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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.

The Pro’s Process - Derek Hernquist

The ninth 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: Derek Hernquist

1) How long have you been trading?

I’ve been trading 20 years in one role or another

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

I’m a technical trader, everything I do revolves around price and how people react to it

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

I’m human, I feel better when I’m winning and worse when I’m losing. But trade planning based on 20 years of lessons supersedes any present feelings, so I always act on my trade blueprint. 

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

It’s basically the same answer as for the last question, but, trade planning based on 20 years of lessons supersedes any fleeting moods, and my mood is best when I execute according to my plan regardless of outcome. 

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?)

Unlike my early years, I spend zero time on questions like “why would anyone be buying or selling here?” There are all kinds of players with different motives and different timeframes, and when any of them combine it’s best to go with it or at least wait until the moment passes.

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

I play with my kids, that’s certainly a positive distraction. I love to read, I often just pop open a trading book and read a few pages to re-center myself. 

7) Have you always done this? 

I’ve always worked out to de-stress, even if just 30 minutes on an elliptical machine with a book. With so much online content, of late I’ll listen to an interview or book during a brisk walk after the market closes.

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

Feelings are there, I no longer try to block them out. I do my best to use acknowledge them and use them to consider what others may be experiencing. I make written and verbal notes all day long, and review them each night.

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 don’t see how anyone can downplay the psychological and social aspect of markets. I embraced that belief fairly early but saw it manifest itself though the dot-com era watching pigs fly and smart people lose money on arbs like Long COMS/Short PALM. There were so many lessons to learn in such a short time, truly a gift.

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

Find a mentor. As much as I love trading, I could have saved myself years of misdirection had I sought and found a successful mentor. I took timeless lessons about human behavior and eventually made them my own, but to have a teacher/coach helping set the path would have been a gift.

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I’d like to thank Derek Hernquist 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 Derek Hernquist you can find him:

On twitter: @derekhernquist 

At his website: http://derekhernquist.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 

***

[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.

Trading Balance

The Tai Chi symbol is well known.  Most people will look at it and say “oh yeah that’s the Yin and Yang sign”.  The sign is central to Taoist thought and you can go really deep into this but let’s keep it simple - the sign speaks of balance.

Tai Chi Chuan, which is the martial art and meditative movement you see people practicing in parks, is all about balance.  It is stillness and movement blended together.  Practitioners work on mastering this ever subtle balance. 

Unlike some of the other traditions that are static whilst meditating the Taoists noted that we are moving beings and so to be able to be mindful and aware in the ever present moment of now whilst moving is a good thing.  As a result they practice both seated meditation and moving meditation.  The movement meditation that you see most often is Tai Chi but it can also be things like Xing Yi, Bagua, Tai Ji etc.

Now finding this balance is easier said than done.  There is a reason that people are willing to practice, practice, practice and practice some more.

I was reflecting on the fact that trading is a balance between periods of activity and inactivity.  There is a balance.  However since I have slowed down my trading (see posts at the bottom of the page for more on this) this balance is a tough one that requires a lot of patience and hard work.  Realizing that inactivity is as much a part of trading as activity can be a tough pill to swallow.  

It’s key though.  Everyone knows that you have to let your winners run and cut your losses short as well as that the hardest thing is sitting on your hands.  This inactivity either preventing over-trading or holding a position for all it’s worth, is the balance you have to find.

In this way it is very much like the Tai Chi symbol.  Balance between hard and soft, breath and movement, but for traders - between activity and inactivity - they are both part of what completes the trading circle. 

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Last weeks posts you may like on slowing down:

=> The Tortoise and The Hare

=> Have You Thought of Slowing Your Trading Down?

=> Got A Sore Ass From Trading? There Is A Reason And A Cure

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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.

Have You Thought of Slowing Your Trading Down?

Have you thought about slowing down?

I recently wrote about the Tortoise and The Hare in relation to trading and I’d like to elaborate in a bit of a list form on that from personal stance: 

I was initially drawn to day trading.  I started trading off the 2 minute chart for entries, 10 minute for guidance, and 30 min chart for trend. 

It worked.

Yet, I started to slow down.  

Over time I moved to 10 minute for fine tuning my entry which was really based on the 30 minute bar, using the 240 minute for guidance and the daily for trend.

It also worked.

