I am very excited to be able to offer the twentieth 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: Larry Tentarelli
1) How long have you been trading?
For 16 years, starting in 1998. I was also a broker with Merrill Lynch from 1999 through 2003.
2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?
I follow a systematic, price-based Trend Following process. It is technically driven to the degree that price dictates the programs, but I do not trade off traditional Technical Analysis of chart patters or other indicators. I follow fairly simple Moving Average and Breakout based programs. I spent a considerable amount of time researching, testing and developing programs that were conducive to my personality. Over time, I have simplified the programs and achieved better returns from the simplification.
I only trade price and MAs though. I do not combine it with any other methods of trading.
3) How do you feel when a trade goes against you?
I have very little emotional involvement with my losing trades. I know that my style of trading will always having losers, but a very good expectancy. I keep emotions in check, because I manage the losers to get cut quickly when they start working against me. I know that my when I am wrong in a trade, price will stop me out, the loss will be contained and move on. Losers literally are a cost of doing business and unavoidable. Managing the damage is the key. My style of trading Is to take small losers and hold for big winners.
4) How do you feel when a trade goes for you?
Following a quant driven process, Is easy to say “no emotions”, but like everyone else, I like winners too. I get very detached from my losers quickly, but I like the Home Run Ball just as much as the next guy. Not only is it financially rewarding, but is a nice confirmation of the programs in Real Time. When I get into a trade, I know that any one can turn into a big winner if momentum kicks in.
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?)
I turned to a quantitative process because I was a very poor discretionary trader. For years I committed many of the basic mistakes - overtrading, emotional trading, trading off the news or “feel”. I went through two trading stakes, and backed away from trading 2 or 3 times along the way. Early on, I would personalize my trades in an effort to try to confirm myself as a successful trader. It did not work well for me. Now I am on the other side of the fence, where I just accept that the future is unknowable and that all known data is reflected in the current price on the screen. I read long ago that the weakest link in any trading system is the trader himself. I definitely did fit that bill before I started following price.
6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading?
Spending time with my two young children evens me out. Also exercise and classical music. Fortunately for me, I don’t trade very frequently per se, because my programs suit my personality, which is longer term in nature. Most of my trading is automated to a degree, where entries and exits are pre set, i.e. buy/sell stops tor breakouts or trailing stops/stop losses. If stops get hit, the order is executed and I move on.
Since I follow a few basic programs, I don’t get intra-day stress. If I am trading say a 200 day Breakout program or a 40 week MA break, I don’t need to look at the screen all day. I do not day or swing trade at all, and fortunately I make zero discretionary trades anymore. I put a lot of time into testing and developing my programs, so I don’t have to monitor the markets all day. I also exercise regularly, get deep tissue massages, and listen to classical or relaxing music to decompress.
7) Have you always done this?
NO. I used to spend all night reading news reports, and analyst opinions and getting mentally and emotionally whipsawed.
8) If not, how have you learnt to deal with the feelings that come up when trading?
The best way that I deal with feelings is to automate the process, and remove myself from the equation. If I get into a protracted drawdown, I reduce trading size until it stabilizes, or my positions start working again. I have read different approaches to handling drawdowns or stress, and there is no one size fits all. Many like to trade bigger to get back on track, but I focus on protecting my downside by losing less when I am in a bad streak, especially at major trend reversals.
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. When I gave up trading due to frustration and losses. I realized the markets didn’t beat me, I beat myself. The classic Jesse Livermore line. I firmly believe that most if not all of trading over a longer time frame is psychological. Many don’t trade to make money. Many trade for other emotional reasons, which is not usually productive.
Once I fully accepted that I, nor anyone else, is able to consistently and profitably predict anything, and I turned it over to just trading price, my results improved drastically and my outlook was much, much better. I know that I really don’t know anything, but that puts me a step ahead of those who haven’t learned this yet. Based on my acceptance of not knowing, I freely follow price and have no bias. Today I was flipped from long to short in GDX and it meant as much to me as reading a can of soup. Nothing.
10) If you could give aspiring traders one piece of advice about emotionally handling the market what would it be?
I firmly believe the absolute best advice is to under-trade in every aspect. Trade smaller - smaller positions, less open positions, less frequently, etc. Trading can be very emotional and stressful for a number of reasons - the amount of available data and constant news flow, real money on the line, the need to feel like one has to constantly do something.
Most new traders want to get rich overnight, but the stats prove that one is much more likely to go broke quickly. Cut everything in half. Half the risk, positions, size, frequency all of it. We all pay the price of learning how to trade, for me it took years. I learned from Dr. Alexander Elder’s work that he goal of all new traders should be to just survive at first. It is very good advice. Pro’s trade first not to lose big, and then to make money. New traders get the roles reversed, which doesn’t compute. Protect the downside and let the upside take care of itself.
I’d like to thank Larry Tentarelli 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 Larry Tentarelli you can find him:
Previously in the series:
Charles Kirk - read it…..here
Matt Davio - read it…..here
David Blair - read it….here
Mike Bellafiore - read it….here
Mark Holstead - read it ….here
Brian Shannon - read it…. here
Mike Dever - read it…. here
Anthony Crudele - read it… here
Derek Hernquist - read it … here
Ivan Hoff - read it… here
Brian Lund - read it… here
Greg Harmon - read it… here
Michael Bigger - read it… here
Jon Boorman - read it…. here
Darrin Donnelly - read it….. here
Stephen Burns - read it…. here
Tony Rohrs - read it…. here
Bruce Bower - read it…. here
Richard Weissman - read it… here
Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice. If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.