UT will fail, too.  That’s spurious thinking.  The outcomes of the two trades are not correlated and have nothing to do with one another.  Thinking like this will adversely affect your trading.  If the background is weak and the UT sets up, take it and then manage the trade.  If it backs up against you as in #1, close the trade.  But don’t let the last trade influence what you do next.

 

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Filed Under: Trading Psychology Tagged With: Cognitive Errors in Trading, day trading, recency effect, Weis Wave Trading, Wyckoff method, wyckoff trading, Wyckoff Upthrust, Wycoff Spring

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