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

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

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

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

In his own words:

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

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

I think it is wise to listen to the man. 

You Wouldn’t Think Freediving Had Anything To Teach Traders. You’d Be Wrong!

**Originally shared on Google+ with all the other great stuff -> please visit my page and have a look —> https://plus.google.com/u/0/+RichardChignell1/posts **

I recently enjoyed finding an article written by Tara Stiles on Freediving. That’s right the somewhat crazy pursuit of diving as deep down as you can on one single breath.

She holds her breath for over 5 minutes and dives down over 100 metres!! 

What’s more is that Tara went from total beginner to three-time world record holder in 9 months.

This on it’s own is interesting but it is the relevance of some of thepoints she made that relate to trading mastery that really resonated with me.

image

Photo credit: Michael Pitts

Spoiler alert: If you think being a world record holder would be nice and that this sounds pretty easy as it only took Tara 9 months…. forget it she was an experienced yogi before she came to the sport.  

As you know yogis other than being extra bendy are masters of breath control. 

This highly qualified lady, no surprises, is now one of the top freediving coaches out there. 

In yoga in her own words “we start to hear about detatchment, letting go and being in the flow of life”. 

She talks about how freediving is the “perfect mirror because it doesn’t lie.  It doesn’t give us half-truths to soften the blow or protect our feelings; freediving shows us WHAT IS.”  

I think traders reading this will be able to relate to how this is much like how the market is to us.  It doesn’t care who you are or where you come from.  It doesn’t pull any punches.  It is a great leveller where there is zero favouritism. 

What is more sharing a commonality with an extreme pursuit like freediving, #trading forces you to experience feelings, it amplifies them and brings even well hidden ones right up to the surface in a most unavoidable manner. 

Tara goes on to say: 

"What enables me to dive deep is not my intellect, my ego, my ability to control and direct life with pinpoint precision… My desire to achieve or set another world record will not bring me closer to my goal.  The only thing that can allow me to dive deeper and more safely is trust and surrendering."

As a trader I relate to this by thinking how once I have entered a trade I have no control. No matter my intellectual understanding, opinion, hopes, amount of effort in my mind to bend the market to my will, desire to be wildly profitable…. it doesn’t matter a jot. 

The only thing I can do as a trader is trust and surrender.  In this case it is trust and surrender to my process, my trade plan and my protective stops. 

The concluding paragraph contains this nugget of wisdom to traders "where I let go of all expectation, relax my body and my mind, surrender to the process of the dive, accept each moment as it unfolds and trust that all is exactly as it needs to be in each moment"

Traders would be mindful to consider the relevance of this frame of mind to their optimal chance of riding a market move for the bulk of its duration. Learning to relax, surrender, trust in your process and live in the now are key attributes that are found in the real market wizards out there. 

► Please let me know your thoughts in the comments below.  I can think of several famous traders in the Market Wizards books who talk about similar things, can you? If so name them below.  There was also a recent trading book that talked of surrender as integral to a traders approach.  Do you know which one? 

Original arcicle: http://bit.ly/1hBKeWL Photo credit: Michael Pitts

#blog  

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/

***

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

***

[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.

1 Illuminati Secret As To Why Twitter / Stocktwits Banter Reduces Isolation and Helps Trading

Twitter and StockTwits can be a good tool for traders. 

I think they can be dangerous as well if you are inclined to lean too heavily on others rather than doing your own work.  There are so many people ‘in’ this business with big mouths and fast fingers, with no skin in the game - you want to watch out for and avoid these like the bubonic plague. 

Heed this advice or else:

File:Bubonic plague victims-mass grave in Martigues, France 1720-1721.jpg

Image thanks Wikipedia article on bubonic plague.

If you would like to read about why having skin in the game is important and have not heard of ‘Hammurabi’s Code’, I love this Nassim Taleb article from the Observer an overview: Nassim Taleb: my rules for life.

