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A Super Short Reflection On Pushing Yourself Towards Trading Performance

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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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 Pro’s Process - Michael Bigger

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.

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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/

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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

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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.

Are You Smart and Wanting to Trade? A Koan Worth Thinking About.

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.

You Need All Three To Make It! You Got ‘Em Or Not?

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

The Official Dilbert Website featuring Scott Adams Dilbert strips, animations and moreSource http://dilbert.com/strips/comic/2012-11-20/

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.

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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.

2 Lessons From The Zen Zig-Zag Bridge

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.

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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?

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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.

1 Major Lesson Lao Tzu Taught Famous Investor Jim Rogers That Helped Him Make Millions and 5 Ways You Can Too

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.

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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.

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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.

Why Meditation, Psychology and Trading Are Not Just Compatible But A Perfect Match

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.

Maybe You Should Completely Ignore This And Go About Your Day. Why In The Finance Biz That Could Be Your Best Decision

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. 

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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.

Focus On Playing To Win - Want To Know Why?

I’m playing to win, not to avoid losing.  You should be too.

The focus on avoiding losing is an easy condition to slip into.  I found it especially so if you’ve had some tough periods in your life.  Perhaps you lost a business, blew up a trading account or went for that promotion and failed to get it.  

It is particularly easy when you are taking down data to analyse your performance as most effective performers do.  That data is right in front of you.  Clear as day.  You can see exactly how many losing trades you have had, how many losing days, weeks etc.

You have an understanding that it’s all about probabilities and that if you follow the old saying “limit your losses and let your winners run” you can be a successful trader with a seemingly bad win rate (30-40%).  As long as your winners outshine your string of small losers you will be OK.  

However, you have to be very careful because when you focus on your losses, the number of losses you have, even perhaps feeling good that you can take them etc, you put yourself in a tricky position where you may be directing all your thoughts and energy towards those losses.  The catch, can then be, that the universe delivers you exactly what you are spending your time thinking about…… losses.

As a trader that isn’t probably a good thing for you and can quickly lead to you draining your emotional capital.

Now this may all read a little too like pseudo science or pop-psychology but I would caution dismissing it right off the bat.

What if you choose consciously to start focussing on your winners and winning instead of your losers and losing.  Are you sure you aren’t going to start creating a change for the better in your trading performance?

You see I think it is very important to learn to ‘think’ probabilistically about your trading.  BUT of equal importance is to realise that you aren’t a computer and that the way that you think has a significant influence on your trading results and ability to trade to your plan.  

I believe that for most people losing comes attached with negative feelings and winning comes with positive feelings.  As a result when analysing losses, which I think is important for the lessons you can learn from them, I think it best to accept them and let them go as soon as possible.  If they fall within the parameters that you considered acceptable when you put the trade on then that is simply that.  Learn something from them if you can, log them, and, then move on.

If you spend time focussing on something: spend time focussing on your winners.  Put your mind to work in learning to recreate these positive outcomes and associated positive feelings.  

If you are in a trading rut this one mental switch may be the very thing to pull you back out and get you going in the right direction. 

Play to win.

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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.

How To Be Aware Of Your Emotional Capital and Increase Your Profits

I was recently challenged over a statement of mine that day-trading takes up emotional capital which I said was finite.  

I made the point that forcing too many decisions under pressure is not only exhausting but a losing proposition unless you really train for it.

I am not saying you can’t day trade successfully.  You can.  It’s just hard.

For those of you who switch off when I say things like ‘emotion’ in the context of trading this still applies to you, and so that you don’t freak out, let me put it in other terms:

The times when you feel pressure in your decision making, uncertainty, questioning, hesitation or tension when you are about to click that execution order etc etc….. this is all takes a toll and uses up your emotional capital bank balance.

I feel a little vindicated by a recent study highlighted in this WIRED SCIENCE post Conserve Your Willpower: It Runs Out 

"Roy Baumeister, a psychologist at Florida State University, calls this “ego depletion,” and he proved its existence by sitting students next to a plate of fresh-baked chocolate-chip cookies. Some were allowed to snack away, others ordered to abstain. Afterward, both groups were asked to complete difficult puzzles. The students who’d been forced to resist the cookies had so depleted their reserves of self-control that when faced with this new task, they quickly threw in the towel. The cookie eaters, on the other hand, had conserved their willpower and worked on the puzzles longer."

My vindication is irrelevant really, what is relevant, is how you can use this to think about your own trading in a new way and improve as a result.

I think it is useful to think about how during the trading day you may be depleting your reserves and what the risks may be to your trading performance later in the day, for example when you choose to put on new trades.  Also you can consider how you can reduce the depletion of your reserves leaving you more firepower to make profitable trading decisions. 

Just being aware of this may help you to plan your day and develop strategies that lead to better performance.

You may make your life easier by:

  • Using a clear trading plan or checklist
  • Journalling throughout the day and noting changes based on the time of the day.
  • Analysing your trading results with a time filter to see if your results differ based on how many trades you have previously made or how long you have been in front of the screen.
  • Slowing down your execution time frame.
  • Simplifying your execution and / or liquidation criteria. 
  • Removing distractions that, whether you like it or not, force you to use up emotional capital that you want to save for your trading: News (Bloomberg, CNBC, Reuters etc) Facebook, Twitter, StockTwits, Emails, personal finance, deciding what sandwich to get at the lunch van etc
  • Utilising visualisation work so as to create the perfect trading flow between full in the moment awareness to a more passive overview type of awareness.
  • Taking breaks throughout the trading day. 
  • Understanding stress and utilising stress reducing tactics like meditation, Tai Chi, Yoga etc.
Thanks for reading and if you have any other ways of preserving your emotional capital or preventing ego depletion please add them into 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.