The Pro’s Process - Mark Holstead

The fifth 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 add to the great line up this week with a UK trader: 

Trader: Mark Holstead

(Mark kindly recorded his answers.  I’ve trimmed them a little but left it in long form so that all can gain full value from it)

1) How long have you been trading?

I started trading in 2001, March 2001, so it’s 11 years.

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

I’m a short-term trader, very short-term, very, very, very rarely hold positions overnight and my strategy is based basically on reading order flow. And in a nutshell without getting too complicated, I look for either institutional price action that I want to join, or I look for emotional order flow from retail to fade.  As I said I read order flow, from tape reading and from the charts, so nothing really fundamental there, it’s pretty much - I’ve got a bank of setups that I use depending on market conditions I use specific market setups for those conditions, and when those setups occur I know my risk management I’ve got a trading plan in place, and I pull the trigger and the trades are up and running. 

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

You know I think a lot of people will be answering this question with, “I’m not concerned, thousands have and thousands more trades will go against me,” and that was really my knee-jerk initial reaction because I don’t really get concerned when a trade goes against me.

However, what I would want to point out is that if I find I’m getting a cluster of trades that are taking more heat – now by the way I’m assuming you mean here taking heat on a trade, losing trades is probably a separate question, but how do I feel when a trade goes against you – generally I’m not concerned, you know the odd trade goes against me if I take the amount of heat that I’m expecting on a trade, I know pretty much I’ve got a good idea, I’ve been trading long enough to know, and not trading my specific setup and strategies to know how much heat is expected, and obviously my personal stop-loss is beyond my expected heat in a trade. So if I start getting a cluster of trades that are taking perhaps more heat or stopping me out more than usual, then that will concern me and I know that I’ll need to take a closer look at what’s going wrong. If I get the odd 1 or 2 I really am generally not concerned because I know over the course of the week or whatever that it’ll be good, it will work out, it will come out in the wash.

If I have a cluster though, of trades that take some heat, start going against me, perhaps get a few stops in a row, that does start to concern me a bit because I need to take a step back and stop digging myself a hole, need to make sure the strategies I’m using are still working, am I analyzing the marketing conditions correctly, am I using the right strategies and setups for the market conditions, am I reading the take correctly, and just make sure that I’m doing everything right because quite often we can drift along, a trade goes against me, you get a cluster of trades going against you and if you don’t stop that damage early – and all you need sometimes is a little tweak, you need to say, “Okay well I’m taking too many of these continuation type strategies and really the market conditions of the moment are counter trend,” so knock those on the head and let’s concentrate on those, sometimes that’s all it takes.

So really in a roundabout way of answering your question, not concerned when it’s 1 or 2, but if I get a cluster of trades that are taking a lot more heat or stopping me out then at that point I’ll become a little bit concerned, I’m not overly bothered about it but enough to make me step back a step and reassess my process and mind the way I’m trading.

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

To be honest, I expect trades to work. I know it may sound a little arrogant, almost cocky, and I generally don’t want it to come across that way, but honestly when you’re trading for a while, you expect your trades to work, I don’t know if the next trade is going to work or not but I expect over time that they are, most of them are going to work for me.

So we’re humans we feel emotions, of course we do, but the longer I trade the more those emotions become less and less and less, you know like anything, racing driver… Take for example a race car driver, you know first time he does a high speed lap he’s probably really excited but after that all he’s looking to do is get a quicker lap time, he’s not interested in the acceleration or the breaking.

So how do I feel when a trade goes for me, you know, I expect it to happen, I’m pleased that it does, pleased that I end the day positive and the week positive, but I don’t go out and start jumping up and down for joy because that’s my job so I’m expecting it to happen. 

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?)

Well I sort of touched on that a moment ago, really when you’re starting out trading you you’re emotions are swinging quite wildly and they’re also related to position sizing and bits and pieces.  You tend to put a lot of worth on each trade and it really doesn’t matter, you’re got to put in perspective. First of all you’ve got to put trading is (in?) perspective, it’s not the be all or end all, it doesn’t matter, and each trade really doesn’t matter either. As long as your position sizing isn’t crazy, it isn’t swinging one lot or 100 lots and magnifying the damage of one losing trade.  As long as you’ve got relatively consistent trading size and your risk is acceptable then your emotions really shouldn’t play a part in it.

You know, I like to think that… or like to describe it as a rev counter and I know I’m going on about the racing car analogies and car analogies but I like to think of it as monitoring your rev counter, you know you want to just be… just above… you want to be in a place where your turning over enough to ensure you are really focusing enough but you don’t want to be red lining because that’s too emotional, that’s too excited, you just want to have a nice in the peak power band, you know, in between the two.

If you want to just think of it as a thermometer swinging back and forth, you don’t want to be too hot, you don’t want to be too cold. And so I’m always looking to keep gauging my emotional thermometer, and when I first started out, you know, that would swing wildly from happy to sad, but over time you learn to put things into perspective and not put so much emotions on things. And if you do, you know we’re all human and from time to time you’re going to feel emotions coming in, then you learn to step away, you learn to step away and say, “You know what I’m starting to feel a little bit anxious about this, or something’s not quite right or I’m not feeling quite right about things”, and step back before you can do any damage. 

So I think to answer to question a bit more directly how these feelings change over your trading career - you know you tend to be more in tune, there don’t tend to be wild swings, obviously you’re still a human, but you tend to be more in tune and you know, doing it more methodically but if you are feeling your emotions, you’re quicker to step back and not let it affect your trading decisions. 