I use and enjoy Twitter / StockTwits for information and exposure to interesting people I wouldn’t normally cross in daily life.  I’d say that now it’s all basically upstairs trading rather than in the pits, one of the best uses of these services, is for banter and preventing isolation. 

Trading can be a very isolating business to be involved in.  I have several stories of successful traders who are depressed because no-one around them (family, friends, etc) understands them and they trade on their own all the time with just their screens for company.  While there are probably bigger issues at foot here and other approaches to dealing with them; building a community with Twitter / StockTwits is a good one to look into (with the caveat in the second paragraph applying).

One of the twitter guys I wouldn’t normally bump into is @soolebop.  Not only does he have one of the most original and interesting of bio’s of trader websites / blogs I have visited but he banged out the following tweets which were class: 

image

image

I told him what I was going to do:

image

He said:

image

And you know what…… it’s this nice post that’s the result.

Re-read the above and unless you are a major Dan Brown fan replace Illuminati with the core subject of this blog -» TRADERS.

Following @soolebop's sage advice as to what makes a good Illuminati member is pretty damn good advice for traders.  I write on here about the importance of mindfulness and being aware of your emotions.  One thing is for sure, for almost all circumstances you want to be making rational and calculated trading decisions. 

There are occasionally times when you internal voice will scream out and following it may be the right thing to do but…… I think you will normally find that these really are few and far between.

This is a game better tackled in the realms of probabilistic thinking rather than gut hunches.

For now listen to the Illuminati advice and use your nut.

***

You know you want to comment :-). Go for it below:

[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.

The Pro’s Process - Greg Harmon

I am very excited to be able to offer the twelfth 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: Greg Harmon

1) How long have you been trading?

I have been trading one way or another since 1986. I started with very short term money market arbitrage type trades, repurchase agreements vs Commercial paper all over night and took over 7 years before moving to equities.

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

I am a top down technical trader.  So I start with identifying the trend and then look for how inter-market activity can influence that trend.  With a grasp of the big picture I then search for technical set ups within my universe of about 1000 names.  When I see something very interesting I then determine whether to play the trade in the stock or in options.

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

It sucks when a trade goes against me.  Like every trader I know, I never want to be wrong.  But of course I am wrong a lot. 

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

When a trade goes as good as could be hoped for it is a great euphoric feeling.  I would expect that most traders feel this way too. 

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?)

Now this is the crux of the matter.  Early on losing trades would be brushed aside and winners would have me puffing up my chest like I could do no wrong.  This had a lot to do with the market I was trading in the late 80’s.  As they market got more complex, trading equities and derivatives, losses, especially a streak, could really get me down.  I would sometimes feel that maybe it was time to stop and move away from it for a while.  Wins would still help to inflate an ego.  Now 26 years in I know that losses can be learning experiences and should be studied, even if only for a few minutes, but then let go.  You cannot let them be an anchor around your neck and give you any doubt at all about whether the next trade will be successful or not.  Yes they still suck, but next, move on.  Wins still feel great but with age i realize that they come from preparation and sometimes luck.  I am not some great invincible being but take the time to be ready for what the market presents. 

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

Really just recharging the batteries.  I like to spend time with family.  What my 5 and 7 year old see in the world and how they learn and experience life can show you the proper context for trading within your life and reset the emotional faculties.

7) Have you always done this? 

No, prior to the kids it was going out with coworkers and friends and talking about other things, playing sports or working out.  You adapt your coping mechanisms as your life circumstances change.

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

Added time doing the same thing also allows you to recognize the same wins and failures and takes a bit of an edge off of them.  Repetition and experiencing the same things over and over is a good thing.

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?

For me it is a matter of a slow realization through experience.  Not a break through moment.  Recognizing patterns and then dealing with them works in trading charts but also helps in the way that you move through life.

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

Wake up every day prepared for the market with your analysis as well as with a good clean mental state.  If you cannot come into the day ready to accept both winners and losers and then move on, then do not go to work that day or do not trade.

