Embrace The Trend

I am very excited to be able to offer the fourteenth 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: Jon Boorman

1) How long have you been trading?

I’ve held a variety of roles within the financial industry since 1987. I started with Schroders in London just a few weeks before my 18th birthday. My first real break came a few years later when I went from being a fund manager’s assistant and moved up into the trading room. They were a fantastic group of people and I learnt so much. Even before I joined Schroders I had an avid interest in markets and used to place trades with a broker in between lectures at college.

2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?

I’m a technical trader, specifically a trend-follower. It’s taken me many years to get here, to understand what works best for me, and develop trading systems and methods that suit my personality and trading style. I think that’s key. I trade global index, currency and commodity futures with systematic trend following, and US stocks with what I call a ‘rules-based discretionary’ style.

3) How do you feel when a trade goes against you?

I don’t like it, but I accept it readily. As a trend-follower you typically have more losing trades than winning ones, but as long as you are disciplined in executing the time honoured strategy of cutting losers and running winners, your average win will outweigh your average loss and make you profitable overall. So I now look at losing trades as being part of a winning system.

4) How do you feel when a trade goes for you?

It feels good as it means I don’t have to do anything, and for some people that’s the hard bit.  The sitting, waiting, letting those winners run can be difficult if you expose yourself to the noise of news and commentary bombarding you with reasons to do something.

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?)

Great question. The actual feeling of not liking it when I lose and enjoying winning hasn’t changed, but the way I process and act upon those feelings has markedly. From years of being a buy-side head of desk, a sales trader to institutions, and a prop trader at an investment bank, I picked up unhealthy habits of telling people what they want to hear, and most fatally developed a need to be right, which was only further fostered by that environment. Now, as a trend follower, knowing that I will have a low strike rate has all but removed that ‘need to be right,’ I don’t live from one trade to the next, each one is a tiny part of an overall process. I accept that there will be more losers than winners, and I can never know what each trade brings, so after a while you learn to treat them all the same with little emotion. Your only job then is to manage risk to ensure those losses remain small enough for the big winners to outweigh them monetarily.

6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading?

Having young children is certainly a great leveler, it helps cement what’s really important, and any time spent with them is a welcome departure from markets. I try to relax as much as possible to clear the mind, and I think diet and physical exercise are important too. I’ll happily row for an hour, or play tennis, anything that gets the blood pumping and your energy levels higher can only be a good thing. Beyond that I currently sing in a classic-rock covers band which is a lot of fun for me, and a good outlet for the ego!

7) Have you always done this? 

In some form or another yes, but I think I probably thought about it less previously. Now it’s something I feel like I have to plan or remember to do, whereas before it was something that happened on the fly. Having a family is the big game-changer there in terms of the time and commitment it demands.

8) If not, how have you learnt to deal with the feelings that come up when trading?

The difference now is I know what feelings to expect, I know why I feel that way, and I know how to deal with it, which stems from becoming more self-aware over the years.

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?

I had always believed that psychological factors play a large part, and have seen people talk about what percentage of trading is psychological. I’ve got to the point now where I think it’s 100% psychological. Every single facet of trading, whether it’s developing systems, stock picking, entries, exits, position sizing, even selecting an algorithm and pushing that button, all starts with human involvement and the biases and emotions we have that shape our beliefs. What really drove that point home for me was a lot of the self-work I did after moving to the US in 2005 when I read some of Van Tharp’s work and attended one of his courses.

10) If you could give aspiring traders one piece of advice about emotionally handling the market what would it be?

It all begins with you. Know yourself first, and then you can recognize your emotions when they reveal themselves in your trading. It’s like the quote from The Money Game “If you don’t know who you are, the stockmarket is an expensive place to find out.” I can now watch a situation develop in the market and recognize what the old me would have done. It doesn’t mean I don’t still feel those emotions, but I now understand the reasons behind them, what motivates me, the biases I have, and how to deal with that. If you can combine self-awareness with a systematic approach to trading you will significantly improve your chances of success.

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I’d like to thank Jon Boorman 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 Jon Boorman you can find him:

On twitter: @JBoorman

At his blog: www.jonboorman.com

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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

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

A very long time ago the Buddha said that the presence of change is the only constant.

A little more recently but still a century ago Charles H. Dow (1900) said “The one fact pertaining to all conditions is that they will change.”

As many of you have picked up on, I study Chinese martial arts which provides a fantastic balance to the rigors of trading.  You can read around the blog a little to find out more or stay tuned as I will surely be writing more on it.

One of the most important Chinese philosophical texts is the I Ching (pronounced Yee Ching).  This books title is normally translated into English as The Book of Change. 

(Image thanks)

So here we have the the Buddha, the Godfather of technical analysis Charles Dow and one of the most important Chinese philosophical texts all focusing on change.

Yet I notice as I read and speak with traders how few have really started to embrace the need to become comfortable with change.  Too many want predictive capabilities, cast iron reliable approaches, fool proof guarantees to wild profitability and wealth in the markets.

The reality is that this is going against a basic reality that everything changes.  When you interface with the market you have to start to become very comfortable with change and the varied gyrations.

Want to be successful then copy the Pro’s and do this:

That is why you read so many of the Pro’s focus on the importance of having a process rather than their actual entry parameters (read the Pro’s Process interviews).  The best know that anything can happen as you interact with the ever changing market.  That their individual psychology or perception changes regularly even throughout the day no matter what they do.  As a result having a consistent process as to how to interact with the change that is the markets.  Doing this allows you a fighters chance of being successful. 

When you combine it with this….. you increase your chances significantly

You will also see how the Pro’s all have a statistically significant approach to trading that along with their process they work hard to execute consistently.  Good traders know that everything changes and there are no guarantees when they put on a trade that it will work out.  They also know however that it is one of many over their week, month, year and career.  Each trade taken on its own is statistically insignificant.  (If it isn’t you are on a very slippery slope and you should really do some re-evaluation of your trading approach.  No one trade should have the possibility of taking you out of the business).

By thinking in terms of probabilities each individual trade takes on less emotional significance if things change up in your face as you enter, as a result of thinking in terms or probabilities / statistics, you can take it with more aplomb rather than letting it smack at your ego.

Change is the one constant present in all your market interactions.  Embracing this fact and focusing on both your process and having a probabilistic edge are two of the most important things you can do as a trader.

Thinking you know what is going to happen is just wishful thinking and goes against what the Buddha referred to as the only constant - change.

(Image thanks)

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Thanks to all the kind people who wrote to me asking when I would be writing again.  I really appreciate your nice words.  After a break to focus on other projects I am back. 

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Trading is all about making good decisions in an uncertain environment.  There was an excellent post (last year!) at Farnham Street called What Happens When Decisions Go Wrong? It is so good that I include an excerpt below and urge you to consider this in the light of your trading.  Particularly the Process - Outcome Matrix.

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Good decisions don’t always have a good outcome, just as bad decisions don’t always have bad outcomes. For example, if you are sitting at a blackjack table and happen receive an 18 on the first two cards, should you hit when the dealer asks as a courtesy? Let’s suppose you take that hit and the next card is a 3. You made a horrible decision but you lucked out. Worse, you might never know that you made a poor decision.

In Winning Decisions: Getting It Right the First Time, Russo and Schoemaker explain this concept with the following matrix:

In talking about this matrix, Paul DeDodesta, the Harvard stats wiz featured in Moneyball,writes:

We all want to be in the upper left box – deserved success resulting from a good process. … The box in the upper right, however, is the tough reality we all face in industries that are dominated by uncertainty. A good process can lead to a bad outcome in the real world. In fact, it happens all the time.

… As tough as a good process/bad outcome combination is, nothing compares to the bottom left: bad process/good outcome. This is the wolf in sheep’s clothing that allows for one-time success but almost always cripples any chance of sustained success.

This is where it gets interesting. If you can’t recognize when you’ve had ‘dumb luck,’ you’ll never be in a position to correct the way you’re making decisions. Eventually your luck runs out.

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I encourage you to read the post in its entirety: What Happens When Decisions Go Wrong? and to think carefully about whether you have done everything to ensure that your trading means your outcomes fall within the ‘deserved success’ or ‘bad break’ categories.  After all if you are trading a positive expectation approach you can be a very good trader without a particularly great looking win / loss ratio.

