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The Emperor’s Three Questions & Answers for Traders

  
  Education
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Tolstoy’s story “The Emperor’s Three Questions” poses three questions:

1. What is the best time to do each thing?

2. Who are the most important people to be with?

3. What is the most significant thing to do at all times?

In the story, the Emperor traveled far and wide in his Kingdom to find the answers.  One day, he came upon a hermit who lived in a small hut atop a high hill. When asked these questions, the humble hermit replied:

1. The most important time is now, because that is the only time over which you have  power and control.

2. The most important person is the one you are with right now because you never know if you will be with that person again.

3. The most significant thing to do at all times is be happy and share that happiness with the person you are with.

The trading lessons are simple—but not so easy:

1. Be with the trade you are in at the moment.  Stop trying to control anything but your own trade.  The markets are going to do exactly what they want to and when they want to. YOU have the power to control what YOU feel, think, believe and do.

2.  All that matters for you is the trade you are in.  You may never see that trade again.  Savor it, cherish it and be with it for as long as it lasts.

3. Celebrate your victories with yourself.  Celebrate the trade and with the trade.  The instruction is to refrain from boasting or grandiose behavior when you make a winning trade.  The markets will humble you, and pride always comes before a fall. Napoleon said that the most dangerous moments come with victory. Decry and avoid hubris.

Also celebrate your defeats with yourself and the trade because they are mistakes.  Mistakes are our greatest teachers because it is through them that we learn. What do we learn?  Not to make them again!

Constantly strive to look inward, to know yourself, to raise yourself to the highest level of authenticity.  Be rigorously honest about who you are.

Taking personal responsibility for your thoughts, feelings and actions is the first step to true inner peace—both in trading and in life.  Never forget the ten most important words you can ever and always ask yourself:

Am I doing the best I can do right now?

The ultimate victory in competition is derived from the inner satisfaction of knowing that you have done your best and that you have gotten the most out of what you had to give…Howard Cosell

Ways to Recognise and Defeat Your Evil Trader

  
  Education
  • Have a plan.  If you don’t have a plan, your Evil Trader has zero boundaries and will take over entirely.  When you have a plan, you’ll start to notice him telling you not to follow it.  You’ll hear him whisper seductive anti-plan ideas that sound and look perfectly reasonable – except they aren’t in the plan.
  • Have an Evil Trader Journal.   The thing with ET is that often his ideas sound great and are really hard to ignore.  So as not to discard potentially good ideas, keep a log and after each trade is closed make a note of whether the idea would have been positive or detrimental to the outcome of your trade.  After a period of listing these ideas you’ll be able to notice that a) ET is wrong and he needs to shut it, or b) his idea deserves some further testing as it’s possible it has merit.
  • Try to make your method as water-tight as possible.  A signal needs to be a signal without a shadow of a doubt.  An exit needs to be a definite exit, no two ways about it.  The more black and white the better, as your Evil Trader loves to second guess your judgement.  Planting seeds of doubt is just the way he rolls.
  • Make a check-list for those times when you’re just not sure.   There will always be times when things just don’t seem so clear-cut.  This is your evil trader’s very favourite moment to strike.  You need to be armed with your weapons of ET destruction – aka, your check-list – to guide you through.  Having a checklist on hand allows you to objectively determine whether what you think you’re seeing is in fact what the market is presenting.

Investment philosophy

  
  Education
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  • “Good information, thoughtful analysis, quick but not impulsive reactions, and knowledge of the historic interaction between companies, sectors, countries, and asset classes under similar circumstances in the past are all important ingredients in getting the legendary ‘it’ right that we all strive so desperately for.” 
  • “[T]here are no relationships or equations that always work. Quantitatively based solutions and asset-allocation equations invariably fail as they are designed to capture what would have worked in the previous cycle whereas the next one remains a riddle wrapped in an enigma. The successful macro investor must be some magical mixture of an acute analyst, an investment scholar, a listener, a historian, a river boat gambler, and be a voracious reader.Reading is crucial. Charlie Munger, a great investor and a very sagacious old guy, said it best: ‘I have said that in my whole life, I have known no wise person, over a broad subject matter who didn’t read all the time — none, zero. Now I know all kinds of shrewd people who by staying within a narrow area do very well without reading. But investment is a broad area. So if you think you’re going to be good at it and not read all the time you have a different idea than I do.'” 
  • “[T]he investment process is only half the battle. The other weighty component is struggling with yourself, and immunizing yourself from the psychological effects of the swings of markets, career risk, the pressure of benchmarks, competition, and the loneliness of the long distance runner.”  (more…)

Paul Counsel-Trading Wisdom

  
  Education
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Successful trading has absolutely nothing to do with making money and everything to do with trading successfully. Making money will only ever be a by-product of successful trading. Successful trading is not a by-product of making money. When you attach trading to money and money to emotions and emotions to money you’ll have taken your first loss but you won’t know it yet.

Trading has everything to do with personal psychology, rules, systems, discipline, focus and skill. Like anything else that’s skill based, once you start it takes time and practice to become skilful.Ultimately trading is about making decisions between two choices, to buy or sell. As simple as these two choices are the variables that effect the decisions surrounding them can be as complex as the human mind can make them.

As a trader your central focus should be on your system. You should know your system inside out, its strengths and weaknesses. Your system should be comprised of a set of rules that ultimately guide you in making either of two decisions, to buy or sell. You should be able to read your system with respect to market conditions and base your trading choices on what your system is telling you.

As a trader you must understand that you’re the weakest link in the system because the complexity will reside with you. Good systems are simple. They are nothing more than a series of instructions called trading rules. The primary thought that should be central in your mind is that it’s the system that makes the money, not you. The more skilled you become at reading market conditions and marrying these conditions to your system the better a trader you’ll be.

Wealth creation is an uncertain activity for most people and, to do something without certainty of outcome, takes courage. It takes courage to do what the majority is not doing. It takes courage to overcome scepticism and cynicism. It takes courage to deal with fear and overcome fear barriers.

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