***

I’d like to thank Greg Harmon 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 Greg Harmon you can find him:

On twitter: @harmongreg

At his blog: http://dragonflycap.com/ 

***

Previously in the series:

Charles Kirk - read it…..here

Matt Davio - read it…..here

David Blair - read it….here

Mike Bellafiore - read it….here

Mark Holstead - read it ….here

Brian Shannon - read it…. here

Mike Dever - read it…. here

Anthony Crudele - read it… here 

Derek Hernquist - read it … here

Ivan Hoff - read it… here

Brian Lund - read it… here

***

[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.

The Pro’s Process - Brian Lund

I am very excited to be able to offer the eleventh in my series of posts asking Pro Traders about their psychological processes.  Delving a little into how it feels to them when trading.  The good and the bad.  How this has changed over time and what preparation they do mentally for performing as a trader.

One of the key features for me was that I wanted traders with experience who have been through the mill over the years and of course those who were kind enough to broach this subject publicly.  This I hope gives developing traders more to learn from.  

I’m very fortunate to have a great line up and this week is: 

Trader: Brian Lund

1) How long have you been trading?

In 1985, one month after I turned eighteen, I walked into a Dean Whiter office at my local Sears department store and bought 300 shares of Altos Computers.  The broker took my check and told me to call back later in the day to see at what price I got filled.

I didn’t know anything about the company, although based on the name I thought it was a pretty safe bet that they did something related to computers.  Somebody on a local cable access show said it was the stock to buy, and since he was on TV, that was good enough for me.

Ironically, just last week I was reading an article in Fortune about Ron Conway who was the co-founder of Altos, and has gone on to be a well known superangel investor.  He remarked in that piece that Altos was once one of the fastest growing companies in America.  Huh, who knew?

I don’t know if you could call that position in Altos a trade since there was no real methodology associated with it, but I have been buying and selling stocks ever since, and always with a shorter time frame and more dynamic management approach.

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

99.9% technical.  I say that because I don’t screen stocks or trade them based on fundamentals, but I do have an underlying sense of what they are. Meaning I rarely if ever trade in small or micro cap stocks, though that is more of a function of lack of liquidity than any fundamental reason.

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

I hate it!  I really, really hate it.  Something that is really interesting is that the quicker a trade goes against me the more I hate it.  

If a trade just lingers around, not doing much, and after a few days or a week stops me out, it’s more like “eh, who cares.”  But if I put on a trade and it reverses against me right away, the pain is way more acute.

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

The sun shines brighter.  The flowers smell better.  The bird’s songs are lovelier.  And everything is “right” in the world.  I think if the Israelis and Palestinians could experience the bliss of a shared winning trade, the Middle East conflict could be wrapped up overnight.

Seriously though, I have noticed that when my positions are going my way I have a generally happier and more relaxed demeanor.  This of course is not good, because as we try to eliminate emotions from trading it’s just as important not to get too high from a win or too low from a loss.

It’s funny though, the happiness I feel from a profitable trade is never quite as intense as the pain I feel from a losing one.

5) How have these feelings changed over your trading career?  (Can you recall how you originally used to feel and elaborate on how this has changed over time?)

My emotions related to winning and losing trades have changed greatly over the years.  For the longest time I had a very hard time when it came to losing trades.  Ironically, that had more to do with factors in my life outside of trading, than with trading itself.

I was always a skinny kid, something that I was very conscious of growing up.  Kids can be brutal, and in order to draw attention away from my slight build I developed some defense mechanisms early on.  One was a quick sense of humor, but the other was a sharp intellect.

I think subconsciously I felt that if I was the “smart” kid I wouldn’t be thought of as the “skinny” kid.  And to me, being the smart kid meant always having the answer and always being right.  Those two traits by their very nature of course are all about having control.

Trying to have control, having all the answers, and always being right are the worst character traits possible for a trader, and I had all three in spades.  

