Embrace The Trend

Jun 05

Can music make you a better trader? 1 song that improves performance guaranteed 


As a lover of music I’m never quite sure of what I think of muzak.

Did you know that according to Adrian North, a Professor of Psychology, the supermarkets may have a very good business reasoning for playing “background music” while you shop. 

“If you play slow music in supermarkets then people tend to browse more slowly and look at more products. As a result they spend an average of 10-20% more. I shudder to think what 10-20% on the bottom line for Tesco is.”

It seems from this niche area of research that personality types can be linked quite accurately to certain musical styles. As a result businesses can utilize music as a way of enticing particular stratum of society to be more comfortable spending time in their stores and thus increase sales.

I wrote about this at the MartinKronicle a while ago. You can read the original post here:http://www.martinkronicle.com/2012/09/07/muzak-spend-overtrade/

What it’s safe to say is that music has an effect on you.  Whether you like it or not.  

So ask yourself:

What effect is the music you are listening to while making trading or investing decisions having on you

Anyway as promised there is a song that will 100% improve your trading. 

You’re probably expecting a motivational ditty like Eye Of The Tiger from Rocky but as noted above that say’s something about your character, God knows what, and I’m not so sure it’s going to create the right conditions for a successful trading session. 

On the other hand there is one song that I listen to that I am confident will improve your trading no end. 

Market legend Ed Seykota plucking his beloved banjo and responding to requests to know the inner workings of his trend following system in the Whipsaw Song is just what the Doctor ordered. 

The Whipsaw Song

Now country music might not be everyone’s thing but the wisdom in this song should be. 

Ed’s Rules for those who really really can’t take country: 

► Ride Your Winners

▷ Cut Your Losses

► Manage Your Risk

▷ Use Stops 

► Stick To The System

▷ File The News

As Ed says, if you are currently a market-a-holic or have a mild case of market-itis adding his rules into your program may well save your account.

Now all together now, you get a whipping I get a saw honey, you get a whipping I get a saw babe….. 

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.

May 28

The Pro’s Process - David Merkel

I am very excited to be able to offer the twenty second 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: David Merkel

1) How long have you been trading?

I’ve been investing for my own account for 25 years.  During that time, I’ve done a lot of different things:

  • Played around with closed-end funds, and shorted overvalued companies 1989-1993
  • Value investing for myself 1993-98, with a lot of microcap value thrown in.  (Weird stuff, and very illiquid.)
  • Created multiple manager funds for group pension business 1995-1998 — got to interview many of the best managers at that time.
  • Set investment policies for a some major life insurers 1993-2003
  • For major life insurers — Mortgage bond manager 1998-2001, Corporate bond manager 2001-2003, Investment risk manager 1993-2003.
  • Small deal arbitrage for myself 1998-2000
  • Settled on my current value investing strategy, as expressed by my eight rules 2000-2014
  • Buy side analyst for a financials only hedge fund 2003-2007.  Managed the firm’s profit sharing and endowment monies using my value investing strategy.
  • Started my RIA in 2011, to offer clients my value strategy — they get a clone of what I own in my value strategy.  I am my largest client, and I eat my own cooking.

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

Mostly fundamental.  Most of my trading is governed by these rules:

Rebalance the portfolio whenever a stock gets more than 20% away from its target weight. Run a largely equal-weighted portfolio because it is genuinely difficult to tell what idea is the best. Keep about 30-40 names for diversification purposes.

I tend to resist momentum in the intermediate term.  From my era of hiring managers, those that used this technique said it added 1-3% to performance.  I think that’s about right.

Make changes to the portfolio 3-4 times per year. Evaluate the replacement candidates as a group against the current portfolio. New additions must be better than the median idea currently in the portfolio. Companies leaving the portfolio must be below the median idea currently in the portfolio.

I limit changes to the portfolio, because it takes time for investment ideas to play out.  I turn over the portfolio at a ~30% rate.  I try to be as businesslike as possible when I sell a company and buy another.  Investors can be very good at evaluating whether a company or group of companies, is better than another company or group of companies.  What is harder is asking, “Would I rather hold cash than this company?”

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

Good.  I get to buy a little more at a lower price, after I check my investment thesis, which if it does not check out, I sell the whole thing.  For the few trades that do badly for a long time — 20 of them over the last 25 years, of course it hurts, but the gains far outweigh the losses, so I ignore those, except to memorialize why the failure happened, and feed that back into my investing processes.  Every time I have lost badly, it was because I violated at least one of my rules.
4) How do you feel when a trade goes for you?
I like it, but I let my rules govern my trading.  Everything is done by rules; there is almost no discretion in my trading.
5) How have these feelings changed over your trading career?  (Can you recall how you originally used to feel and elaborate on how this has changed over time?)

