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A Dozen Reflections on Life and Markets

  
  Education
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reflectiononlifeI’ve never seen a trader succeed whose explicit or implicit goal was to not lose. The trader who trades to not lose is like the person who lives to avoid death: both become
spiritual hypochondriacs.

No union was ever destroyed by a failure of romance. It is the loss of respect, not love, which ends a relationship.

Love, once present, never dies. It must be killed.

Sometimes we select markets–and trading styles–much as we choose romantic partners: by their ability to validate our deepest-held images of ourselves. Our choices generally succeed, for better or for worse.

Many a trader fears boredom more than loss, thereby experiencing the two in sequence. (more…)

3 Trading Principles

  
  Education
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 Success in trading is a function of talents and skills – Trading, in this sense, is no different from chess, Olympic events, or acting. Inborn abilities (talents) and developed competencies (skills) determine one’s level of success. From rock bands to ballet dancers and golfers, only a small percentage of participants in any performance activity are good enough to sustain a living from their performances. The key to success is finding a seamless fit between one’s talents/skills and the specific opportunities available in a performance field. For traders, this means finding a superior fit between your abilities and the specific markets and strategies you will be trading. Many performance problems are the result of a suboptimal fit between what the trader is good at and how the trader is trading.
 The core skill of trading is pattern recognition – Whether the trader is visually inspecting charts or analyzing signals statistically, pattern recognition lies at the heart of trading. The trader is trying to identify shifts in demand and supply in real time and is responding to patterns that are indicative of such shifts. Most of the different approaches to trading–technical and fundamental analysis, cycles, econometrics, quantitative historical analysis, Market Profile–are simply methods for conceptualizing patterns at different time frames. Traders will benefit most from those methods that fit well with their cognitive styles and strengths. A person adept at visual processing, with superior visual memory, might benefit from the use of charts in framing patterns. Someone who is highly analytical might benefit from statistical studies and mechanical signals. 
Much pattern recognition is based on implicit learning – Implicit learning occurs when people are repeatedly exposed to complex patterns and eventually internalize those, even though they cannot verbalize the rules underlying those patterns. This is how children learn language and grammar, and it is how we learn to navigate our way through complex social interactions. Implicit learning manifests itself as a “feel” for a performance activity and facilitates a rapidity of pattern recognition that would not be possible through ordinary analysis. Even system developers, who rely upon explicit signals for trading, report that their frequent exposure to data gives them a feel for which variables will be promising and which will not during their testing. Research tells us that implicit learning only occurs after we have undergone thousands of learning trials. This is why trading competence–like competence at other performance activities such as piloting a fighter jet and chess–requires considerable practice and exposure to realistic scenarios. Without such immersive exposure, traders never truly internalize the patterns in their markets and time frames.

Life and Markets

  
  Education
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LIFEANDMARKETRespect is the first casualty in lost love.

Four industries dominate the economy: hope, escape, protection, and convenience.

Success is the point at which talent and skill meet opportunity.

The aim of all trading education: to encourage trading.

The printing press democratized the acquisition of knowledge; the computer has democratized its dissemination.

Date markets before deciding to marry them.

Anatomy of a bad trade: Hope, then despair.

Love, once present, never dies. It must be killed. (more…)

Traits of the Successful Trader

  
  Education
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1. Find the plays that make the most sense to you.

Build from your unique personality.  Some traders will make a career of momentum trading, killing anything that is moving.  They could care less about a balance sheet or even the actual full name of the symbols they trade.   They just want to play and are damn good at it.   Some will find this intellectually suffocating.  They will want to trade all the markets, reading as much about as many longer term opportunities as possible.  This fits their inner need to learn, think, and grow intellectually.  Both are totally acceptable save if the momo trader is forced to trade macro plays.

2. Spend as much time trading, thinking about trading and talking about trading as you can possible stand.

The past years have gifted us a treasure of research on elite performance which provides a clear path for our success.  Time at our craft, experience, practice, reps gained determining plays are the road to successful trading.  Put down Boring New Book About Some New System You Do Not Understand and start reading The Talent Code, Bounce, Talent is Overrated, Mindset, Drive, Outliers, The Art of Learning.

3. Find a GREAT mentor.

And I do not mean necessarily at a trading firm.  Before Dr. Steenbarger went off-line and joined one of the great hedge funds of our time, I peppered him with questions.  Phil Mickelson, considered one of our greatest golfers ever, has three coaches watching his game.  Peyton Manning has a head coach, offensive coordinator, quarterback coach, and father providing him feedback.   There is little evidence of elite performers reaching their potential without high level coaching.

5 Principles of Trading Psychology

  
  Education
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Trading is a performance activity
Like the playing of a concert instrument or the playing of a sport, trading entails the application of knowledge and skills to real time performances and this is the core idea behind my most recent book.  Success at trading, as with other performances, depends upon a developmental process in which intensive, structured practice and experience over an extended time yield competence and expertise. Many trading problems are attributable to attempts to succeed at trading prior to undergoing this learning process. My research suggests that professional traders account for well over three-quarters of all share and futures contract volume. It is impossible to sustain success against these professionals without honing one’s performance–and by making sure that you don’t lose your capital in the learning process. Confidence in one’s trading comes from the mastery conferred by one’s learning and development, not from psychological exercises or insights.

2: Success in trading is a function of talents and skills
Trading, in this sense, is no different from chess, Olympic events, or acting. Inborn abilities (talents) and developed competencies (skills) determine one’s level of success. From rock bands to ballet dancers and golfers, only a small percentage of participants in any performance activity are good enough to sustain a living from their performances. The key to success is finding a seamless fit between one’s talents/skills and the specific opportunities available in a performance field. For traders, this means finding a superior fit between your abilities and the specific markets and strategies you will be trading. Many performance problems are the result of a suboptimal fit between what the trader is good at and how the trader is trading. (more…)

The harder I try, the more money I lose. What’s going on?