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

For me the most important thing to do when dealing with negative emotions in trading is to get ahead of them before you feel their impact.  That relates to how quickly you make your decisions and what objective criteria you use to make those decisions.

Always having a chart based stop and target in place BEFORE you enter a trade is a must.  That is the time when you are most emotionally detached from a trade and can think more objectively.  Then the key is acting quickly, almost without thought, when those targets are hit.

It’s like taking medicine that tastes bad.  If you slowly sip it down, it gives you time to notice how distasteful it is, and how much you hate it, and opens the door for you to say “screw it, I’m not going to finished this.”  Its best just to gulp it down, have a quick “shudder,” and move on.

The same goes with trading.  If your stop is $25.25, when the stock hits that price “BAMM,” close it out.  Don’t think about, don’t string it out, just close it, shudder, and move one.  It’s trickier when it comes to targets because price action might be indicating that there is more to the move, but generally it is best to stick to you pre-entry trade targets and take them as quickly and unemotionally as stops.

Nowadays when a stock hits my target I just close it or have an order in place that closes it and move on to the next trade.  The less thought I give it the better because it doesn’t give negative emotions the time to form and screw me up.

7) Have you always done this? 

No, it has evolved over the years, many of which were spent banging my head against the wall.  But it is true what they say, once you stopped beating your head against the wall it DOES stop hurting.

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

I am a big believer in the concept that it’s very hard to change our basic character traits, but I do believe that you can channel them more productively or even in some cases override them with more positive traits.

For example, if you are an alcoholic or drug user because you have an addictive personality, you may be able to quit using, but you are not going to change your basic nature.  However instead you can replace the addiction for negative things with positive ones.  

My best friend is a recovering alcoholic, with an addictive personality.  He has replaced his addiction for booze with an addiction for fitness, and now runs tri-athalons.

But you can also use a more powerful positive personality trait to “override” a negative one.  In my case, I am lazy in general.  I love to lounge around with no schedule or obligations.  That’s in my nature, but it’s not a very good trait if you want to be a success in this world, so I override it with my sense of responsibility and obligation.

I never want to let people down whom I have committed to do something for.  That is a stronger personality trait for me than my desire to be lazy.  So in order to combat my laziness I commit to a lot of things, like writing answers to interviews for example, that force me to be more proactive and productive in my life.

So, after this longwinded pre-able, what I am getting at is that when negative emotions have come up in my trading, I try to override them with something I feel stronger about….perspective.

It’s a losing trade, but only one trade in thousands you will do in your career.  It’s a bad trade but your account is up for the day, week, month, year.  It’s a bad trade but you are sitting in the comfort of your home/office, not on top of a roof in summer laying down tar or digging up frozen pipes in the dead of winter while your A-hole boss yells at you.  It’s a bad trade but you have your health, friends, and family.  And so on.

It may seem silly but remembering perspective really allows me to put a bad trade in the context it belongs and move on.  I believe in this concept so much I wrote a post about it entitled, “Have Some Perspective.”  Trust me, after you read that you will have a very hard time getting worked up over a bad trade again.

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

Yes, I call it “2008.”  That was a tough year for me.  In addition to one of the toughest years I have ever experienced trading; my wife and I were also trying to get pregnant with our second child.  Things were not going like we had hoped and we decided to go to a fertility doctor to help things along.  Problem was, we had to go three days a week, in the morning, in order to have the best shot at success.

I felt very strongly about being with my wife at all these appointments so I would be there in the doctor’s office, trying to be supportive of her and the situation, while also trying to manage trades on my Smartphone, in the most volatile markets we have ever seen.

It was very tough on my P&L and very tough on me and my family emotionally.  I honestly don’t know how I got through that year intact, but in retrospect I realized that even though I had thought I was a “pro” at trading, I still had many “amateur” traits, mostly relating to my emotions.