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Everyone likes certainty.  You do.  I do.  It’d be so nice to know for sure that XYZ stock was going to go up and to what number it would reach. 

Imagine how much nicer your life would be if you were completely sure that Coffee was going to rise and to exactly what number before it turned.

I imagine all the anxiety would leave.  The butterflies in your stomach would be a thing of the past.  You’d load up big, wouldn’t you, to maximize your profit out of this event.

The problem is this is a fairy tale!

I’m constantly amazed by peoples need to predict and to search for financial heroes that correctly predict the future.

After all, do you not laugh at the fortune teller in the local mall?

If you answered no to this I would strongly suggest reconsidering trading or investing as a career choice.

Let me make something absolutely clear.  Nobody knows what the market is going to do.

The best they can do is make an informed guess.

It doesn’t matter if they way you inform yourself is through analyzing charts, statistics or the fundamentals…. It is all at the end of the day a bet.

I wrote a post called More of my man Lao Tzu this time with Peter Brandt

Where I covered how some keyboard warriors with no skin in the game or what Peter calls ‘soprano choir boys’ always have a pop at him for regarding his comments about charts. 

You see what they do is read the analysis and then when it turns out not to be exactly as Peter said, take great pleasure in pointing out how wrong he is.

Peter responded with two great quotes that any of you stuck in the dream world of thinking you or anyone else can predict the market really need to take heed of:

“I do not want you to miss the next point: Charts do not provide a prediction, they provide a possibility!  Sorry, but that is the function of a chart.”

and

“Please connect with what I am saying here - using imagination to think about the possibility of a chart is NOT the same thing as making a prediction or forecast.  Charts are NOT predictive.”

I’ll leave it to you to see what Lao Tzu said about this.

Now it should come as no surprise that I like Nassim Taleb and value his writing.  He may be a cantankerous old sod but he is sharp and full of good wisdom.  Not only are his previous books ‘The Black Swan’ and ‘Fooled by Randomness’ must reads but he has banged out another one ‘Antifragile: Things That Gain from Disorder’.  Even the title is worth considering and thinking about if you are a trader or investor.  We certainly are involved in a market that is not exactly ordered.

I wrote in 1 Illuminati Secret as To Why Twitter / StockTwits Banter Reduces Isolation and Helps Trading how I love his use of ‘Hammurabi’s Code’ and link to an article for those who don’t want to get his book that I think is particularly helpful to traders.

So I shared this with Peter and I encourage you to watch the below presentation by Nassim.  The whole thing is good but at 06:20 I couldn’t help but think that there was a clear parallel between Nassim’s thinking and Peter’s.

Here is the link to the short video that I suggest you watch: Nassim Taleb talking about Antifragility at the RSA

Peter responded to my tweet:

There you have it for the hard of hearing:

PREDICTIONS ARE IMPOSSIBLE - TRADERS ONLY DEAL WITH PROBABILITIES

and as Nassim say’s:

Economists have been giving us bullshit models for a long time. Why? Because they are never harmed.  Predictors are never harmed by their mistakes.

If you are still engaged in the need to find predictors or to predict yourself you really should consider these two men and their clear statements.

2 key points:

1) You can’t do it!  Being obsessed with prediction is a fools game.

2) It only matters if you have skin in the game.  What you think is irrelevant to making money.  There is the possibility that you will make money and turn out to be right.  If you’re not.  So what?  Keep your bet size small and you can have another go and still make a lot of money.

Prediction is about the ego.  Making money is about trading possibilities and managing risk.  

If you like the Lao Tzu thing I also wrote for you: 1 Major Lesson Lao Tzu Taught Famous Investor Jim Rogers That Helped Him Make Millions and 5 Ways You Can Too

Got something useful to say?  I love that.  Please go for it in the comments below.

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

As traders we can often be very alpha.  Very competitive.  Very driven.

This quote may help you a little:

“Be patient with yourself. Self-growth is tender; it’s holy ground. There’s no greater investment.” –Stephen Covey

Carry on taking the necessary steps in your process to succeed but take a few deep breaths and allow yourself some time.  Be tender with yourself and let the momentum of small changes build.

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[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

I am very excited to be able to offer the thirteenth 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: Michael Bigger

How long have you been trading?

I started on Wall St in 1992. I was trading the equity derivatives book for Citibank Canada. I stayed in Canada for 2 years and then I moved to New York. Before that I was trading my own account for another 5 to 6 years.

That’s 20-25 plus years’ experience. What style of trading or investing would you say you practice?

Everything.

I notice on your website that you are not just a trader but you’re also active in investing as well.

We trade, we invest, etc….. trading is about making money and opportunities are fleeting and they present themselves in different shapes and at different times. We do not have blinders on that say, oh you know, that we have to just trade value or something like that. We don’t look at the world in that fashion. Our model is that, and maybe we draw it from physics, that we are basically trading potential energy. That is basically what Buffet does. Buffet calculates the value of a company, comes up with an intrinsic value, and, if it’s below and if he likes the model of the company and stuff like that he goes ahead and buys it. So basically what he does is that he exploits a level of energy between its intrinsic value and the stock price. We do that in terms of value, in terms of statistical arbitrage, etc. We are always thinking about exploiting pockets of valuation. If we buy something, if it’s statistical, what else can we sell against it. If we buy a stock, what’s its intrinsic value, can we hedge it with the S&P. We try to rotate our inventory and do things of that nature.

Are you also market agnostic? Do you trade futures and stocks or are you stock market focused?

Yeah, I used to run big equity books so we basically do everything, but, we don’t touch commodities that much except for trading them with ETF’s.

So getting into the reality of when you are actually trading; how do you feel when a trade goes against you?

That’s a very good question. You know it doesn’t affect me like it would affect a lot of other traders. I’m not right or wrong because in the next 5 minutes something goes against me. We try to get ourselves in situations where if it goes against us we still feel good about the situation.

To give you an example: let’s say we have a stop, we would never have a stop that is so close to where the market is so that we would get pushed out of the situation. Usually we are in a situation where we are very confident of our facts and we let our positions run and it’s fine. We run big portfolios, they’re diversified so we’re not neurotic about a position in particular. We bought a lot American Apparel which is in a distressed situation, it went to 1.70 came back down to 90 cents, This reversal doesn’t affect me one bit. The thesis is still intact. If you are driven by the stock price you are going to go crazy.

Does this alter at all when you have your trading or your investing mindset in place? Obviously one has a longer term time frame and different parameters that you are thinking about. Does that effect your emotional feelings?

Aren’t they the same? We are looking at potential energy in situations. Whether it be a short term position or a long term position we don’t look at the world that way. We look at the world in terms of potential energy and where can we extract the energy out of the system. We don’t categorize in terms of ‘are we doing value investing here or there’, in a sense a little bit, but overall that is not what we are trying to do.

I think that makes a lot of sense.

We have backgrounds in physics. We have mathematicians working with us and PHD’s and so we look at the world from a physics kind of standpoint and where the energy is in the system and how we can exploit it. And you know what, I don’t care what category other people put on how things are trading, they can have their own stuff, we look at the world our own way and we’re very happy with that. It’s a little bit peculiar but that’s just the way we look at the world. So if we are valuing situations, we get those values, we look at the facts and act accordingly. And if we have to get out of a position because we are wrong we just do it but it’s never so related because the price went down or it goes up or goes against us or stuff like that.

I think that offers a very interesting perspective – especially the physics and the energy direction side of things. There is the flip side to the question about how you feel when trades or investments goes for you? Because obviously emotions are at play to some degree. How does that differ?

We try not to get influenced by it but you know mentally you are always influenced a little bit by your position especially when you have a big position on. If it goes in our favor you know we can be, maybe, a little overconfident but we know we have to manage that.

I’ll give you an example, when we traded CROC’s we bought the stock at about 90 cents it went up to 32 and then we sold a little bit, but it was just a tiny bit on the way up, and then it came down to 12 dollars. We have a very long term thesis on that company so we wish we would have sold more but we’re happy with the thesis and so it all really depends on your time horizon, it depends what you own and sometimes you wish you had sold more but that is easy to say when the stock price is down.