  
  Education
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A:  This is a fairly common phenomenon which is why we have to learn how to adapt to market conditions and be patient with our strategies. Just because you “try harder” doesn’t mean that your profits will expand equally in relation to your effort. While effort helps create and sustain an edge, at the end of the day you still need the market to cooperate with whatever you are doing.

The best analogy I can provide here is one that many golfers are familiar with. If you’ve ever golfed in high winds, you know that your score will often be higher. Some of this, obviously is due directly to the windy conditions (which you have no control over). However, studies show that the most significant reason why golfers perform poorly in windy conditions has less to do with the conditions but more about how they react to those conditions. For example, many golfers will tend to swing harder in high winds which causes them to lose both their swing tempo and balance and they make more mental mistakes because the wind distracts them. The same is true for traders whose strategies are not flowing with the market. Without realizing it, traders will modify their own approaches (often by trying harder by making trades that don’t fit their strategy) which tends to hurt performance more than it helps.

Bottom line – keep close tabs on yourself and how you’re “adjusting” to market conditions. Being aware of how the market environment is affecting you and your changes to it is an important skill every trader must possess.

5 Principles of Leadership and Trading

  
  Education
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What are these principles?

  1. Knowing why you are in the trading business

You can start by asking yourself:

    • Why are you in the trading business?
    • What was your initial attraction to trading?
    • Are you thinking about it as a business or a hobby?
    • Are you passionate about your trading?
    • Does trading feel like a lot of work?
    • What are your trading goals?
    • Are you enjoying the journey or just focusing on the end result?
    • What do you want to get out of trading?
      • Money
      • Excitement
      • Challenge
      • Power
      • Other things (more…)

    Three Principles of Trading Psychology

      
      Education
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    Principle #1: Trading is a performance activity – Like the playing of a concert instrument or the playing of a sport, trading entails the application of knowledge and skills to real time performances. Success at trading, as with other performances, depends upon a developmental process in which intensive, structured practice and experience over an extended time yield competence and expertise. Many trading problems are attributable to attempts to succeed at trading prior to undergoing this learning process. My research suggests that professional traders account for well over three-quarters of all share and futures contract volume. It is impossible to sustain success against these professionals without honing one’s performance–and by making sure that you don’t lose your capital in the learning process. Confidence in one’s trading comes from the mastery conferred by one’s learning and development, not from psychological exercises or insights.
     
    Principle #2: Success in trading is a function of talents and skills – Trading, in this sense, is no different from chess, Olympic events, or acting. Inborn abilities (talents) and developed competencies (skills) determine one’s level of success. From rock bands to ballet dancers and golfers, only a small percentage of participants in any performance activity are good enough to sustain a living from their performances. The key to success is finding a seamless fit between one’s talents/skills and the specific opportunities available in a performance field. For traders, this means finding a superior fit between your abilities and the specific markets and strategies you will be trading. Many performance problems are the result of a suboptimal fit between what the trader is good at and how the trader is trading.
     
    The core skill of trading is pattern recognition – Whether the trader is visually inspecting charts or analyzing signals statistically, pattern recognition lies at the heart of trading. The trader is trying to identify shifts in demand and supply in real time and is responding to patterns that are indicative of such shifts. Most of the different approaches to trading–technical and fundamental analysis, cycles, econometrics, quantitative historical analysis, Market Profile–are simply methods for conceptualizing patterns at different time frames. Traders will benefit most from those methods that fit well with their cognitive styles and strengths. A person adept at visual processing, with superior visual memory, might benefit from the use of charts in framing patterns. Someone who is highly analytical might benefit from statistical studies and mechanical signals. 

    The Fallacy Of Higher Effort = Higher Returns

      
    Analysis, Education
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    mailEvery week I will try to dedicate some time to answering questions that readers and  members send in to me.
    First off, thank you again for letting me know what is on your mind and for pointing out topics I need to discuss further. While I’m not able to answer all of the questions submitted, I have read each one submitted to me and will be looking for opportunities to share information that will be helpful to you in the coming weeks.
    Today just covering one question sent by one Trader.
    question-mark

    Q:  The harder I try, the more money I lose. What’s going on?

     

    A:  This is a fairly common phenomenon which is why we have to learn how to adapt to market conditions and be patient with our strategies. Just because you “try harder” doesn’t mean that your profits will expand equally in relation to your effort. While effort helps create and sustain an edge, at the end of the day you still need the market to cooperate with whatever you are doing.

    The best analogy I can provide here is one that many golfers are familiar with. If you’ve ever golfed in high winds, you know that your score will often be higher. Some of this, obviously is due directly to the windy conditions (which you have no control over). (more…)

    The natural laws of golf

      
    Education, Humour, Life
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    golf rules

    1)      If you want to get better at golf, go back and take it up at an earlier age

    2)      The game of golf is 90% mental and 10% mental

    3)      Since bad shots come in groups of three, a fourth bad shot is actually the beginning of the next group of three

    4)      When you look up, causing an awful shot, you will always look down again at exactly the moment when you ought to start watching the ball if you ever want to see it again

    5)      Any change works for a maximum of three holes – or at a minimum of not at all

    6)      No matter how bad you are playing, it is always possible to play worse

    7)      Never try to keep more than 200 separate thoughts in your mind during your swing

    8)      When your shot has to carry over a water hazard, you can either hit one more club or two more balls

    9)      If you’re afraid a full shot might reach the green while the foursome ahead of you is still putting out, you have two options: you can immediately shank a lay-up, or you can wait until the green is clear and top a ball halfway there

    10)   The less skilled the player the more likely he is to share his ideas about the golf swing (more…)

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