I am very excited to be able to offer the eighteenth in my series of posts asking Pro Traders about their psychological processes. Delving a little into how it feels to them when trading. The good and the bad. How this has changed over time and what preparation they do mentally for performing as a trader.
One of the key features for me was that I wanted traders with experience who have been through the mill over the years and of course those who were kind enough to broach this subject publicly. This I hope gives developing traders more to learn from.
I’m very fortunate to have a great line up and this week is:
Trader: Bruce Bower
1) How long have you been trading?
I’ve been fascinated by the markets since I was a teenager. After working a couple summers, I saved up enough money to start trading when I was 18—the year was 1999! At first, I tried to be a day trader like everyone else and to play short-term moves in the markets, principally bluechips. Instead of being rich overnight, I lost 50%. After that, I took a step back and started to learn a lot more about markets and trading, which led me to develop a new approach with equities and also to start trading other instruments, like bonds and FX.
After graduating from college, I worked as a prop trader at a big bank. Since 2005 I have been a portfolio manager at two Moscow-based hedge funds, managing more than one hundred million dollars in emerging market equities, primarily in Russia.
2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?
As an equities investor, I am driven primarily by company fundamentals. This means meeting with the management, reading their financial statements, constructing financial models and trying to get a read on whether or not it’s a good investment. In general, I find that the best-performing investments are ones where you catch a potentially big re-rating story at the right time, just as it starts its big move. There are three criteria: 1. An attractive fundamental story with improvement in the underlying business 2. A decent or better valuation, compared to peers and versus the DCF valuation 3. A catalyst which cause the position to perform. I then follow the investment thesis and the performance; if I’m wrong about the thesis or if I hit a pre-set stop loss, then I get out.
I do pay attention to charts when I am getting in and out of positions, as sometimes key levels can signal a good entry or exit point. If I’m bullish on a stock and long, if it breaks out of a six-month base, then I would use that chance to add to the position.
My style is inspired by William J O’Neill’s work which has documented the ingredients that lead to big winners. However, I have had to adapt it heavily to the particular conditions of emerging markets. For instance, you have to do a lot of intense research to make financial projections for most companies. O’Neill would reject turnaround and deep value stories, but those can be incredibly profitable in emerging markets. Nonetheless, he was right on the money about the most important thing: focus on winning stocks if you want to generate outsized performance.
3) How do you feel when a trade goes against you?
Usually, I’m pretty calm about positions going against me. I will review my work as to why I got it and see if I did anything wrong or stupid; if so, I will get upset with myself. If not, then I am pretty dispassionate about following my plan.
4) How do you feel when a trade goes for you?
I might feel a bit of validation and like patting myself on the back if I had a very strong view and it played out correctly. Overall, I don’t really feel much. If anything, I expect my trades to go my way so it’s my “default setting”.
5) How have these feelings changed over your trading
career? (Can you recall how you originally used to feel and elaborate on how this has changed over time?)
When I first started trading, I was super excitable. I used to get all wrapped up in every tick and take loses personally, to the point of depression. As I developed as a trader through practice, reading a lot of books and talking with experienced trades, I realized several things. The first was that you had to be detached at some level from your trades. The second was that the best way to get to that point was to have a methodology that you followed rigorously and that you trusted fully. That way, you could think of trading more as a decision-making exercise, which allowed you to reframe the whole process away from “making money”, which is emotionally charged, towards “making good decisions”, which is much more detached. The third was that by adding in some additional tools, like visualization, you could learn to really manage your emotional state and to put yourself into what “Flow”, as Mihaly Csikszentmihaly labeled it.
6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading?
I have a few. I am quite religious and go to church every day, in addition to doing mental prayer for up to an hour. While it’s a spiritual exercise, it does have a very calming effect on me. I also like to read and write, both for my blog and also in my own journal, which helps me to process and expand any thoughts or feelings that I may be having. Lastly, I listen to guided visualizations that I created for myself, which help to manage my emotional state and also for goal-setting. Usually, I put them on before I go to sleep and drift off to the sound of the visualization.
7) Have you always done this?
Not all of those things. I have always been quite active in keeping a trading journal, which has been a critical resource for me since the age. The other stuff, like praying, have just grown over time as I found that they improved my overall life. The guided visualization I’ve learned as a result of some unique training I’ve had.
8) If not, how have you learnt to deal with the feelings that come up when trading?
The first is just experience. As you go through the ups and downs of the markets, you become gradually de-sensitized. The second way was through conscious training. I’ve actually studied two related psychology fields, NLP and Hypnotherapy. What piqued my interest was that if you read Market Wizards or New Market Wizards, it’s worth noting that all of the trading psychologists that they profiled had trained in those fields! And indeed those tools are used widely in other demanding fields like professional athletics. (Here’s a webinar and other resources about visualization: http://howoftrading.com/visualization/) The third step was just learning to trust my methodology. It’s like jumping out of a plane—if you don’t believe in the parachute, you’re going to be very anxious, but if you trust that the parachute will work and focus on opening it properly, then you will be fine and even enjoy the ride.
9) Can you describe a time in your trading life which really rammed home the point that so much of trading comes down to psychological factors?
As I documented in a blog post “What I Learned From the Best Trader at Citibank”, I started out my working career in a great seat—as a prop trader at a big bank. I sat next to a brilliant trader and learned as much as I could. Unfortunately, I was making lots of mistakes and lost money. By the end of that experience, I was actually quite depressed, because I knew that it was a golden opportunity and that I had screwed it up. I swore to learn everything I could to achieve complete mastery in this field, so as never to feel that way again.
10) If you could give aspiring traders one piece of advice about emotionally handling the market what would it be?
As Dr. Steenbarger likes to point out, most trading psychology issues are actually trading issues. For instance, if you take too much risk, then your P&L will have big swings, leaving you more susceptible to greed and fear. Similarly, if you don’t have a consistent methodology, then you will end frustrated with trading. As glib as it sounds, the solution is to trade better. Focus on defining a methodology that works for you and to keep your risk limited, so that you know you can execute your methodology and you can’t blow yourself up. In the process, you will learn to trust your system and your emotions will naturally calm down.
I’d like to thank Bruce Bower for sharing about the way he tackles the market from an emotional / mental side of things and for his willingness to allow me to post this as a free resource in the hope that traders who have been in the market for less time or are thinking of entering can perhaps pick up some A-HA’s.
If you are interested in finding more out about Bruce Bowers you can find him:
Previously in the series:
Charles Kirk - read it…..here
Matt Davio - read it…..here
David Blair - read it….here
Mike Bellafiore - read it….here
Mark Holstead - read it ….here
Brian Shannon - read it…. here
Mike Dever - read it…. here
Anthony Crudele - read it… here
Derek Hernquist - read it … here
Ivan Hoff - read it… here
Brian Lund - read it… here
Greg Harmon - read it… here
Michael Bigger - read it… here
Jon Boorman - read it…. here
Darrin Donnelly - read it….. here
Stephen Burns - read it…. here
Tony Rohrs - read it…. here
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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice. If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.