When I was 20-25 years younger, every move in the markets would make me excited.  By the mid-90s, I got my emotions under control.  I learned to focus on eliminating risk on the front end, so that I would have fewer problems on the back end.

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

I pray to Jesus Christ every day, but that is not a means to handle trading.  I ask Him to guide my decisions, and that I would do my investing to glorify Him.

Because I use my rules, there is little, if any, stress over trading.  My processes are designed to take my emotion out of my infrequent buying and selling.

7) Have you always done this?

I’ve done this for the last 14 years.  Prior to that, I was experimenting and developing my methods.

My time managing bond assets for life insurers taught me a lot about trading 1998-2003.  I traded over $10 Billion in bonds over that short window of time.  I was far more active as a bond manager, because it was simpler to ascertain when value-enhancing trades could be done.  That fed into my value investing processes, which are designed to mimic the way a bond trader would look at stocks.

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

Look, first, it’s only money.  If you don’t take some significant losses during your life, you probably aren’t taking enough risk.

Second, investing takes time.  I hold my positions three years on average, and the longest positions have been there for 5-10 years.  A tree in my backyard won’t grow any faster if I worry about it.  The same is true of my stocks.  I review them quarterly.  Between those times, I try to muffle the nose, aside from rebalancing trades which resist the market.

9) Can you describe a time in your trading life which really rammed home the point that so much of trading comes down to psychological factors?

As a value investor, I don’t worry much about trading.  In 2000 & 2008, I did detailed studies of my trading.  In 2000, I found that many of my best trades stemmed from getting the industry right.  In 2008, I found that my top 11 gains paid for all of my losses, 2000-2008.  That was with a 70/30 win/loss ratio, and 180-190 stocks held over the period.

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

If we are talking traders, it would be this: start out each morning looking at the disasters of the day, and then wait for volume to climax, and price to nadir.  Wait about 5-10 minutes, and then buy.  Close out the trade within a week, maybe at the end of that day.

That said, I would encourage traders become investors.  There is too much competition at the short time horizons of the market, and not so much over 3+ year periods.  Study the greats: Graham, Buffett, Munger, Klarman, Price, Heine, Neff, Soros, Dalio, and many others.  Learn to recognize long-term value, and wait for it to be realized.  There are no barriers of entry to trading.  Long-term value investing has natural barriers to entry, because it is work, and as such, few do it.

I don’t worry about my stock portfolio.  Because my time horizon is long, day-to-day fluctuations don’t mean much.  That makes me free to research ideas that can benefit me and my investors in the future. That’s a great place to be.

***

I’d like to thank David Merkel 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 David Merkel you can find him:

Twitter: @AlephBlog

Blog: http://alephblog.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

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

Larry Tentarelli - read it… here

Chris Ebert - read it… here

***

[If you liked this please follow me on twitter and Google Plus

***

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.

May 19

Interesting Sh*t Isn’t Always Profitable

People need to learn the difference between information that’s interesting and information that’s actionable” (Josh Brown)

This is a great quote and one I find to be so very true. 

What am I on about you may be asking

One of the hardest things for those that like being ‘smart’ is not letting it get in the way of being profitable. 

I get this.  

I mean I really get this!  

I went to a great school, later did the whole University thing, I read like it’s a competition, have a love for travelling and sitting over a drink with knowledgeable interesting people.  It is safe to say I have a thirst for information. 

BUT as Josh highlights there is a big difference between information that is interesting and information that is actionable.  

A really big difference. 

An especially big difference if you are looking for information that is actionable for profit in the #trading  / #investing  arena. 

I was kindly invited to join an online traders group recently by one of the Pro’s from my Pro’s Process Interview series (you can read them herehttp://embracethetrend.com/) and I of course am on Twitter / StockTwits and you know what I see most in these places….. interesting information - loads and loads and loads of interesting opinions, theories, ideas - very very little of which is actionable. 

Now this is not to say that that information is not actionable in the frameworks that those writing it use for their decision making.  Who am I to know? (Although with the drivel that you often read I am not so convinced and think this is perhaps me just trying to soften the blow and be Mr Nice Guy).

Like many of my lessons I have found this out at a financial cost.   