Yet, I’ve slowed down even more. 

Why?  I’m not completely clear on that yet but I have a lot of perhaps’s

=> Perhaps in part this was due to my idols and mentors trading using end of day date (EOD) and finding it hard to resist the internal dialogue of a slightly guilty nature - like day trading was a bit of a guilty pleasure.

=> Perhaps it was because when day trading you pay a great deal to your broker in the way of commissions compared to a slower approach.  I dislike that feeling.

=> Perhaps it’s because I like to hold trades and allow them to work.  I do that naturally when day trading yet capturing a trend on the daily time frame even with just a single contract can be very rewarding.

=> Perhaps it’s because of a belief that the real money is made by building a position in a trending market and sitting on your hands whilst it does it’s brick work. (If you don’t agree read: Reminiscences of a Stock Operator) 

=> Perhaps it’s because the weekly or daily data is ‘truer’.  It’s amazing how much noise and churn there can be when you are looking at short time frame bars which as soon as you flick out to the daily chart just disappears.  The cheeky HFT machines are also not a real consideration. 

=> Perhaps it’s because I’ve been slowing down myself with all my work on Tai Chi, Yoga, Meditation, Minimalism etc.

=> Perhaps it’s because I like being able to make decisions under more controlled conditions.  More controlled decisions = better decisions.  Following a plan is much easier when there is not a ticking clock like there is with shorter term time frames. 

=> Perhaps it’s because I realized that staring at the screen doesn’t necessarily increase my profitability.

=> Perhaps it’s because with the reduced screen time I can spend time studying things that I really want to (both directly and indirectly related to trading).  As well as doing things that I didn’t have time for before.  An example is the number of market related writing projects I’m now being able to enjoy).

=> Perhaps it’s because I realized that short time frame trading is emotionally draining for me and that there could be an unwanted toll for this down the line. 

=> Certainly it’s less stressful for me personally and that has a knock on effect to all areas of life.

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Now you have to do whatever feels good for you.  I suspect that can morph over a career as well.  I know that you only start to find what is right for you by actually exposing yourself to the process and the risk - otherwise it remains only acadmeic.  I am also not saying that end of day is the be all and end all.  

I am however suggesting that slowing down, whatever that means to you, may be beneficial and worth some investigation. 

Maybe investigate how your approach would vary and in what ways it may be better if you swap from execution off a 5 minute chart to a 10 minute chart, or a 10 minute to a 30 minute, or maybe go wild and see what would happen if you went end of day. 

Have a hypothesis and test it.  There’s a good market scientist. 

(NB: I’m not saying that all my trading will remain EOD ad infinitum or that I only look at charts once a day.  I am saying that for anything short of a couple of hours bar I will look to develop a trading system that I can automate rather than use up the mental / emotional energy myself)

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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 Tortoise and The Hare

The job of a trader is to make good risk / reward decisions over and over.

To get better and better at doing this over time. 

The cash will follow. 

If you are only about the money your longevity, in my humble opinion is limited.

Brown haresImage thanks

One danger about only focussing on the $$ is that you push it too hard in the quest. The risk is burning out or blowing up your account.  We’ve all seen or heard of traders who break down under the pressure that they’ve put themselves under to hit their monetary target or who have swung for the fences so hard that they have destroyed their account.  Occasionally these traders fly through the finish line in magnificent style.

On the other hand:

If you love the process that you take to define the good risk / reward trades and the execution of them then you are likely to be a success.

If you enjoy learning about yourself as well as what trading forces you to look at internally in your day to day market experience, I think you gain a great deal from trading that is of equal value to the money you can make. 

In internal martial art mecca, Wudang mountain, the tortoise is a vernarated animal. Its longevity and wisdom is held in high esteem by Taoists.  

Gizzled old wise market vet (image thanks)

I suggest that the trading journey is like the tortoise and the hare fable; slow and steady wins the race.  With trading, if you really squeeze the juice for all you are worth out of the process, not only will reach your financial goals, but vastly higher levels of emotional and internal development than you thought possible. 

In trading terms the tortoise is always going to cross the finish line.  The hare may sometimes but many times will not.  Like everything it is a trade off.  But even when the rarer hare crosses the line has he learnt as much as the tortoise?

I know the slow, steady tortoise approach is the way for me.  Take some time to stop and enjoy the journey and your development.  The destination isn’t all there is. 