I learned a lot about myself that year.  Sometimes it takes intense, acute, or painful moments in your life to have a “breakthrough” and that is what most of 2008 was for me.

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

I think the number one piece of advice would be to trade in a style that fits your personality, not a style that you THINK fits your personality.  And of course the catch to that is being honest with yourself about what your true personality is.

Often people will get into trading with a preconceived notion of what it is about.  They’ve seen “Wall Street” and identified with the Gordon Gekko character.  They think trading is about huge risks, massive rewards, and an ad hoc trading style.  

They fancy themselves that Gekko type trader and try to emulate the same style and bravado, when in fact their real personality runs one-hundred and eighty degrees opposite.  And of course they end up blowing their accounts out.

Successful trading is about making money, that’s it.  It’s not about ego, or being cool, or having great stories to tell your friends at the bar.  The more closely your trading style fits with your personality, the less conflict it will create, meaning the less negative emotions it will generate, and the better chance you have to be successful.

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I’d like to thank Brian Lund for sharing about the way he tackles the market from an emotional / mental side of things and for his willingness to allow me to post this as a free resource in the hope that traders who have been in the market for less time or are thinking of entering can perhaps pick up some A-HA’s.

If you are interested in finding more out about Brian Lund you can find him:

On twitter: @bclund

At his blog:  www.bclund.com

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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

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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.

You Can’t Have An Advantage When Everyone Has The Same Information. Rubbish! Read why:

I often hear something like this in general conversations about the market: “everyone has the same information nowadays so how can you have an advantage”.

Let’s stick with this premise as being completely true and not think about those who may have access to specialised information that is not so readily available.  OK.

One of the main reason that this argument falls on its face is that not everyone uses the same information in the same way. 

I like simple real world common sense and so I’ll try and keep this firmly grounded in that.

My first example to try and debunk this idea is from the non trading world:

When I was a headhunter / recruiter the general way the business worked was that your company subscribed to job boards where people looking for new roles or interested in their options posted their most up to date CV creating a CV database.  In turn the job boards had a front end where jobs could be advertised by both companies and recruiters.

A decent size recruitment firm had access to the exact same database of CV’s and resources for advertising as everyone else.  So they had access to the same number of potential candidates to call and put forward for jobs they were recruiting for on behalf of companies and also the same methods for advertising for the companies they were working for.

However, results varied greatly between not only recruitment companies but also within companies.  I saw first hand some companies thriving whilst others went out of business during exactly the same period of time.  Equally within the firm I saw consultants (read salesmen) excelling and others being ‘let go’ for under-performance.

Those who make the argument that since everyone has the same information there is no advantage to be gained over the competition in the market I think have their eyes firmly closed.

Nowadays at a low entry point you can have access to live market data, excellent electronic execution platforms, training, community resources to bounce ideas off like forums or StockTwits etc, fundamental data…….. and results vary wildly.

Just like my recruitment example with the same access to market information you have traders with amazing performance, traders just about scraping by, and those that have blown their accounts out (and many more permeations in between).

Nothing beats having heavyweights weighing in to support your case and I have a video for you where Jack Schwager (of Market Wizards fame) talks about this in Michael Martin’s recent interview on his new book Market Sense and Nonsense: How the Markets Really Work (and How They Don’t). This argument, that if everyone has the same information no one can have an edge is planted in the Efficient Market Hypothesis and Jack from around the 06:00 mark clearly makes the case that this argument is flawed (click MartinKronicle interview with Jack Schwager). 

I know this post doesn’t help you get your advantage over the other participants in the market (for some clues on that you may look at some of my other posts on here) but I hope it does go towards closing the case that with the same information as everyone else you can’t be a winner.

For me it’s a case of real world common sense closing the case. 

Now back to trading.