I could have done the same thing with Amazon when it went from 100 bucks to 34 bucks in 2008. We had that big gap down but man you look at the stock price now. On American Apparel we have a huge position in that name and we think the company is going to earn its stock price in basically 5-7 years from now so that puts the stock to 10-15 dollars if it doesn’t go bankrupt and bankruptcy is a potential. We have our own odds on that. Does it matter if the stock goes to zero? It doesn’t. I mean we are going to lose money but in terms of how you look at it right now and the probabilities and stuff like that you know what your bet is and zero is part of the scenario.

So Michael your very scientific based approach and viewpoint means that you never let your emotions override a thesis that you have?

Oh….. I don’t know. We’re very emotional. I’m a very emotional guy but I know what I’m dealing with. Like in the case of American Apparel the reality is that it could go to zero and it has potential of 10 to 15 dollars so we know that probability, so of course I am going to be emotional if we lose all that money and it goes to zero, of course, but that doesn’t change the nature of the bet that we made. I guess we are a slave to that bet unless the facts change for some crazy reason, which can happen too, and then we would unwind. But we’re emotional.

Michael I notice reading your bio you come from a very scientific background and obviously you have been speaking about science and physics with regards to your company’s way of trading but have your feelings changed over the course of your trading career or have you always had this sort of background where the emotions aren’t going to effect your models?

Well I think one of the best lessons I have learned was when I was in New York trading the single stock derivatives book, it was never my calling to say ‘oh Microsoft comes out today they want to sell say a million put on the stock and hey Michael do you want to buy them or……’ you have no choice. You have a market to make, you have a market for size to make, and, then you make your market. If you get hit because the companies sell puts now you own like a few million puts on Microsoft, I’m just giving you an example, or Dell or whatever the companies were in those days, so you have a huge position. So you have this huge position and most of the time you don’t like what you have because it’s big and it’s very hard to get out of it. So you get very very good when you have a big position like that, you get very very good at working your butt off and going to the market and trying to find other things you can sell against it or buy… you know what you need to do to reduce the overall exposure. So when you run big books like that you get very very good at dealing with having a position and then starting to work your way out of it or reducing the risk and things of that nature and that’s basically how we approach our trading. We have a lot of positions and we are trying to move value from one to the other. So for us it’s more about that process, exploiting value and sometimes not having the stuff you want to have but working very hard to exploit that potential of energy. It is very hard to explain in words but if you get dropped a massive position and you have to deal with it, I tell you, you learn very quickly. And you know the charts don’t matter and sometimes the volatility doesn’t matter if you have a huge position what matters is how the heck can I trade out of this, how can I find other opportunities to trade against it, if you buy something that is quite cheap or fair value what can you sell… this is a very different discussion to what many talk about like the chart looks good aghhh come on guys.

With a lot of that stuff, particularly having very large positions, obviously your internal system or your emotional system gets bombarded by it. Do you have any practices that you do away from the office or the trading screen to help handle things mentally or emotionally?

Well I play hockey and I do a lot of kite boarding.

Michael do you find that actually gives you a balance to your market operation? A mental or emotional balance?

Yeah, kind of. Well hockey is more like hustling. You have to hustle when you play hockey so it’s a little bit like trading as you have to make things happen, you have to produce. So that doesn’t get me too much away from the trading mental framework. The kite boarding is definitely more meditative: more of a meditation or relaxation as it is just such a totally different atmosphere.

Have you always had some sort of approach to balance yourself personally away from the markets? What about when you were back on Wall St?

Yes and no. I guess not really. You know we’re thriving in that commotion of trading the market and just going around and finding opportunities. So that is almost like a mediation too although it doesn’t sound like it. If you like it so much, and are passionate about what you do, for me it is like playing a hockey game you know?

Do you feel you are naturally attuned to the market game and the involvement in it? Is it something that just came naturally to you?

Absolutely. Another way to explain it is that when I came to Wall St, when they moved me from Montreal to New York, I asked the big big boss of the trading floor “What the heck, why did you guys hire me? There are so many people in the US etc?”. I mean there were pretty big books back then and 500 traders on the floor and I was just always puzzled why I was given that book in New York. Junaid Rubani told me how to play the game: “Look you’re a street fighter. You know we go into a fight and you go in there and you make things happen. You hustle, you make plays happen. That’s what it is.” You see it’s never the same and there are different fights that you have to fight. You have to create things. You have to make things happen on your own without resources. It’s like entrepreneurs… that’s trading. I think what he said captures the essence of trading, which is a little confusing for me as people approach trading saying it’s stop losses, and, set-ups and all that stuff. For me it’s not all that stuff. It’s more like, you know, walking down the street and getting attacked and you have to defend yourself. It’s a totally different thing. The last two weeks with the fiscal cliff made it a totally different ball game. You have to readjust how you see the market and do it very quickly.

I find it very interesting with your comments about a street fight and having to defend yourself as well as the context of the recent fiscal cliff. Do you find trading is more about having a good defense rather than an offense?

I think it is having a killer offense when people are panicking. That’s where the street fighting comes from. During the fiscal cliff episode when people start shaking you have to go into the market and if they need liquidity you have to provide it. That’s basically how I trade. What the charts look like and all that stuff is irrelevant. The money you take is the money you get from other peoples mistakes in one way or another; because they are mis-pricing securities. So when you sense that the market is nervous and is mis-pricing you have to go in there. You can’t wait for the sun to show up because it doesn’t work that way. You have to go in there and provide liquidity and extract money out of the system. That’s how we look at things.

This is brilliant stuff Michael. I am conscious though not to take too much of your time so let’s wrap up with: If you could give one piece of advice, with all of your years in the game street fighting in the markets, to aspiring traders about emotionally handling the market what would it be?

I think, maybe it’s going to surprise you, but I think if you can have a little bit of the emotion that the market has and be able to step out of it and look at yourself and how your emotional in that situation, it gives you a good read for how the market participants are acting. So it’s almost like you need to be emotional to get the vibe of the market and how fearful people are and then you are in a much better situation to exploit that. It’s almost like getting the good read on the emotional state of the market and then overriding your own emotion to take the proper position which is never easy. I have quite a bit of experience in the market and even during that fiscal cliff period when I had to buy futures and then it goes down against you, you get emotional and others are emotional but no one wants to get in there, just a few people want to go in there and buy the market. So it is a case of how do you go in there and override that emotion. It’s important to have that emotion because it gives you a good read on the market but you need to be able to override it and then just go and be confident in yourself. For me that’s how I approach it. I think this notion that you have to be a rational agent is rubbish.

The idea that you are some kind of Doctor Spock or Data from Star Trek with no emotions and very passive?

Yeah it doesn’t work that way! It’s impossible. I mean we’re people on that mission so we shouldn’t be too emotional.

So despite the fact that you’re a scientist and most of those that work for you are scientists you can’t take out the human emotion side of the market?

No you can’t take out the human factor. We have a little model that is called the ‘Levy flight’, you can search it on my blog as we wrote about it, it’s basically a mathematical model that represents how animals go and search for food and their random process that they use to gather food depending on the conditions of the environment. The model accounts for that and when we think about this we think about the news and journalists and the media. The media and those people are always looking for food as they have businesses to feed so they create a lot of anxiety etc and the Levy Flight is just a great model to use to visualize how things evolve in the media. Then you can look at that and then you can spot when the media moves, when the media goes totally all in, like with the Fiscal Cliff. That’s when you want to look to get involved as that’s when there are tremendous opportunities. You see that is one way we use science to understand emotion. We are all animals with that kind of instinct but we just try to use mathematics to model some of those things.

***

I’d like to thank Michael Bigger 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 Michael Bigger you can find him:

On twitter: @biggercapital

At his blog: http://biggercapital.squarespace.com/

***

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

***

[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Twitter and StockTwits can be a good tool for traders. 

I think they can be dangerous as well if you are inclined to lean too heavily on others rather than doing your own work.  There are so many people ‘in’ this business with big mouths and fast fingers, with no skin in the game - you want to watch out for and avoid these like the bubonic plague. 

Heed this advice or else:

Image thanks Wikipedia article on bubonic plague.

If you would like to read about why having skin in the game is important and have not heard of ‘Hammurabi’s Code’, I love this Nassim Taleb article from the Observer an overview: Nassim Taleb: my rules for life.

I use and enjoy Twitter / StockTwits for information and exposure to interesting people I wouldn’t normally cross in daily life.  I’d say that now it’s all basically upstairs trading rather than in the pits, one of the best uses of these services, is for banter and preventing isolation. 