NB: this also goes for martial arts and is part of the hidden beauty of the styles like Tai Chi, Bagua, Xing Yi, Tai Yi etc.

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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.

New and struggling as a trader then listen to the greatest

All too often wannabe traders are psyched out by all the stories about how tough trading is.  If you got off to a rocky start you may in fact have said to yourself:

 ”This is impossible”.

Well, I’ve got news for you.  If you learn critically, work hard, find a good mentor or group of traders, and work on your psychology there is no reason you can’t be a successful trader.  

Forget you are what you eat - you are what you THINK.  

Listen to the man: 

Image (thanks)

Impossible is just a big word thrown around by small men who find it easier to live the world they’ve been given than to explore the power they have to change it. Impossible is not a fact. It’s an opinion. Impossible is not a declaration. It’s a dare. Impossible is potential. Impossible is temporary. Impossible is nothing.” – Muhammad Ali

So step up.

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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 sand in the trading hourglass

The Mach Daddy has been featured on Embrace The Trend before in the post All courses of action are risky 

Since he could lay it down so well he is back again:

“The more sand has escaped from the hourglass of our life, the clearer we should see through it”. ~ Machiavelli

When I read this quote I couldn’t help but think of its trueness.   I mean I’m not that old but as time marches on, which it does for all of us, things certainly do start to become clearer.  This can be seen in my trading as well.  As I progress along this journey personal realisations start to develop.  I become clearer as to what approaches work for me and which don’t.  I am able to reflect on things that perhaps don’t fit my personality of character so well.  I get to make decisions based on the evidence of my experience as to how to structure my trading for the best results.    I get to interact with more industry veterans and short cut the learning process through their generosity. 

You know what, whether it is life or trading, the longer you can stay on the journey and the more questions you are willing to ask of yourself and the things around you, the clearer the glass of your life becomes. 

This is where I feel a major key to life is located.  Focussing on the journey, being in the moment and experiencing things as they really are, rather than dreaming or wondering of the future. 

OK thanks, back to your trading and your own journey.  I hope it gives you as much as mine is giving me.

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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.

Traders and investors; what you should do with the news.

Last week I wrote what I thought was an important post on gambling addiction and the commonalities one could see between day trading and gambling - Are you a trading addict?.  People read it but it wasn’t overly well received.  I can’t help wonder if that was because it hit a spot in traders who feel they are on that slippery slope.  Denial can be a very strong emotion.  

So blindly driving on with another touchy subject…..

Should you consider an information diet?  Are you conscious of how you consume information and the real value it provides you?  I think you should take a personal journey into this question if even to only look at something from a different angle. Test whatever hypothesis you have regarding news and information intake.  Critical thinking and testing is good for us. 

Here is a stimulating PDF article by Rolf Dobelli that may just be the reading matter you need to consider this question (in English or German).

It’s long but as he says the reason you may struggle with it is because you have lost the reading habit as a result of your news consumption.  This may very well be the antidote you need. 

Read the start of the article below and click on the above links if you would like to delve into this deeper.

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News is to the mind what sugar is to the body

We are so well informed and yet we know so little. Why?

We are in this sad condition because 200 years ago we invented a toxic form of knowledge called “news.” The time has come to recognize the detrimental effects that news has on individuals and societies, and to take the necessary steps to shield yourself from its dangers.

At core, human beings are cavemen in suits and dresses. Our brains are optimized for our original hunter-gatherer environment where we lived in small bands of 25 to 100 individuals with limited sources of food and information. Our brains (and our bodies) now live in a world that is the opposite of what we are designed to handle. This leads to great risk and to inappropriate, outright dangerous behavior.

In the past few decades, the fortunate among us have recognized the hazards of living with an overabundance of food (obesity, diabetes) and have started to shift our diets. But most of us do not yet understand that news is to the mind what sugar is to the body. News is easy to digest. The media feeds us small bites of trivial matter, tidbits that don’t really concern our lives and don’t require thinking. That’s why we experience almost no saturation. Unlike reading books and long, deep magazine articles (which requires thinking), we can swallow limitless quantities of news flashes, like bright-colored candies for the mind.

Today, we have reached the same point in relation to information overload that we faced 20 years ago in regard to food intake. We are beginning to recognize how toxic news can be and we are learning to take the first steps toward an information diet.

