Prop Traders Trade Reality, Not Headlines

Prop traders trade reality, not headlines. They trade the truth.

I’m thoroughly convinced that the media inadvertently paints the tape. Over the last 2 months, it seems they, the White House, and the Fed are desperately trying to keep everyone feeling good about the economy and the market and I think it’s a great disservice.

The S&P 500 is in a downtrend, and although there have been lots of volatile “up” days, the trend is down. And there is a lot of bad news or bearish things that need to clear up fundamentally before this downtrend will be turned around.

The June S&P 500 is trading at the “flash crash low” and another selloff of 30 points or more, would put in new contract lows.

If we’ve learned anything from the last 2 years, is that there are sometimes more than one other shoe to drop. Case in point: Hungary.

If you listen to my podcast with Michael Mauboussin, we talk about a human being’s nature to seek information that validates his thesis. His eyes scan headlines for information that validate all that he feels about his (probably long) position, as opposed to doing what I think is a more healthy choice of looking for information that will falsify his idea – so that he can better manage risk.

Prop traders have the sanest take in all of this. They trade off the one thing that tells them the truth each trade, each second, across multiple time frames. They trade off the one thing that has no political agenda, nor any mid-term elections in November: the price.

The price is the only thing in your trading that will always tell you the truth.