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

You know I just try to live a balanced life; I try to do things that involve both sides of the brain. Now I know that trading is draining when the markets are volatile and active, it’s really emotionally draining, so I like to spend time with the family, I like to do things that get my pulse racing, I mean, I like to drive cars, I’m into motorsport, besides that I do jogging, bits and pieces like that. Just try to live a bit of a rounded life and I think that helps in trading. If you’re too focused on it and you’re constantly thinking about trading it does more harm than good, even though you think you need to be completely focused on trading, you do when the time’s right but I’d call it working smart, I don’t want to take credit for that, someone said it, not me, but working smart not hard, I think that really applies to trading.

You know, you need to focus your energies 100 percent when you’re trading, but when you’re not trading, completely step back, do something different; go race cars, go ride horses, go to the gym, whatever floats your boat, do it. And that’s what I do, I try to do things I enjoy, at the end of day I’m trading so that I can enjoy other things, I know I like to travel and do things like that.  

I’ve always done this… but I think I’ve gone through spells over the years where I’ve become too immersed in my trading and actually when I look back on it, it’s done more harm than good, and really sometimes you need to step back for a week or step back for a few days and it does you a world of good.  Step back for a few days, come back in, watch the markets for a day, step back again, and I think that does a world of good and I didn’t do that initially, I would… If I was struggling with certain things I would focus and focus and focus on it, and actually sometimes you see it a different way around when you just step back.  So I think it’s important to have a balanced life and I do.

I don’t have any rituals and such, I mean obviously when I’m going to drive into the office, the trading office, certain music I like to put on in the car from time to time to get me in the mood and that sort of… I’d add in the word thing if you’re working from home I think it’s important to have a ritual of separating family from trading, but if you’ve got a trading office obviously you’ve got to walk to the office or drive to the office, you’ve got the separation so that does help. 

7) Have you always done this? 

(Answered above) 

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

I think I’ve probably answered that already in terms of emotions and in terms of trying to live a balanced life.

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 think quite early on I realized that it’s nothing to do with strategies and setups, although over time I’ve realized the importance of using the right tools for the right job, which is where a lot of traders go wrong, they’re using the wrong strategies in the wrong type of market even though, and then they throw the strategies away then the market comes around again to those strategies being good, they’re using the old strategies and they’re always one step behind but anyway that’s not the question, (I’d make a full stop here) the question is describe a point in time in which rammed home trading is psychological… just really when you go through patches where you think, “Hang on I’m feeling emotional about this trading and why can’t I hold a trade longer, why do I feel the need to snatch profits, why…?” you know and then I start to realize actually it’s a discipline issue, we are the best traders, you know, we’ve got the ability to take in so much information and process it and it’s not black and white trading, so we can make a judgment, we can make a decision, which make us great traders, but at the same time understand that there are part of our brain that are hard wired to cut winners, to let losses run (I’ve seen the experiments where this facet of human nature is shown). So it does take time to understand it and sort of approach the way you approach trading, and I don’t really think there was a specific time, I think just actually as I was going through the years and I realized that it really is down to… I guess when I went through times of not being able to do something I wanted to do, not being able to follow a rule that I’d written down, and I just thought why can’t I follow this rule, why do I keep not doing this? And I got processes to break through that and it took me a while to develop those processes, to break through those, which is then when I took leaps and bounds and then I started to realize actually focusing on specific problems with the way I was handling it in my psychology was the better way to commit time to trading or commit focus on trading. 

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

One piece of advice… I’ll give you a couple and you can pick the best that suits you.

First of all, there’s no right or wrong way to trade, so if a textbook tells you to do something and you don’t like to do it, don’t do it. You do what you think is the right way to trade. Now there are some times when people are going to guide you and say, “Hey got your stop, manage your risk,” and they’re talking sense, and it would make sense to follow that advice, but if someone says to you, “You should be trading trends or you can’t trade trends,” don’t worry about it, just trade what you can do and don’t get your head in a twist about trying to combat your weaknesses, just focus on your strengths, enjoy trading.

Put it all in perspective, put each trade in perspective, reduce the size if your emotions are going crazy, reduce your size down, accept your risk… I think if there was one piece of advice – I know I’ve talked lots here – but if I could give one piece of advice it’s accept your risk because that’s the one thing that… once we’ve accepted our risk, if we write down our position size, our max loss for the trade, our max loss for the day, our max loss for the week… once we’ve accepted them, put a boundary and we’ve said, “Are we happy with that, if it happens are we happy? Yes. Then when a trade loses we’re not going to feel a problem about it, we’ve accepted the risk, we’ve put that on the table, and we’re trading.” I think when losses become more than we expect or when things don’t go the way we want to that’s when we get emotionally too involved in it, but I could talk hours and hours about this subject, it’s a big subject, but anyway, that’s just a few things that have helped me in the way I’ve approached trading but as I said before, there’s no right or wrong, guys, you just got to do what’s right for you – focus on your strengths and just try to avoid your weaknesses and stick at it, and at the end of the day you need capital to trade so just keep your size small and you get your trades right and the size can increase later on and the profits will flow there. Thanks a lot. Bye-bye.

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I’d like to thank Mark Holstead 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 Mark Holstead you can find him:

On twitter @TapeReadTrade

Or on his website: http://www.thedaytradingroom.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

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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.