Trading is all about playing the numbers and the probabilities in order to have more winners than losers, or at least much bigger winners than losers.
But what about the trades you didn't put on?
You had ideas that you put to one side to return to at a later date and time, but you never did.
Or you came back to after the event.
That’s the opportunity cost and the nature of the market for you.
We all experience this.
Here is a LinkedIn post I made just over a week ago that illustrates the point perfectly.
“Sometimes you post a comment and move on - when you should really have circled back”
For example, this message to a fellow market professional in France, made at 9.17 am London time on Wednesday 19-03-2025.
"BNP have written on Compass Group, apparently, and they are down, so (that) might read over to Sodexo"
"Might" now looks like a very big understatement! “
Source:Barchart.com
Sodexo warned on profits the next day.
All you had to do was join the dots. In fact, I had already joined the dots; I just needed to pull the trigger ..... but I didn’t; I got distracted and moved on to something else.
It's annoying and a big miss.
Imagine a 20.00% gain on a leveraged short .....
However, I take some comfort from the fact that I recognised the opportunity when it presented itself.
Because that tells me that my head is screwed on properly and that my thought processes are correct, even if my implementation is deficient.
Intuition in trading
I got involved in a conversation this week about the role that intuition plays in trading. For some people in the discourse, the answer was none.
They were firmly of the opinion that trading should be rules-based, with a focus on risk and money management and that touchy-feely things, like intuition or gut instinct, should be kept at arm's length.
Now, I would be the first to agree that emotions should be kept out of trading.
Chasing a loss, acting on the spur of the moment, not thinking logically about a course of action, by for example, ignoring a stop loss and running a loser, are all common emotional responses. That usually leads to a trading loss or even the loss of your whole deposit.
Believe me, it happens.
However, I draw a distinction between those emotional responses and intuition.
I see intuition as being more like a subconscious voice, which I take to be the vocalisation of experience and knowledge about a subject or activity. That points you in the right, rather than the wrong direction.
I feel it, or hear it if you will, when I see a chart, or read a piece of research or commentary that “speaks “ to me. Something I instantly understand or which generates an idea that I can apply to the markets and benefit from.
In reality, you probably need to have experience and understanding of a subject, or activity, to have that intuitive input, and if you do then I think you should listen to it.
The other takeaway from the Sodexo story is that you should always be focused when you are trading or looking for trading opportunities.
In this case, I was doing a friend a favour passing on a piece of intelligence; nothing wrong with that.
However, what I failed to do was dig a bit deeper, study the chart, look at Sodexo’s financial calendar and think about when the read-across might come into effect.
Clarity of thought and a lack of distractions are key at times like this. As for me, well, I was hurrying to get on to the next thing.
A lesson learnt
The flipside to not following through on a trading idea is to hang onto something for too long.
You may recall that towards the end of January, I screened the S&P 100 for stocks that had demonstrated rising volume over the prior 6-months and 52-weeks.
My thinking was simple. I believe that price moves which are supported by good and preferably excess or greater than average volume, are far stronger signals than moves that are not accompanied by good volume.
Many of the stocks in that screen went on to do very well.
Here is that list of stocks from late January, ranked by 50-day change, as a proxy for their performance since I first ran the screen.
Source:Barchart.com
Amongst the names above is food manufacturer Mondelez MDLZ US, which is up by +17.46% over the last 50 days, as of the time of writing.
Source:Barchart.com
However, it’s also appropriate to point out that it’s trading -$3.00 below its three-month high of $70.60. And that it hasn’t posted a new high since March 10th.
In fact, if we look at the frequency of new highs in the name, we can see it’s fallen right off.
It’s also very apparent that 12 new highs in three months wasn’t characteristic of the stock's performance in recent times.
Source:Barchart.com
My take? Momentum is slowing, and one could argue that it’s ground to halt.
The things that attracted me to the stock in the first place aren’t present anymore, so it’s time to move on .
Indeed, I ran a similar volume screen among S&P 100 stocks this week, and MDLZ didn't make the cut.
Source:Barchart.com
Of course there are plenty of other names to focus on, in for example, the list above.
And that’s what’s so interesting about the markets.
There is almost always another angle, another opportunity around the corner, you just need to be alert and solvent enough to take advantage of them.
Otherwise they just become another one that got away.
Trading is often about backing your hunches, successful trading is about backing the right hunches more often than not.,One way do that is to let the data guide you.
History and the markets tend not to repeat themselves indefinitely, however, as we have seen in the data and charts above, they do often rhyme with, or echo the past .
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