This is my attempt to clarify the toxic dangers of news – and to recommend some ways to deal with it. I have now gone without news for a year, so I can see, feel and report the effects of this freedom first hand: less disruption, more time, less anxiety, deeper thinking, more insights. It’s not easy, but it’s worth it.

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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 a trading addict?

You’ve undoubtedly read about traders who see parallels and even advantages in understanding games of chance.  It’s common place to hear of well known traders enjoying and learning from poker.  Looking at the business of trading as one of odds and probabilities and thus favouring and learning from games where you can have a statistical edge (poker, blackjack) and shunning games (craps, roulette) where it’s only a matter of time before the house takes your bankroll.  There are even important lessons to be garnered from these games in terms of bet sizing or money management.

Do you trade to make money or is there some other purpose?

I am sure off the bat the answer is “of course I trade to make money” and you are perhaps inclined to stop reading this right away.  However,please just hang on a moment to see where I’m going with this.

In the oft-over quoted Market Wizards interview Ed Seykota says the challenging lines “Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.” Most engaging in this business and not yet hitting the kind of results they are looking for get challenged by this line.  I certainly find it a line that hits hard, even below the belt.  I believe Ed would say your intentions equal your results (or put another way - what you are committed to is what you end up getting). 

It’s with these parallels between games of chance and our unconscious desires manifesting in our lives that a recent study from MIT raises an important area I feel for many traders they should brave enough to venture into.

 Image thanks 

Natasha Schull, an associate professor at MIT published a book called Addiction by Design based on her research on gambling addictions (focusing on compulsive machine gamblers).  I feel if you are perceptive and insightful about your own interactions with the market even her title may get you thinking a little. 

One of the areas that she covers is that gamblers are not unaware that their endeavour is unprofitable.  In fact,they can be often fully aware of this.  What they can get from their gambling addiction is something we often times just don’t factor in when thinking about the poor souls, pushing coin after coin into the slot machines.  What they get, what they can love, is the total immersion in the zone where nothing else matters.  

Schull says: “Everyone believes the harm is how much money is spent, and that what’s driving the compulsive gamblers is a desire to make money. But … the ‘zone’ is really what’s driving this experience. The idea of winning money falls away when you get to the point of addiction.” 

Now if you are a gamer, commuter who uses their smart phone on the journey to work, or an intra day trader you know that feeling.  Without any denial you know we’ve all been in that zone at some point or another.  Even regularly.

What’s interesting in her findings is that these gambling addicts can account for up to 30 - 60 % of the industry’s revenues.  The industry knows how this works and so design their games to be even more enticing and immersive to the gambler.  The gambler gets annoyed when a big jackpot comes because it takes them out of their flow of building up the conditions for the jackpot which then gets interrupted when it does arrive.  So what do the game designers do;they design it so that there are more regular jackpots that don’t interrupt the gamblers flow so much,as they know one key thing:the addict is sitting there not to win but for the experience and they will be there until they have put all their winnings back into the machine.

Now you may be saying: “what sad dupes these addicts are but I’m nothing like that”.

I come back with the question: “Are you really so sure?”

Let’s look at a common fact that we all know.  80 - 90 % of traders fail to make it in the industry.  There are plenty of brokers set up with the view of getting you to open an account with complete awareness that you will not be a customer of theirs for long but that the commissions you pay them in the period before you blow up your account will allow them to run a healthy business. 

If you are an intra day trader you know that painful experience of having traded well, captured some nice profits, only to then give it all back (or almost all) to the market.  I won’t deny that I’ve been there,done that and got the T-shirt.

You also will know that you can very easily get into a ‘zone’ where just the flickering bars and indicators from your data feed have sucked you in.  You are fully engrossed.  This new research shows that a large part of gambling addiction is the experience,not the winning.

So it is with this research into addiction and gambling that I challenge you, for your own development, whether you aren’t fulfilling some similar tendencies to those compulsive gamblers covered in the study.

Ed Seykota is known for being very perspective.  Pre-dating the study he said:

“Having a quote machine is like having a slot machine at your desk – you end up feeding it all day long. I get my price data after the close each day.”   

I don’t know how committed you are at looking into these things, but I certainly am, and think it is an exercise well worth some of your time.


Image thanks 
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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.