Trading can be a very isolating business to be involved in.  I have several stories of successful traders who are depressed because no-one around them (family, friends, etc) understands them and they trade on their own all the time with just their screens for company.  While there are probably bigger issues at foot here and other approaches to dealing with them; building a community with Twitter / StockTwits is a good one to look into (with the caveat in the second paragraph applying).

One of the twitter guys I wouldn’t normally bump into is @soolebop.  Not only does he have one of the most original and interesting of bio’s of trader websites / blogs I have visited but he banged out the following tweets which were class: 

I told him what I was going to do:

He said:

And you know what…… it’s this nice post that’s the result.

Re-read the above and unless you are a major Dan Brown fan replace Illuminati with the core subject of this blog -» TRADERS.

Following @soolebop’s sage advice as to what makes a good Illuminati member is pretty damn good advice for traders.  I write on here about the importance of mindfulness and being aware of your emotions.  One thing is for sure, for almost all circumstances you want to be making rational and calculated trading decisions. 

There are occasionally times when you internal voice will scream out and following it may be the right thing to do but…… I think you will normally find that these really are few and far between.

This is a game better tackled in the realms of probabilistic thinking rather than gut hunches.

For now listen to the Illuminati advice and use your nut.

***

You know you want to comment :-). Go for it below:

[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Let me cut straight to the point. 

Are you fit?  Are you healthy?  Do you take care of yourself?

This is a personal question for you to answer.  Don’t shirk it; really answer it.  

I admire people who are fit, healthy and take care of themselves.  It shows me that they care about themselves, are responsible towards their family and their community.

It shows above all self-discipline.

Self-discipline has a massive carry over to being a successful trader or investor.  I’d go as far to suggest that it really is key to being a success in just about everything.

If you are willing to do things that keep you healthy - then it translates to your willingness to be self-disciplined in your business life (trading is a business).

James Altucher has a well regarded post called How to be THE LUCKIEST GUY ON THE PLANET in 4 Easy Steps.  I think it is excellent.  In short he recommends having a daily practice that includes looking after the physical, emotional, mental and spiritual dimensions of your life.

In it there is a key paragraph for me:

“The “idea muscle” atrophies within days if you don’t use it. Just like walking. If you don’t use your legs for a week, they atrophy. You need to exercise the idea muscle. It takes about 3-6 months to build up once it atrophies. Trust me on this.”

Now James is a very creative guy and has a lot of people from the creative realm that read him.  I am not saying working on your creativity is not beneficial; it is.  However for the purposes of this post and this blog what I’m interested in is self-discipline.

Now I am going to go out on a limb here.  If you are overweight, unhealthy, not regularly exercising, not adhering to a diet plan, etc you are lacking in self-discipline and whether you realize it or not - it is affecting your trading performance. 

Take James’s quote and tweak it for our purposes a little and it reads as below:

“The “self-discipline muscle” atrophies within days if you don’t use it. Just like walking. If you don’t use your legs for a week, they atrophy. You need to exercise the self-discipline muscle.”

Just so that this is not lost on you let me be clear….. like a muscle that develops from regular contraction and extension due to the increased blood flow and recruitment of muscle fibers so does your self-discipline.

Every day that you practice something, exercise it, you build it.  If you are lacking in self-discipline the first thing you need to do is realize that you are and accept it.  Then take the key step of doing something about it.

Pick one thing and commit to doing it every day.  Not for x number of days or weeks (like it takes 30 days to form a habit or quitting sugar for a month etc) but forever. 

That’s why a lot of times we fail because we give ourselves a get out of jail card.  You know the old: if I eat chicken salad for 2 weeks and lose weight then at the end of it I’ll go back to what I was doing.  You’ll feel happy because you only have a limited period of pain to endure and then are free.  Being free feels good.  As a result you lose weight and are happy with yourself.  BUT you then go out and reward yourself - normally with food and drink.  A few months pass and you are exactly where you were when you started.

Stop this crap!  If you accept that you want to be healthy and fit - pick something that matters, that’s good for the long haul, the real long haul and settle yourself.  Prepare yourself.  Tomorrow morning wake up and start the first day of building the self discipline muscle.

Since this is a major commitment you might slip up.  You know what?  Since it’s a major commitment, the benefit you derive from it, hasn’t suddenly changed because you slipped up.  It still makes sense.  So you know what you do?  You just seize the opportunity to start exercising the self-discipline muscle again.

The more you do this the more amazing things will happen.  The more people will say wow you just always look so good or run so fast or move so well. 

What you will know deep down is that it all came about because you built from nowhere, one little day at a time, until you have such a refined self-discipline muscle that it spills out into everything you commit to doing.

I guarantee that even starting being disciplined with your health & fitness, a seemingly unrelated thing to trading or business, that you will see your professional performance improve by an order of magnitude.

I’ll finish with a bit of a challenging comment:

Do you really think that you can with a straight face say that you are disciplined in your trading if in many other areas of your life you are the opposite and that it’s not all interrelated?

There may be guys out there who have killer discipline at their desk and are the total opposite in other areas of their lives.  What I’ll stand by is that they are by far and away the exception rather than the rule.  You know what…everyone want’s to think they are the exception but in reality, buttercup, you are just like the rest of us. 

Do you want cheese with that whine?

Get on with building your self-discipline muscle in any area you can and become a better man / woman.

***

You know you want to comment :-). Go for it below:

I’d particularly love to hear accounts of how you changed your fitness and health habits and saw a carryover to your trading or business performance.

[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Are you smart?  I hope so.

There is clearly a certain minimum requirement to be successful in the trading or investing business.  Without the basic foundations you aren’t ever going to manage to get your trading house built.

It stands to reason that the smarter you are the better.  After all to really win big and be a trading legend you have to be some super brain, some Gary Kasparov on steroids.

I’m going to let you into a little secret:

The first part is true.  You do need some basic intelligence to trade well.

The second part is a sensible assumption but false and in many ways badly wrong.  Not only is being super intelligent not necessarily going to make you better at managing risk but it likely means you will have to overcome a lot more to be better than your less intelligent competitor.

Here is a short Koan for you:

Nan-in, a Japanese master during the Meiji era (1868-1912), received a university professor who came to inquire about Zen.

Nan-in served tea. He poured his visitor’s cup full, and then kept on pouring. The professor watched the overflow until he no longer could restrain himself. “It is overfull. No more will go in!”

“Like this cup,” Nan-in said, “you are full of your own opinions and speculations. How can I show you Zen unless you first empty your cup?”

Trading is 80% emotional intelligence.  If you are very intelligent the remaining 20%, the technical skills side, is going to be very easy for you to pick up.

If you’re very intelligent you are likely stuck in the very frustrating place of wondering why you aren’t getting the kind of trading results you want.  After all you’re smart, you’ve always been successful in your life, you got top marks at school and university ever since you can remember.  You were always in the top few percent of your class.  You’re used to getting good marks and a achieving high percentages.

                      Now the tough bit: You Have A Massive Ego.

Trading is about managing risk and making high probability bets.  The probability thing is a tough one because you only need a few of your winners to be big in order to cover the many small losses and still leave you with a very positive week, month or year.

Yet this is exactly the opposite to your prior experience.  You are going to be wrong a lot.  Your opinion, analysis, beliefs etc don’t matter one jot.  The market doesn’t give a toss who you are or what you studied and it isn’t going to react to anything you do.

So you are really in this case ‘book smart’ and in order to cut it in the real world of the markets a whole other side of your intelligence is required.

                                       Emotional Intelligence

Tell me I’m wrong in the comments but I warn you…. you’d be best thinking first.

If you have experienced this I’d love to hear in the comments what was the tipping point where you realized that your past experience was actually hindering your performance.

If you want a place to start with tuning up your emotional intelligence, I’ll give you two prescriptions:

-> Complete a trading journal: being very dilligent in writing about your feelings as you interface with the market.  Review this journal at the end of every day, week, month and year. (More: here & here)

-> Make a meditation or breathing practice a central part of your day.  Do this every day……………………………………………………………………. for ever. (More: here, here, here & here)

***

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***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

The formidable Josh Brown The Reformed Broker posted this Dilbert cartoon.

It made me genuinely laugh out loud because for all those frustrated by trading or who have been in the past this is so true.

I’ve written a number of posts recently that cover all the above things. 