Personally focussing on a process and ideally a KISS / minimalist one is the way to utilise information to generate actionable trades.

The information I focus on can be distilled down to one singular thing:

Price 

Now don’t get me wrong.  This is the information I choose to use to make actionable decisions.  It took me a considerable amount of time to realise that, for me, it is all I need to build my trading game.  

There are countless ways to skin the cat in trading.  As my mate +Matt Davio recently said: 

 Everyone has one or two ways they can learn to make money consistently. That’s all you need for long haul success! 

The only reason I write this post is as a jolt to those that are spinning their wheels as a result of confusing interesting with actionable.  

It is very important to get this straight in your head if you are someone like me who loves interesting information. 

Make sure you are not being your own worst enemy and confusing yourself over what kind of information is actionable and what kind is just interesting

I know the pygmy shrew (Suncus etruscus) pictured above (below?) is the smallest mammal by mass.  I find this pretty damn interesting and it helped once in a pub quiz.  I’m also well aware that this is not information that is actionable and profitable to me as a trader. 

For that I stick to price. 

Josh Brown (@ReformedBroker) has a new book out (Clash Of The Financial Pundits).  The above quote appeared in an interview he did with about.com(here: http://stocks.about.com/od/Must-Read-Books/fl/Interview-Josh-Brown-The-Reformed-Broker.htm)

(Image of pygmy shrew by Trebol-ahttp://en.wikipedia.org/wiki/File:Suncus_etruscus.jpg#filelinks)

May 17

Play Poker Don’t Day Trade

I was thinking about poker v day trading.  Like most people I initially thought that to be a kick ass trader you needed to be sitting in front of a multiple screen set-up and hustling everyday.  

Viewing multiple time frames, multiple indicators, multiple markets, deeply focussed, clicking my mouse a lot etc.

I went through quite a few iterations of day trading until I took a long hard look at myself and realised that it was not a great personality fit for me. 

I also realised that for most people it is not the most profitable way to be tackling the markets and of those traders I respected only a handful were daytraders (and of that handful only a couple were not in a large Prop Shop or commercial outfit - make of the advantages they may have over the at home trader whatever you will).

What I did realise is the toll it took on me.  Particularly on an emotional level. The concentration required and the constant focus on a screen left me mentally and actually physically exhausted. 

I think a lot of people look at daytrading because they feel that being a trader, which is more often than not some construct they have made up in their head as a result of too much TV, is exciting and fast paced. 

I’m personally of the opinion that excitement and making money do not and should not have much to do with each other.  

From all my research, conversations with Pro traders and modelling of them; most if not all would rank excitement and activity very low on a scale of the things that are important to become a successful and profitable trader. 

Now to link to the title: Why play poker instead of daytrading?

I sometimes get the urge to be active, to feel like a hustler, make quick decisions and get quick cash.  Have that excitement that comes in direct relationship to fast money and the ego related massaging of feeling smarter than the next guy.  

This is where I think should I really feel the need to exercise that, knowing what I do about the winning traders out there and how they play the game*, I would much rather be sat at a poker table with a pair of pocket aces going after your bankroll.  

How about this as an idea that I think will save you a lot of $$ in the long run? (you can thank me later :-).  

Develop a trading process based on making your decisions when the markets are closed.  

Put aside a few grand that is fun money and that you are totally OK with losing.  Roll it up in a gangsta roll to make you feel more the part.  

Whenever you get the urge for excitement and an itchy mouse finger take your roll and go to a casino cash game.  

It will save your eyes, there will probably be eye-candy around, you might even get comped drinks and fancypants meals and I suspect for the majority of you it will leave you a far more profitable businessman/woman. 

* For those that missed this point… once more…. it is normally not daytrading. 

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.

Apr 30

The Pro’s Process - Chris Ebert

I am very excited to be able to offer the twenty first 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: Chris Ebert

1) How long have you been trading?

I started dabbling in trading a few years prior to the time the Dow hit 7000 for the first time (1997). However, I didn’t really get serious about trading until I watched years of profits disappear as the Dow approached 7000 again (2002). As dedicated as I became, it was not until I was able to both profit and protect my gains that I considered myself a successful trader, which I accomplished as the Dow sank below 7000 yet again (2008).

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

Strange as it may seem to some, my trading has evolved to a point where I no longer attempt to predict whether stock prices will rise or fall. I tried predicting - oh how I tried - but I finally had to admit that I just wasn’t any good at it. In fact, I found that most of my profits came as result of simply cutting off trades that were either losing or giving up their previous gains; and I could profit from trades entered practically on the flip of a coin, so long as I carefully controlled the exit. This was especially true when I began trading options.