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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 I Say Famous Investor Jack Bogle Doesn’t Have A Clue

(Caveat: OK, OK I know that’s quite the lead in title and not entirely along the lines of my trading psychology type posts.  Also I am sure Jack’s an alright bloke but sometimes just, sometimes you have to write, taking full advantage of having your own place to make a point, and this was one of them.  It also paints an outline of my overall view of the purpose of being in any market)

It’s not normal for me to take a swing at big names or at pensioners for that matter.  I much prefer to sit in obscurity reading something and just mutter to myself: “What?  Come again?  What planet is this guy from?”  However, I read an article about Jack Bogle, founder and retired CEO of Vanguard, and couldn’t contain myself as almost every thing that he said I find from my learning to be hogwash.  In fact I find it all quite boggling (pun intended).    

To read the original from which I will be liberally quoting below read: Jack Bogle: Forget trading, start investing. Even the articles title irks me, although admittedly that isn’t his fault. 

“Get out of the casino, own Corporate America and hold it forever.” 

Really?  Perhaps it’s a good thing you have retired Mr Bogle.  Given the outstanding success of buying and holding, I say with sarcasm dripping from my mouth, I can’t believe anyone is actually saying this kind of thing with a straight face.  Are you sure that with such a bold statement you aren’t being remiss to not mention other investment areas within America?  No agriculture, technology, new business?  Other asset classes?  Heaven forbid foreign markets?    

“No trading, no nothing. You don’t need to trade; you don’t need to worry about the market. To protect yourself from the bumps the stock market will scare you with – even though it shouldn’t scare you because there have been bumps in the market since the beginning of time – have a bond position to go along with your stock position, and have your bond position [the proportion of your assets in bonds]  … have something to do with your age.”

This is actual advice?  I read this and I feel deeply bothered as I wouldn’t offer this to anyone (note: I’m not a financial advisor).  

I mean I get the point that he has laboured over the years that most people would be better off just buying an index rather than trying to be the next best stock picker.  

I vehemently disagree that they wouldn’t be better off with even a modicum of trading skill to help them with this (how about to start with: timing entry, managing risk, timing exit, etc).  Brian Lund wrote a great post on this: 9 Reasons Everyone (Yes Even You) Should Learn To Trade  

I also agree that the bumps shouldn’t come as a surprise to anyone.  Equally to just suggest putting your money down and taking the hits to the gut, as and when they come is the best approach, is just plain nonsense.  This also smacks of the luxury of having extremely deep pockets and a very long time frame to be viewing your investing.  Most don’t live in this luxury, daily spa treatments, champagne for breakfast, driven in a Rolls Royce world.

“The system – a failed system – plays a major role in the problems investors face, but we have to look first though, to be quite blunt, at investors themselves,” Bogle said. “Why do they do it? … They all think they are above average.”

There is something to be said that in general the average investor shouldn’t expect to beat the professionals   Yet, we have the professionals who are often not all that good themselves making this case to buffer their own vested interests.  With education and some hard work I personally believe that many can take their investments into their own hands and perform at least as well, if not better than many of the managers out there.  One thing is for certain, choosing this route of personal responsibility would save them a pretty penny in fees.

It is also the reason that I write on this blog about the psychological side of trading and investing.  I want to help you become the best trader or investor you can be and to be at least as good than those that call themselves professionals.  That is my personal goal and one that I enjoy helping others with.  

Admittedly the system is broken when companies are not allowed to fail.  Where the natural cycle of the markets is artificially manipulated.  Where corporate ‘book cooking’ is common place.  How can anyone stand a chance of understanding the accounting when the sands are constantly shifting and trickery is rife.  However as we will get to later, suggesting holding onto Corporate America seems much like sponsoring the very system that is broken. 

“The stock market is a mysterious and often misleading thing. It creates no value, zero value, for investors. In fact … it shifts value from investors to participants in the system, brokers, investment bankers, money managers and things like that,” Bogle said. “Value is created not by stock prices, but by stock intrinsic values, by corporations that have staggering amounts of capital … they put that money to work, they earn a return on it in a competitive world. … That’s what investing is about, owning companies.”

