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Repetition Repetition Repetition

  
  Education
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In Daniel Coyle’s The Talent Code we learn the three rules of deep practice.  Rule number two is Repeat It.

“Nothing you can do – talking, thinking, reading, imagining- is more effective in building skill than executing the action, firing the impulse down the nerve fiber, fixing errors, honing the circuit.”

This explanation reveals why it is impossible to transfer trading prowess from one person to another.  You can’t talk, think, read, or imagine your way to elite performance.  The key lies in the “doing”, going through the motions.  Now that’s not to say talking or reading about trading isn’t helpful.  It is.  I pick up tons of insight from talking with other investors and traversing the trading blogosphere.  I’m like a hungry orphan hiding below the tables of successful traders just hoping they’ll drop a few morsels of wisdom I can chew on.  Yet it’s not a substitute for “executing the action”.  Nothing replaces sitting in front of my computer, monitoring positions, assessing  potential trades and most importantly pulling the trigger. (more…)

The Intuitive Trader -Quotes from the Book

  
  Education
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Having read Kurzban’s Why everyone (else) is a hypocrite, I am convinced that the left brain/right brain split is a gross oversimplification of the brain’s functional organization. Nonetheless, sometimes simplifications work well enough. For today’s post I’m going to share some thoughts from Robert Koppel’s 1996 book The Intuitive Trader: Developing Your Inner Trading Wisdom. It’s an extended argument for and a series of illustrations of using the right hemisphere to expand trading prowess.

The bulk of the book is a series of interviews with traders and those who worked with traders, many of whom predate my active involvement in the markets. Among the cast of characters are Bill Williams, Richard McCall, Charles Faulkner, Edward Allan Toppel, Ellen Williams, Linda Leventhal, Howard Abell, Tom Belsanti, and Peter Mulmat.

Here are a few disconnected excerpts that I thought worth passing along.

“[T]he experience of successful trading is subjective, unself-conscious, and intuitive. This state of mind, it seems to me, has more in common with the spirit of jazz—improvisational, automatic, and responsive to the riff—than with a well-articulated and analyzed process of decision making.” (p. 6)

“Some traders are still of the opinion that we ‘make’ profits and ‘take’ losses. The simple answer is: we make both. Loss has to be assumed in trading as inevitable not accidental.” (p. 19)

On the importance of ritual: The author describes one of the most successful CME floor traders who “after completing his trading card, as he puts it in his pocket, … always says, ‘Yeah.’ … [H]e developed this ritual because he sensed the feeling of letting down after he would have a loser. And he had to figure out some way within himself to be able to go on to the next trade with the same level of energy, resolve, and motivation that he would get from one good trade to the next good trade.” (p. 63)

In response to the question “Have you ever figured out what percentage of your trades are profitable?” Peter Mulmat answered: “No, I haven’t. I just look in terms of monthly performance. That’s kind of the criteria I use to gauge my performance. I find to go any shorter period of time is just frustrating for me.” (p. 188)

6 ways to think about risk

  
  Education
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1  Risk is not the same as volatility. Assets can be volatile on the upside as well as the downside. Risk should instead be viewed as the permanent loss of purchasing power.

2 A risk should not be evaluated based its frequency. Some risks only have to happen once to be catastrophic.

3 Sophistication and knowledge are not a form of or substitute for risk management.

4 Although following the crowd may feel comfortable, risks are just as catastrophic whether you suffer with company or suffer alone.

5 Bullish consensus manufacturers the greatest risks because nobody is prepared and everyone runs for the exits at the same time. Strong optimistic consensus provides a sense that nothing can go wrong. This is why the greatest catastrophes seem to come out of the blue.

6 Activity, research and analysis provides a false sense of control over the future. However devastating losses rarely due to a lack of brain power or analytical prowess.

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