I’m not trying to be a smart ass but you do need all of these skills.

If you want to be a successful trader or investor:

One You need to be able to persist and keep committed to your goal of being successful for the long haul.  If there is nothing that is going to stop you from being a trader you will get there.

Two You do need to know when to quit but not as relates to the above point.  You need to know when to quit a trade, a theory, a strategy and you need the wisdom from your persistence at this business to know how and when to do this.

Three You’ve always got to be flexible.  You have to duck and dive with the best of them.  You’ve got to be able to change direction on a dime or you’re dead meat in this game.

Got something to say about this post?  Go for it in the comments below.

***

[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

I am very excited to be able to offer the twelfth 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: Greg Harmon

1) How long have you been trading?

I have been trading one way or another since 1986. I started with very short term money market arbitrage type trades, repurchase agreements vs Commercial paper all over night and took over 7 years before moving to equities.

2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?

I am a top down technical trader.  So I start with identifying the trend and then look for how inter-market activity can influence that trend.  With a grasp of the big picture I then search for technical set ups within my universe of about 1000 names.  When I see something very interesting I then determine whether to play the trade in the stock or in options.

3) How do you feel when a trade goes against you?

It sucks when a trade goes against me.  Like every trader I know, I never want to be wrong.  But of course I am wrong a lot. 

4) How do you feel when a trade goes for you?

When a trade goes as good as could be hoped for it is a great euphoric feeling.  I would expect that most traders feel this way too. 

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?)

Now this is the crux of the matter.  Early on losing trades would be brushed aside and winners would have me puffing up my chest like I could do no wrong.  This had a lot to do with the market I was trading in the late 80’s.  As they market got more complex, trading equities and derivatives, losses, especially a streak, could really get me down.  I would sometimes feel that maybe it was time to stop and move away from it for a while.  Wins would still help to inflate an ego.  Now 26 years in I know that losses can be learning experiences and should be studied, even if only for a few minutes, but then let go.  You cannot let them be an anchor around your neck and give you any doubt at all about whether the next trade will be successful or not.  Yes they still suck, but next, move on.  Wins still feel great but with age i realize that they come from preparation and sometimes luck.  I am not some great invincible being but take the time to be ready for what the market presents. 

6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading?

Really just recharging the batteries.  I like to spend time with family.  What my 5 and 7 year old see in the world and how they learn and experience life can show you the proper context for trading within your life and reset the emotional faculties.

7) Have you always done this? 

No, prior to the kids it was going out with coworkers and friends and talking about other things, playing sports or working out.  You adapt your coping mechanisms as your life circumstances change.

8) If not, how have you learnt to deal with the feelings that come up when trading?

Added time doing the same thing also allows you to recognize the same wins and failures and takes a bit of an edge off of them.  Repetition and experiencing the same things over and over is a good thing.

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?

For me it is a matter of a slow realization through experience.  Not a break through moment.  Recognizing patterns and then dealing with them works in trading charts but also helps in the way that you move through life.

10) If you could give aspiring traders one piece of advice about emotionally handling the market what would it be?

Wake up every day prepared for the market with your analysis as well as with a good clean mental state.  If you cannot come into the day ready to accept both winners and losers and then move on, then do not go to work that day or do not trade.

***

I’d like to thank Greg Harmon 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 Greg Harmon you can find him:

On twitter: @harmongreg

At his blog: http://dragonflycap.com/ 

***

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

***

[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Most generations who are reading this are distracted. 

We have things that draw our attention away from the present everywhere. 

Quite literally all around us we have things that can make us lose focus.

I’ve written about how the news and ‘info-tainment’ may not be doing you any favors, promoted slowing down and spoken of the advantages minimalism may offer you.  

I’m not talking down to you.  I know that you know this.

The real question is what do we do to get more present?

Enter today’s learning tool - the zig-zag bridge:

(Image thanks)

The objective of a zig-zag bridge in zen philosophy is to focus the walkers attention on the current place and time. 

Clearly failing to do so can end with a somewhat wetter less mindful experience!

Yeah but so what?

I find it a useful memory trigger to think of a zig-zag bridge to help me presencing myself. 

Tell me you never do this:

I like everyone else can spend time being off in the future or dwelling in the past. 

As traders a few common things that don’t help your trading at all that are based on the past or future rather than the now are:

* Dwelling on a losing trade or string of them.

* Wishing and hoping that a trade will do something.

* Wanting a set up to happen.

* Thinking of what we will do with all the money we make.

etc, etc.

If you find your mind wandering off…..

I am getting better and improving being mindful but it is not easy and I’ve found a few little tricks can be useful.

Maybe you will also find when your mind is wandering off into the future or the past that thinking about the zig-zag bridge may be a visual cue that brings you back.

If you catch yourself off in one of these unproductive places think of the zig-zag bridge and why it’s designed that way.

Then when you’re back: a simple technique is to focus on your breath.  Feel the air at the tip of your nose as you breathe in and breathe out. 

Close your eyes and concentrate on your breath for 5 deep natural breaths and then look at where you are now, what situation you are in now and deal with whatever you want to do now.

***

Let me know in the comment section what you favourite place to mentally wander off to is?

If you try this technique drop a note below to tell me whether this helped at all?

***

[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Trading can be so infuriating sometimes.  You’ve probably experienced some major difficulties while you’ve been looking to make your money in this game. 

I bet you feel like you have worked really very hard.  You’ve read books, forums and blogs until your eye lids felt as heavy as your chubby loving mates newest girlfriend.

Now though all that hard work feels worth it as you have found a couple of approaches that you really feel are yours to own. 

You’ve decided perhaps to be a breakout trader, range trader or scalper because of the great fit it is to your character.

You’ve had a little go at trading the approach with a paper trading account and now have got real money on the line in the market.

BUT it’s not working out quite how you expected and damn it’s frustrating you!! Big time!!

Enter Lao Tzu:

“Do you have the patience to wait until your mud settles and the water is clear?

Can you remain umoving until the right action arises by itself?”

So often, and I mean really so very often, the problem is that you don’t have the patience to wait for the correct set up to present itself exactly as required by the strategy.

You wait and wait and then the market starts to take the shape you are waiting for but a small part of you is saying in the back of your mind: “this isn’t quite right”.

You’ve been waiting a long time, it seems like forever, so you don’t really listen to the little voice and pull the trigger and enter your order anyway.

Sometimes you get away with it and the trade ends up being a winner.  This actually is not a good thing for your development as it reinforces a bad habit.  However, what usually happens is that the trade doesn’t play out right for you and you get this overwhelming feeling of “sh#t I knew that was going to happen! Damn it, why didn’t I just hold off placing the trade?  I would have saved myself that money!!”

All the time you had been given that little queue from your mind or body that said things weren’t quite right.

In my experience what then tends to happen is that you think “OK no harm, no foul.  Life goes on.  I’ll just re-focus and make sure I don’t do the same on the next trade”.

Which in many ways is a good plan.  Yet you know I am going to put a ‘but’ in here and here it is:

BUT this is where another tricky thing comes into sight.  You often don’t stick to the same trading strategy but find another trade that meets the criteria that fits one of your other plays.  You then execute that trade and either have a repeat of the above process, in which case you start to go a bit insane over your days performance, or you are successful.  This time being successful means that you forget the lessons that you may have learned from the first trade and move on feeling good about your day.

The solution?

The solution to this problem lies in patience. 

Most people don’t like the word patience and it brings up all sorts of feelings that we like to sweep under the carpet so no one can see.

It is however one of the most important aspects to all types of trading, no matter your time frame or goals.  Learning to build on your patience skills is a pre-requisite to making it as a trader.

An example of this kind of patience can be seen in the interview with famed commodity investor Jim Rogers in Market Wizards.  Jimmy says something along the lines of the way he makes his money is through waiting and waiting and waiting until there is a bag of gold in the corner of the room then just going to pick it up.

Now I don’t know if Lao Tzu actually taught Jim Rogers this skill.  Jim does however highlight in the Market Wizards interview the great skill he has in laying in wait patiently ‘until the right action arises by itself’, just as old Lao Tzu asks.

So what are you going to do about this?

1) Great traders keep journals and I’ve written about this before.  If you have resistance to this practice let it go and force yourself for a period of time to keep one.  You will learn a lot and your trading will improve.

