{"id":24924,"date":"2013-03-08T19:12:57","date_gmt":"2013-03-09T00:12:57","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=24924"},"modified":"2013-03-12T00:58:13","modified_gmt":"2013-03-12T04:58:13","slug":"misunderstanding-the-conviction-trade","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/misunderstanding-the-conviction-trade","title":{"rendered":"The Misunderstanding of the Conviction Trade"},"content":{"rendered":"

“I am going to stay in this until I am proven wrong. \u00a0This is a Conviction Trade.”<\/p><\/blockquote>\n

Things heard on a prop trading desk, from a retail trader, at a macro hedge fund, on the Financial Media Entertainment Complex. \u00a0If only most of the above had conviction when they should.<\/p>\n

I was in my office chatting with a new trader about the distinction between a Conviction Trade for an experienced intraday trader and the misunderstanding of a Conviction Trade by a new trader. \u00a0This newb felt he had conviction in a trade while it was sitting in a trading pattern that made sense to him. \u00a0The trade had not moved, it was sitting. \u00a0There was no confirmation from the price action and volume<\/em>\u00a0that his idea was correct. \u00a0As an experienced intraday trader, I do not make conviction plays without confirmation from the market. \u00a0I have confidence in a trade that is then confirmed by the trade working for me based on price and volume. \u00a0 After confirmation by price and volume my confidence in the trade increases and I gain conviction. \u00a0This distinction is\u00a0enormously\u00a0important for all traders, save those who trade at a macro hedge fund or have a real news edge.<\/p>\n

Few traders trade at a macro hedge fund so to steal a phrase: do not try this at home. \u00a0Macro hedge funds enter conviction trades based on massive research efforts and quantitative\u00a0risk models. \u00a0Their entry points and draw downs are not as important as most other traders because they are making much longer term trades. \u00a0Most other traders, particularly swing and intraday traders, trade patterns that tend to work for them quickly. \u00a0This makes sense since their winning holding time is shorter. \u00a0Thus the time the trade might trade against them at first should be brief as well. \u00a0To most traders: hey you are not a macro hedge fund trader mate<\/em>.<\/p>\n

We are all pattern traders whether fundamental, technical or tape readers. \u00a0We have seen patterns repeat so over time we gain an edge trading specific setups. \u00a0I say in The PlayBook<\/a><\/em>, that all traders must develop a methodology to build from their strengths. \u00a0Said specifically to build a PlayBook. \u00a0Inside of your Playbook you will mark your A+ trades, the best of the best, for which you will have more confidence trading. \u00a0But even these setups will fail often and you must control your risk when you are wrong. \u00a0Sitting there and saying you have conviction when the trade is working against you is a mistake for most traders. We should not gain the ultimate confidence in our position unless it is an A+ setup AND the stock is working for us. \u00a0Anything else is misunderstanding what a Conviction Trade is for the type of trading you do.<\/p>\n

Mike Bellafiore<\/p>\n

The PlayBook<\/a><\/p>\n

One Good Trade<\/a><\/p>\n

\"\"<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

“I am going to stay in this until I am proven wrong. \u00a0This is a Conviction Trade.” Things heard on a prop trading desk, from a retail trader, at a macro hedge fund, on the Financial Media Entertainment Complex. \u00a0If only most of the above had conviction when they should. I was in my office chatting with a new trader … Read More<\/a><\/p>\n","protected":false},"author":144,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,10],"tags":[],"class_list":["post-24924","post","type-post","status-publish","format-standard","hentry","category-general-comments-2","category-mike-bellafiore-bellas-blogs","no-post-thumbnail"],"yoast_head":"\nThe Misunderstanding of the Conviction Trade | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/misunderstanding-the-conviction-trade\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Misunderstanding of the Conviction Trade | SMB Training\" \/>\n<meta property=\"og:description\" content=\"“I am going to stay in this until I am proven wrong. \u00a0This is a Conviction Trade.” Things heard on a prop trading desk, from a retail trader, at a macro hedge fund, on the Financial Media Entertainment Complex. \u00a0If only most of the above had conviction when they should. 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