Should I have a long or short bias at this moment?
There were two duelling hypotheses at work today in the market, looking at symbol: in SPY, the exchanged traded fund for the US S&P 500 index.
Price had gone back and forth between buyers and sellers, bulls and bears..
Was the high of the day seen at 110.8 and /or was the low the day established when price it 109.56?
Depending on your directional bias for the intraday trade, either one of these hypotheses could be true and is supported by evidence the price actually reach those levels during the morning trade.
Which bias is correct?
Now note that you don’t have to have a long bias or a short bias, exclusively. You can have both but to a certain degree; it’s a “fuzzy logic” concept.
A person that is 5’6″ is short (to a certain degree) and tall (to a certain degree), as is a person that is 6’3″. They have differing degrees, and differing amounts of evidence;
So, the market momentum or price condition, its “state of nature” has elements of both long and short in it; it must, by definition, or it wouldn’t be a market.
In the same way yin-yang has elements of the other even in the most extreme moment
The moment it became “all long” the market would cease to exist..
So, at any moment when you are trying to get a read on which way to be looking, you must actually be simultaneously holding both ideas in your head, and evaluating the evidence of likelihood and opportunity in both directions to make a decision about which way offers you more value .
The trade MUST be able to be framed by someone in some time frame at some probability of gain, because someone is taking the other side of the trade.
To me, that is the essence of thinking about the reward to risk ratio of 2:1 all the time, and estimating the Green-Yellow-Red zones to gauge what i think price action and support and resistance levels are telling me.
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