As an option trader, my trading is purely technical, mostly relying on my perception of levels of support and resistance. Those same levels are widely used by stock traders, for example, when a stop-loss order is placed as protection in case of a loss of support. While a stock trader must make a prediction about the future direction of the stock price when entering a trade. the decision to trade may be based on fundamentals, technicals, or a combination of the two. As an option trader I am less concerned with whether the stock price will go up or down, than how far. In my experience, technical analysis is much better suited to predicting magnitude.

For example, If a stock is trading at $100, I may be looking to sell a naked call option at the $110 strike price, especially if I believe $110 is a level of strong resistance. I don’t care about the company’s earnings. I don’t care about the new products they are going to release. I really don’t care of the stock price is going up, or down. Well… I may care a little, but not as much as I care that the stock price does not break through resistance at $110 prior to expiration of the call option. Technical analysis, not fundamental, is what provides me with that $110 level.

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

I don’t have trades that go against me. OK, that’s not quite true, but one of the reasons I got into option trading was because I don’t like to take losses. Now, that doesn’t mean I will sit on a losing trade forever. But, there are many techniques with options that can be used to turn an unrealized loss into a realized gain. While I can’t say I enjoy losses, there is something satisfying about turning a trade around.

For example, a stock may be trading at $100 when I sell a naked call at the $110 strike-price believing that $110 is a level of strong resistance. A sudden spike in the stock price above $110 would likely show up a loss on the trade. However, since such a spike would represent a breakout above resistance, I may choose to buy shares of the underlying stock with the assumption that the previous resistance level would now become a strong level of support. If support holds through expiration of the call, there is a good chance of experiencing a gain on the trade, in spite of the initial unrealized loss.

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

I honestly spend so much time and effort playing defense, attempting to fix broken trades, that my good trades go almost unnoticed, but not entirely unnoticed. I mean, my good trades not only pay for my bad trades, but also put food on the table, so it’s only natural to find some comfort.

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 went through several stages as a trader. First, I was unlucky when I lost - in the wrong stock at the wrong time. Next, I wad paranoid - the market was out to get me, the HFTs were hunting my stops, etc. Finally I accepted the fact that even if I’m right 50% of the time, I will lose 50% of the time. My survival as a trader came as a result of taking the 50% of losing trades and  using options to turn about half of them into break-even or winning trades, and writing off the other half that I couldn’t save. Options gave me control over my losses.

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

I find that taking a break from trading makes it difficult to get back into the trading mindset. While I do take breaks, sometimes vacations, when I am actively trading I prefer to keep my mind on trading, including writing, blogging, and interacting with other traders through social media.

7) Have you always done this?

No. Individual retail trading can be a very isolating lifestyle; and it wasn’t until fairly recent years that online interactions became a viable means of connecting with other traders, in effect reducing that feeling of isolation.

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

n/a

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?

February 2009 comes to mind. I placed some larger than usual trades based on my analysis, which suggested the Bear market of 2008 was likely coming to an end. It took about a month of losses before the market turned around that March. I came very close to giving up hope in my analysis. There’s always the thought that this time could be different, maybe the losses won’t turn around this time.

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

Emotion cannot be avoided, but it can be minimized, almost to the level of emotion associated with paper trading. When times get tough, when a string of losses occurs, keep trading, but keep shrinking the trades. Shrink them down so far that they feel like paper trades, if necessary. But don’t stop trading altogether unless it’s permanent, or else resuming trading could be emotionally difficult or impossible due to a lack of confidence. When profits eventually resume, even though they may be insignificant, confidence will return too; and the reduction in trade sizes will likely have preserved enough capital to start increasing trade sizes again.

***

I’d like to thank Chris Ebert 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 Chris Ebert you can find him:

Twitter: @OptionScientist

Blog @ Zen Trader

***

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

Larry Tentarelli - read it… here

***

[If you liked this please follow me on twitter and Google Plus

***

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.

Apr 02

The Pro’s Process - Larry Tentarelli

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 be 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 - over trading, 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:

Twitter: @systemstrader95 

***

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

***

[If you liked this please follow me on twitter and Google Plus

***

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.

Mar 25

Embrace The Trend turned 3 today!

Embrace The Trend turned 3 today!