“Speculation is, by and large, about buying and holding stocks; the values of stocks are ephemeral, they come and go, sometimes for no reason.”

This is where I get really into one of my pet rants.

The key question is what are you investing for?  I think you’ll find the answer to that question is… money.

If that is the truth, which I really think for almost everyone in the stock market it is, then all you really care about is whether the stock goes up in price if you bought it or down in price if you sold it short.   

Speculating or investing at its heart for real people is about making a return on the money that they put down.  To borrow a term from Mike Dever of Jackass Investing it is simply a return driver (read his clinical way of thinking about markets in Jackass Investing or my Pro’s Process interview with him).  The rest is semantics.  

All this intrinsic value talk and even the fattening of the pockets of those in the ‘system’ is just ‘ego’.  The need to massage yourself to feel clever that you know more than others and were able to pick better.  Perhaps you feel the need to feel like you are helping XYZ company develop but let us face it the vast majority of you don’t really care.  All the analysis that is done is to ensure that when you put your money down you stand a good chance of making more of it.  All too often it is irrelevant if the decision to purchase came from hours of looking into company fundamentals or staring at a chart.

If you were to invest, rather than look into ‘Corporate America’, most real people would rather support a new private company doing something they believe in.  Companies where they feel, thus feeding their egos (in a positive way), that they are really helping get things off the floor.  Think helping your son in law start a small business, or your friend push a new product, or a young entrepreneur get his idea out to the market etc.    

Since when do most people have trust in the big corporates and a feeling that they are actually helping and benefiting from their ‘intrinsic value’?  Do you think owning a few hundred to a thousand shares gives you a feeling of having ‘invested’, I don’t.  I also know that there is a seriously high level of mistrust globally of governments and corporations.  Buying ‘corporate’ jives with a lot of peoples sense of right and wrong.  Most, if given a choice, would rather pick the small guy to derive their return than the established Goliath.  Has the Street (Wall St) not noticed the general disgust by which they are regarded by the real world?  There are even legions of us who are, broadly speaking in the same space, and we make the point as often as possible that we are different…. have ethics, morals, genuine concern to help those we work with.

Don’t let me come across as anti-investing.  I’m not.  What I am against is this idea that investing and trading skills are poles apart. Why not combine them and get the best of both worlds?

What I am against is the label ‘speculation’ being bad, when in reality I think everyone is looking for a return on their hard earned, and few really investing in the notion of aiding a company with their money.  Perhaps that’s because if I invest I want a say or at least the feeling that I have played a decent part in the companies possibility of success.

I am against old boys saying buy Corporate America and bonds.  Hold onto it and don’t sweat the bumps.  There is more to managing risk than that.  You have to give more than that nowadays as most people aren’t chumps and are going to realise that the advice smells all a bit… well simple.  

I am agnostic as to how you achieve your returns but can’t stand broad brush assumptions or statements as if from positions of authority that x is the only approach and y definitely will not work.  Futures are risky but stocks are safe.  Day trading is a fools game but investing is guaranteed to work.  Plain nonsense.

I’m also market agnostic.  However, you can increase what you put into said market I’m good with.  Equities, currencies, futures, venture, property, agriculture etc.  Or whatever combination that best works for your specific circumstances and demands.  I’m backing you for startling success however you can do it. 

Perhaps good old Jack is getting the rough end of it here and the quotes I’ve riffed off are out of context and very different to the original meaning.  If that is the case then I apologise wholeheartedly.  However, I do think this is a valuable exercise that allows me to emphasise a few areas that I see as important and have garnered through my development as a trader.

The world has changed… we can un-bogle ourselves, access more useful information than at any other time and take control into our own hands.

I call that progress.

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I was also a little out of my usual comfort zone with this post but maybe you’ll like it: Sovereign States! Call Me A Simpleton But Do Normal Rules Not Apply To You?

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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.