The Pro’s Process - Brian Lund

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

***

[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.