(Source: assets)

Mar 24

The Person That Does Not Lose Can Only Win

In an interview with Ryron Gracie, before a fight, he said something I think is very relevant to traders:

"If my Grandfather were here he would say Ryron when you get in a fight the person that does not lose can only win.  The first goal is not to lose.”  

This is RELEVANT to traders.

It’s not relevant for those that interpret this in terms of never having losing trades.  If you are still in that place there is a long road in front of you.  

But, for people that are further down the road, what this speaks to is the importance of defense and risk management.  

First you have to make sure you don’t lose all your capital.  If you can protect that you are still in the game and like Ryron’s Grandfather Helio said you can only win.  This based on the premise that you have a long enough time horizon and actually have an edge.

Your winners must cover your losers.  An easy way to do that is to focus on keeping the losers small.  

He goes on to say that he “needs to go out there and see if I can defend myself against him, can I survive against him.”

This is where the risk management and discipline comes in.  With the market you need to have the same focus on defense and survival.  At its core this is the most important factor in trading.

All the best traders have excellent defense.  

If you don’t have defense, if you don’t focus on surviving you are dead before you even begin.

You have to put yourself in that position where like in the opening paragraph you go on to win but that only comes through superior defense.

Don’t believe me?  

Re-read the Market Wizards or Reminiscenses and see how many times the best in the business say the worst thing that happened to them was being lucky at the start.  They didn’t realise it was luck as they hadn’t paid their dues yet.  Sure enough the market will take its tuition and it does so in a heavy handed smack down more often than not.  

This normally kills off most people and they are carried out on a stretcher never to be seen again.  

Those that aren’t learn the importance of denfense and surviving.

Some of the best trading lessons come away from the screens.

Lesson No 1, the big kahuna of them all; 

PLAY EXCELLENT DEFENSE

Mar 10

The Pro’s Process - Richard Weissman

I am very excited to be able to offer the nineteenth 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: Richard Weissman

1) How long have you been trading?

Since 1987

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

Primarily my models are technically-driven though depending on the fundamentals I might accept slightly larger percentage exposures of total assets under management - specifically, if the market rallies on bad news or sells off on good news I will take on slightly larger exposures in the direction of the market movement.

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

One of the great myths of trading is that once you are successful you will no longer feel any emotions during drawdowns.  This is absolute nonsense.  Instead, I have learned to dampen the emotionalism associated with drawdowns and to prevent such emotions from derailing my adherence to the positive expectancy models as well as stringent rules of risk management.

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

Same as above.
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?)
Earlier in my career my emotions would result in abandonment of positive expectancy models as well as my adherence to rules of risk management.

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

Yes, I do lots of affirmations (example: I am adhering to a positive expectancy model and prudent rules of risk management, therefore I have confidence in taking each and every trading signal), modelling of my behavior based on traders I respect (example: I ask myself is this how Larry Hite would manage the risk on this trade?); a wide array of somatic exercises (including yoga, swimming, walking, deepening of breath, aerobics) and meditation.

7) Have you always done this?

No.  I developed these techniques in order to make it easier to follow my trading rules.   

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

n/a

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 was experiencing a drawdown and abandoned a positive expectancy trading model.  I abandoned it because I realized that despite its enjoyment of positive expectancy it was actually not suited to my particular trading personality.  This led to the realization that we are not looking for the best risk-adjusted rate of return; that instead we are looking for the best risk-adjusted rate of return for our particular trading personalities.

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

Backtest any and all trading strategies prior to putting capital at risk.  This will give you confidence during drawdowns.  Also, it is more important to be the best risk manager and best position manager than it is to develop the most robust rules for trade entry.
***

I’d like to thank Richard Weissman 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 Richard Weissman you can find him:

Twitter: @TradeLikeCasino

Website: http://www.weissmansignals.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

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

***

[If you liked this please follow me on twitter and Google Plus

***

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.

Mar 03

How right do you have to be to be world class? // Mini Blog(+)

Steve Cohen is aware of the psychological demands of trading.  He hired Dr Ari Kiev, the psychiatrist to work with his traders at SAC Capital.  Dr Kiev specialized in helping traders deal with stress, uncertainty and increasing performance.

In order to help traders with stress he would remind them that:

The best traders are correct only 60% of the time at best.

In his own words:

"So if you lose on four trades out of 10, you are still performing with the best of the best."

I like to think in the picture he is pointing at you to either (a) emphasize your need to learn this point, or (b) remind you of its importance.

I think it is wise to listen to the man.