If you are smart enough to be taking a journal make sure that in the above situation of the losing trade that you note down the ‘little voice’ and the realisation that you didn’t wait for the perfect set up. 

2) Make sure you have a review practice.  At the end of every day review the trades you made AND review your trading notes in the journal.  See what you can learn and think about how you can refine the process next time. (It’s a good idea to schedule review sessions every day, every month and even a major one every quarter and year.  You will be amazed by the learning and development you will garner from these).

3) As Mike Bellafiore says in the Pro’s Process interview visualisation can be a very useful way of sharpening your trading blade.  I’m going to give you two things you can do should the above problem arise: 

a) Using your awareness derived from your journal find a quiet place and close your eyes.  Begin visualising your trading station and picture as vividly as you can yourself sitting there.  Picture the market setting up for the trade that you want to take.  Visualise yourself waiting patiently.  Calmly breathing.  Alert, yet relaxed.  Then visualise yourself seeing the market morphing and taking on conditions you weren’t expecting.  See yourself calmly reacting to this and making the right decision not to enter the trade.  Really feel comfortable and at one with not taking the trade.

b) Repeat the whole exercise again.  This time with the trade setting up as the strategy dictates and this time you taking the trade.  Visualise doing all the right things and executing the trade in the ideal manner.

The purpose of this exercise is to burn these actions into your memory.  The more you practice this the more you will refine it and the more comfortable you will be doing the right thing in these situations.

4) Another way traders manage to sabotage themselves in the patience department that can be seen in the above common scenario is by having a number of strategies learned before having mastered one.  As you see above the second trade was using a different approach to the first.  The risk of this at the start of your development is that you haven’t yet ingrained all the right actions for the first set up.

It is highly recommended to work on one trading strategy or play at a time.  That’s not saying you can’t or shouldn’t have more than one play.  It is saying have the patience to really know that you can execute one perfectly and have got all its nuances completely owned.  Work on the patience to spend the needed time getting one right.

If you are struggling you could use visualisation similar to that described above or meditate on the feelings that arise for you from having to be patient.

5) You have no control over the market.  Seriously you really don’t and the sooner you accept that fully the better.  Presuming you get that already, then you have to embrace the fact that you don’t have to trade all the time and there may be hours or days or even weeks where the right set up does not appear.  You cannot make the conditions appear.  You have to go with the flow and make your decisions off what the market gives you rather than your hopes and desires as to what it may give you.

This is a major trouble for traders.  With the above example we feel that since one play didn’t work we better use a different one for fear of missing out.  As I have eluded to, already this either leads to us missing valuable lessons or in not achieving any level of ownership or mastery over our trading (amongst other things).

The fear of missing out is a human emotion that really can impede trading performance and one you really need to be on the watch out for.  One thing to be very aware of is that there will be other opportunities.  There always are.  Think of how much better your trading would be if you didn’t churn your account from the losses that result from badly executed trades.  Contrast this to how sweet your account would be if you only took the prime opportunities and executed clinically when the conditions were exactly right for you.

***

I know this is a long post and I really appreciate you if you have got this far.  I really care and write this blog for free and as a result if you are reading this far you really care as well so I’d like to ask you to do something for me…. 

I hope it helps and would love you to tell me if it did.

Have you struggled with patience in your trading? What great insights have you got dealing with this that you can share?

I’d love to hear some of your personal experiences. Please tell me in the comments below.

***

[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

I am very excited to be able to offer the eleventh 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: Brian Lund

1) How long have you been trading?

In 1985, one month after I turned eighteen, I walked into a Dean Whiter office at my local Sears department store and bought 300 shares of Altos Computers.  The broker took my check and told me to call back later in the day to see at what price I got filled.

I didn’t know anything about the company, although based on the name I thought it was a pretty safe bet that they did something related to computers.  Somebody on a local cable access show said it was the stock to buy, and since he was on TV, that was good enough for me.

Ironically, just last week I was reading an article in Fortune about Ron Conway who was the co-founder of Altos, and has gone on to be a well known superangel investor.  He remarked in that piece that Altos was once one of the fastest growing companies in America.  Huh, who knew?

I don’t know if you could call that position in Altos a trade since there was no real methodology associated with it, but I have been buying and selling stocks ever since, and always with a shorter time frame and more dynamic management approach.

2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?

99.9% technical.  I say that because I don’t screen stocks or trade them based on fundamentals, but I do have an underlying sense of what they are. Meaning I rarely if ever trade in small or micro cap stocks, though that is more of a function of lack of liquidity than any fundamental reason.

3) How do you feel when a trade goes against you?

I hate it!  I really, really hate it.  Something that is really interesting is that the quicker a trade goes against me the more I hate it.  

If a trade just lingers around, not doing much, and after a few days or a week stops me out, it’s more like “eh, who cares.”  But if I put on a trade and it reverses against me right away, the pain is way more acute.

4) How do you feel when a trade goes for you?

The sun shines brighter.  The flowers smell better.  The bird’s songs are lovelier.  And everything is “right” in the world.  I think if the Israelis and Palestinians could experience the bliss of a shared winning trade, the Middle East conflict could be wrapped up overnight.

Seriously though, I have noticed that when my positions are going my way I have a generally happier and more relaxed demeanor.  This of course is not good, because as we try to eliminate emotions from trading it’s just as important not to get too high from a win or too low from a loss.

It’s funny though, the happiness I feel from a profitable trade is never quite as intense as the pain I feel from a losing one.

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?)

My emotions related to winning and losing trades have changed greatly over the years.  For the longest time I had a very hard time when it came to losing trades.  Ironically, that had more to do with factors in my life outside of trading, than with trading itself.

I was always a skinny kid, something that I was very conscious of growing up.  Kids can be brutal, and in order to draw attention away from my slight build I developed some defense mechanisms early on.  One was a quick sense of humor, but the other was a sharp intellect.

I think subconsciously I felt that if I was the “smart” kid I wouldn’t be thought of as the “skinny” kid.  And to me, being the smart kid meant always having the answer and always being right.  Those two traits by their very nature of course are all about having control.

Trying to have control, having all the answers, and always being right are the worst character traits possible for a trader, and I had all three in spades.  

6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading?

For me the most important thing to do when dealing with negative emotions in trading is to get ahead of them before you feel their impact.  That relates to how quickly you make your decisions and what objective criteria you use to make those decisions.

Always having a chart based stop and target in place BEFORE you enter a trade is a must.  That is the time when you are most emotionally detached from a trade and can think more objectively.  Then the key is acting quickly, almost without thought, when those targets are hit.

It’s like taking medicine that tastes bad.  If you slowly sip it down, it gives you time to notice how distasteful it is, and how much you hate it, and opens the door for you to say “screw it, I’m not going to finished this.”  Its best just to gulp it down, have a quick “shudder,” and move on.

The same goes with trading.  If your stop is $25.25, when the stock hits that price “BAMM,” close it out.  Don’t think about, don’t string it out, just close it, shudder, and move one.  It’s trickier when it comes to targets because price action might be indicating that there is more to the move, but generally it is best to stick to you pre-entry trade targets and take them as quickly and unemotionally as stops.

Nowadays when a stock hits my target I just close it or have an order in place that closes it and move on to the next trade.  The less thought I give it the better because it doesn’t give negative emotions the time to form and screw me up.

7) Have you always done this? 

No, it has evolved over the years, many of which were spent banging my head against the wall.  But it is true what they say, once you stopped beating your head against the wall it DOES stop hurting.

8) If not, how have you learnt to deal with the feelings that come up when trading?

I am a big believer in the concept that it’s very hard to change our basic character traits, but I do believe that you can channel them more productively or even in some cases override them with more positive traits.

For example, if you are an alcoholic or drug user because you have an addictive personality, you may be able to quit using, but you are not going to change your basic nature.  However instead you can replace the addiction for negative things with positive ones.  

My best friend is a recovering alcoholic, with an addictive personality.  He has replaced his addiction for booze with an addiction for fitness, and now runs tri-athalons.

But you can also use a more powerful positive personality trait to “override” a negative one.  In my case, I am lazy in general.  I love to lounge around with no schedule or obligations.  That’s in my nature, but it’s not a very good trait if you want to be a success in this world, so I override it with my sense of responsibility and obligation.

I never want to let people down whom I have committed to do something for.  That is a stronger personality trait for me than my desire to be lazy.  So in order to combat my laziness I commit to a lot of things, like writing answers to interviews for example, that force me to be more proactive and productive in my life.

So, after this longwinded pre-able, what I am getting at is that when negative emotions have come up in my trading, I try to override them with something I feel stronger about….perspective.

It’s a losing trade, but only one trade in thousands you will do in your career.  It’s a bad trade but your account is up for the day, week, month, year.  It’s a bad trade but you are sitting in the comfort of your home/office, not on top of a roof in summer laying down tar or digging up frozen pipes in the dead of winter while your A-hole boss yells at you.  It’s a bad trade but you have your health, friends, and family.  And so on.

It may seem silly but remembering perspective really allows me to put a bad trade in the context it belongs and move on.  I believe in this concept so much I wrote a post about it entitled, “Have Some Perspective.”  Trust me, after you read that you will have a very hard time getting worked up over a bad trade again.

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?

Yes, I call it “2008.”  That was a tough year for me.  In addition to one of the toughest years I have ever experienced trading; my wife and I were also trying to get pregnant with our second child.  Things were not going like we had hoped and we decided to go to a fertility doctor to help things along.  Problem was, we had to go three days a week, in the morning, in order to have the best shot at success.

I felt very strongly about being with my wife at all these appointments so I would be there in the doctor’s office, trying to be supportive of her and the situation, while also trying to manage trades on my Smartphone, in the most volatile markets we have ever seen.

It was very tough on my P&L and very tough on me and my family emotionally.  I honestly don’t know how I got through that year intact, but in retrospect I realized that even though I had thought I was a “pro” at trading, I still had many “amateur” traits, mostly relating to my emotions.

I learned a lot about myself that year.  Sometimes it takes intense, acute, or painful moments in your life to have a “breakthrough” and that is what most of 2008 was for me.

10) If you could give aspiring traders one piece of advice about emotionally handling the market what would it be?

I think the number one piece of advice would be to trade in a style that fits your personality, not a style that you THINK fits your personality.  And of course the catch to that is being honest with yourself about what your true personality is.

Often people will get into trading with a preconceived notion of what it is about.  They’ve seen “Wall Street” and identified with the Gordon Gekko character.  They think trading is about huge risks, massive rewards, and an ad hoc trading style.  

They fancy themselves that Gekko type trader and try to emulate the same style and bravado, when in fact their real personality runs one-hundred and eighty degrees opposite.  And of course they end up blowing their accounts out.

Successful trading is about making money, that’s it.  It’s not about ego, or being cool, or having great stories to tell your friends at the bar.  The more closely your trading style fits with your personality, the less conflict it will create, meaning the less negative emotions it will generate, and the better chance you have to be successful.

***

I’d like to thank Brian Lund 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 Brian Lund you can find him:

On twitter: @bclund

At his blog:  www.bclund.com

***

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

***

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***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Argghhhh!!! Why is it so damn hard to stick to my plan? 

I made it.  It’s mine.  It should be really really easy and yet I find it so very difficult.

When I follow my plan it normally works and those times I follow it I don’t lose money often.  When I don’t follow it and I lose money I lose big!  I hate those feelings.  I feel like a chump.  I feel like a failure for losing.

Maybe I’m just not going to ever be able to trade well?  What will other people think?

Why is following a plan such a big deal and what can I do about it?

I think this is a pretty common trading question  and one that I’ve been through before a bit myself (I got asked it (I’ve flavored it a bit above) by the anonymous sounding ABC in the comments here).  

It’s a very common problem that comes form the fact that you don’t have to read much of the trading or investing literature to bump into some form of adage like:

“Plan Your Trade, Trade Your Plan” or “Stick To The System”

All the best traders say it and so it is safe to assume that it is exactly what you should do.

One of the reasons this is such a big problem for developing traders is that although they hear this EVERYWHERE most professional traders don’t give away all the details of their system.  When I refer to system here, I mean both, fully systematic and discretionary systems.  What the newer trader hears if they are lucky is part of a system - normally entry rules - but not the complete system - exit rules, position sizing, money management, etc.

Often the pain the trader experiences from the losses and difficulty following the system could maybe be avoided if they had the complete picture.  BUT I think that all too often this isn’t the root of the problem.

The root of the problem?

The next bit isn’t all too easy to read because the solution to why you can’t stick to your rules that you designed is all about you and fixing it will require a deep look at you in the mirror.

You are the root of the problem.  Taking responsibility for it or not will be the determinant as to whether you overcome it.

I’d recommend meditation, Tai Chi or yoga to get a head start.

***

1) Trading rules don’t normally fall out of the sky.

2) The emotional work is normally not undertaken by developing traders. After all this game should be easy.

3) Not enough time has been spent finding a system that is a fit to the personality of the trader.

4) You don’t really feel congruence with the approach.

5) As soon as you have a few losers you tinker with the approach or move to a new approach.

6) You are under-capitalized or for some other reason you mess with the approach then don’t hold yourself accountable for the fiddling and blame the approach.

7) You have unrealistic expectations as to the performance of the system in terms of win rate.

8) You are ‘bricking it’ about entering drawdown territory.  

9) Your system actually isn’t complete.  You haven’t got all of the following bases covered: market selection, position sizing, entries, stops, exits, tactics.

10) You learned a system or got a system from a marketeer or pseudo trader and it’s actually just crap.

***

Now I know this list may read a bit harsh.  I’ve actually been there during my trading development.  In fact I know most of the consistently profitable traders out there have experienced these as well. 

Trading is a tough old racket to be involved in.  One of the hardest things is that it always comes down to your emotional system and as Ed Seykota said in Market Wizards: ‘finding a trading system that is compatible with your emotional system’.

I could go into all of the points above and I may actually use them for future posts but the truth that I believe is that you have to go through the process of looking into each of these questions and finding your own answers for them.

If you haven’t already, finding a trading coach or mentor that you gel with can really help shorten your learning curve.

Best of luck.

***

I’m sure there are other reasons for not sticking to the plan, can you think of any others?  What has your experience been with following your trading plan?  Please comment below and let’s get a bit of a discussion going.

***

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***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

Daniel Boorstin, the former librarian of Congress, once said “I write to discover what I think.”, which is also one of the main reasons I write this blog.  

Becoming a trader is a process and an ongoing one.  No one is born an excellent trader but rather through iteration after iteration of learning they become better.

I once upon a time struggled with my interests in meditation, mindfulness and how the capitalist world I lived in fitted into the picture.

It was much easier when I was sitting in India looking out over the beautiful and inspiring Himalayas to think of finding a quiet spot, perhaps a cave, and just mediating.  In my own little way renouncing the normal life like the ascetic and monastic traditions so prevalent out there.

 I wrote about this previously in Traders and breath practices. Semi-naked dreadies and Tibetan monks where I tried to suggest the benefits of having a breathing practice such as Tai Chi, Yoga or Meditation as a trader.  I just re-read the post and still think it makes a nice case to consider how these things could benefit your trading.

My youthful exuberance towards the meditative and contemplative life came to a rather abrupt halt when I re-entered the ‘real world’ (as my Dad was always fond of emphasising: “welcome to the real world”).  You see how I felt in India made me feel great.  When I came back to the UK, every time,  I hit that ‘real world’ like a lead balloon. 

Although I had periods where I seemed to balance the two worlds that I was interested in I never felt satisfied by them and they were always short lived.

I don’t really know if it was a maturity thing, something that happens through the usual passage of time, but, bumping into the financial markets provided me the most unlikely way of combining the two worlds that I felt impossible to conjoin. 

All of a sudden I had this way of making a living and doing so with a focus on my own psychological or internal mental development.  On top of which I could be highly independent, run my own business that fit me and I could engineer in what ever way I chose to.

Through investigating the markets and reading and learning about those who were successful, I kept bumping into the stories of how the winners were surprisingly focussed on the mental and psychological side.  The very things that I was most interested in all those years back in India.

As I wrote over at the MartinKronicle in 80-90% of traders fail! But here is some useful insight, so much of making this endeavour successful comes down to psychology.  All the greats have a deep understanding of themselves that is hard earned and comes from years of riding the ups and downs this business will throw at you.  If you want the big bucks you have to be willing to pay your dues.  

Now as with Daniel Boorstin “I write to discover what I think” but I also hope that in doing so it helps those that choose to read.  It is my great desire that I can help a little, those that are interested in becoming traders or investors, with the all important area of the psychology of the market.

My experiences which make me so completely different to the former Congress Librarian, balanced with the shared reality of writing to discover what I think as I go through my process, I wish in the end is helpful for you. 

I am becoming more and more committed to helping traders on their performance from the mental side and I aim for my writing here to be a good starting point in setting you off on the right path.

Tell me in the comments what areas of the market you find most difficult mentally?  I’ll see if I can shine any light on them in the future.

***

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***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

I wrote a post titled Traders and investors; what you should do about the news that details evidence that a lot of the information that you consume is not helpful to you.  It has an excellent PDF by Rolf Dobelli which you should print out, turn off all distractions and just simply read.

Rolf starts with an amazing quote: “News is to the mind what sugar is to the body”.

I try to make the case in the post that you should perhaps consider an ‘information diet’ and ask yourself consciously how you consume information and what real value it provides you?

The Financial Philosopher recently concluded his post The Anti Columnist Part 3 with: 

“The solution is to allocate the attention so as to minimize the potential for poor judgment that often arises out of an overabundance of information.  To begin this healthy allocation, one simply identifies and eliminates the bad sources of information and attempts a less is more, quality over quantity approach to information consumption.  The art of good reading begins by learning the art of identifying not reading the unhealthy sources.”

I like to think that I write because I have something useful to say and that it benefits others in some small way.  I produce content but I am very careful of the content I consume.  I don’t see this as hypocritical in any way as I hope that those who read my blog have decided as to whether what they read here is a good source of information or a bad one.  After all that is what I do and what I try to suggest.  I find myself in agreement with Kent Thune, the Financial Philosopher - less is more.

Kent has a post over at Market Watch as part of a competition to be ‘The World’s Next Great Investing Columnist’ called The Price Of Paying Attention and I really recommend you read it.  You might be nice and help him in winning this competition as well.

Let me give you one little excerpt before you click on over to read it yourself that comes from Barry Ritholz who is quoted in the article: 

“Investors have this cognitive bias that ‘more information’ helps them make better informed decisions. It turns out not to be true; more information helps them be more emotionally comfortable with their decision making — overconfident in fact. Paradoxically, more information leads to overconfidence and worse decision making.”

As trading and investing is all about making good decisions (for more on why limiting the number you have to make is so very important read this on preserving emotional capital) and that is likely why you read my blog at all, I suggest you read The Price Of Paying Attention.  

I suggest you then find a quiet spot to sit and mediate on this and see what comes up for you.  This would be a good place to start consciously becoming aware of and assessing whether it is having a negative effect on your decision making. 

***

[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

I am very excited to be able to offer the tenth 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: Ivan Hoff

1) How long have you been trading?

I’ve been trading for 9 years; U.S. markets for 7.

2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?

80% technical/20% fundamental. When I say fundamental, I don’t mean that I also drink cherry coke just like Warren Buffet. I do look for earnings and sales momentum for the simple reason that historically most big market winners have exhibited strong growth characteristics. Price is the ultimate indicator that matters to me though. If the market doesn’t agree with me, I won’t make a cent and price action is the only  indicator that confirms that market agrees with my thesis. 

3) How do you feel when a trade goes against you?

No emotion whatsoever. I accept that I will be wrong 30-50% of the time depending of the market environment. I just take my loss and move to the next signal. Market is an opportunity machine. The next good trade is always around the corner. Being wrong is not a choice. Staying wrong is.

4) How do you feel when a trade goes for you?

I smile. Who doesn’t like making money? I also realize that I’m most vulnerable to making big mistakes after a period of being right a lot. Overconfidence has put an end to a lot of promising trading careers. 

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?)

At the beginning, I paid attention to absolute returns and I was looking at my P/L way too often. With time, I learned not to look at the score board and to think in terms of percentages. This is the only way to actually grow money under management and maximize my returns.

6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading?

I like to run and take long walks on the beach. It helps to clear my head. I also listen to classical music when I go over my charts.

7) Have you always done this? 

I started running actively a couple years ago. Before that I was into group sports - soccer, volleyball, tennis.

8) If not, how have you learnt to deal with the feelings that come up when trading?

Feelings are not necessarily a bad thing. At the beginning of any trading career  your intuition will probably mislead you. But what is intuition actually. In my mind, it is a set of connected memories. We all think differently, because we have had different experiences (memories) in our life. Once you’ve been successful in the market long enough (meaning you have actively learned from your mistakes), intuition could actually become a powerful weapon. Nowadays, all I need is 30 seconds to look at a chart and I could make my mind on the spot if the stock deserves any further attention or not.  When you’ve seen a 100,000 charts, you learn how to recognize good from bad setups and when to sit on your hands and do nothing. 

Here are a few posts I wrote on the subject: one, two and three.

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?

It wasn’t one particular moment. It was a collection of experiences that lead me to the conclusion that successful trading is 80% psychology and 20% knowledge about the stock market. We are all students of the market.

10) If you could give aspiring traders one piece of advice about emotionally handling the market what would it be?

Realize that there’s a huge difference between knowing and doing. It is called empathy gap and everyone suffers from it, some more than others. Everyone knows what needs to be done in order to lose weight and yet, so few are disciplined enough to do it on a regular basis. It is the same with trading. Once you have accepted your weaknesses, you will devise a good plan to handle them properly.

Unfortunately, the best way to learn is from your own mistakes. Having a good mentor could also accelerate your learning curve, but keep in mind that “you can’t teach a man anything; you can only help him to find it within himself.”

Keep a journal and go over your old entries frequently. It will help you to connect the dots faster.

***

I’d like to thank Ivan Hoff 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 Ivan Hoff you can find him:

On twitter: @ivanhoff 

At his website: http://ivanhoff.com/

***

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

***

[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

The exchanges closed due to Mother Nature.  Were you prepared for this kind of eventuality in your trading? Shouldn’t you have been?  

*** Since blogging I now know a lot of people on the East Coast who faced the brunt of the storm I really hope that you are coping with the clean up and aftermath.  A lot of us far away were sending our best prayers and thoughts during this trying time ***

I hope that you didn’t suffer trading losses by this event.  I hope that you didn’t have emotional struggles as a result of having positions on that you wanted to be out of but couldn’t because the markets were closed.

I wrote just the other day about uncertainty in my post: I Want To Help You By Giving You The No. 1 Stock Market Secret To Wealth Absolutely Free.  In this post I detailed that trading and investing is all about uncertainty even at the best of times.  As with hurricane Sandy uncertainty can come at you from all sorts of angles.

I once had a very panicky period that I filed in my beginner mistakes or lessons learned folder.  

I was day trading (closing my positions before the market close every day) and feeling good with my level of focus.  I was so focused on my trading entries, exits, risk management etc that with a nice winning trade under way into the lunch period I had completely overlooked a HOLIDAY!!!!

That is right.  I made a complete school boy error.  I thought I was completely prepared for everything in my trading but I had overlooked a rather blatant thing… the damn US holiday.

Nowadays that wouldn’t be an issue but I was still at a time in my trading where I was only prepared psychologically for day trading.  As a result having a trade overnight would have put me off balance.  Having one over a long weekend…….. way way way out of my comfort zone.

I got lucky and the moment the market re-opened I closed my position for a relatively small loss.

I tell you this as a personal note that this is all a journey and that you need to have as much a trading system as an emotional system that is able to handle events that you just don’t see coming.  

Nowadays I am used to holding positions overnight and have adjusted my psychological system so as to be very comfortable in this situation which once upon a time caused me one of the most stress filled weekends I could have imagined. 

However,  ANYTHING CAN HAPPEN.  Which is exactly why Mike Martin says that you are a risk manager first and foremost.  Trading is all about managing your risk.  As far as I am concerned that is job number one.

So if hurricane Sandy came at you as a surprise perhaps it’s time you started working on a little re-programming of your own emotional system.  If you had trading losses as a result then chalk them up as learning costs. 

This may also be a good time to make sure that you have a contingency plan in place for technical failures like electricity, telephone line, internet connection, platform failure etc etc. and that you have rehearsed what you will do in that eventuality so that if the unexpected happens you can take it all in your stride. 

***

[If you liked this please follow me on twitter]

***

Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.