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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  

New Real Estate Experiment For Richard Chignell @embracethetrend

I’ve decided to experiment with Google+ for my writing in 2014.

It seems an ideal format for me as I can write about what interests, inspires, motivates me… and be broader in what I put out there.

I can also bang out shorter posts (micro-blogging) somewhere beyond twitters 150 characters and the fuller length blog posts. This I hope will encourage me to write more and perhaps be more enjoyable to those who like to follow me. So please go ahead and Circle Me! +RichardChignell

I will continue to cross post trading related material here (especially any future interviews in The Pro’s Process series) and I’ll update on twitter but if you want more of me find me over at Google+.

One of the most important things for me is to try and live as richer life as possible and this is far from just in the monetary sense. I’d like to write about some of the other areas that I am knowledgeable about, have some expertise in, am interested in and that add to the richness of life. So I expect to turn out more content on my Google+ page.

Anyway… there you have it.

For some of the rational for this move and to learn more about the areas that excite, stimulate, tickle, and otherwise motivate me pop on over to Google+

If you have come from this blog please message me and let me know… I’d like that :-).

Thanks,

+RichardChignell

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.

***

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.

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.

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

[If you liked this please follow me on twitter]

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

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

Are you smart?  I hope so.

There is clearly a certain minimum requirement to be successful in the trading or investing business.  Without the basic foundations you aren’t ever going to manage to get your trading house built.

It stands to reason that the smarter you are the better.  After all to really win big and be a trading legend you have to be some super brain, some Gary Kasparov on steroids.

I’m going to let you into a little secret:

The first part is true.  You do need some basic intelligence to trade well.

The second part is a sensible assumption but false and in many ways badly wrong.  Not only is being super intelligent not necessarily going to make you better at managing risk but it likely means you will have to overcome a lot more to be better than your less intelligent competitor.

Here is a short Koan for you:

Nan-in, a Japanese master during the Meiji era (1868-1912), received a university professor who came to inquire about Zen.

Nan-in served tea. He poured his visitor’s cup full, and then kept on pouring. The professor watched the overflow until he no longer could restrain himself. “It is overfull. No more will go in!”

"Like this cup," Nan-in said, "you are full of your own opinions and speculations. How can I show you Zen unless you first empty your cup?"

Trading is 80% emotional intelligence.  If you are very intelligent the remaining 20%, the technical skills side, is going to be very easy for you to pick up.

If you’re very intelligent you are likely stuck in the very frustrating place of wondering why you aren’t getting the kind of trading results you want.  After all you’re smart, you’ve always been successful in your life, you got top marks at school and university ever since you can remember.  You were always in the top few percent of your class.  You’re used to getting good marks and a achieving high percentages.

                      Now the tough bit: You Have A Massive Ego.

Trading is about managing risk and making high probability bets.  The probability thing is a tough one because you only need a few of your winners to be big in order to cover the many small losses and still leave you with a very positive week, month or year.

Yet this is exactly the opposite to your prior experience.  You are going to be wrong a lot.  Your opinion, analysis, beliefs etc don’t matter one jot.  The market doesn’t give a toss who you are or what you studied and it isn’t going to react to anything you do.

So you are really in this case ‘book smart’ and in order to cut it in the real world of the markets a whole other side of your intelligence is required.

                                       Emotional Intelligence

Tell me I’m wrong in the comments but I warn you…. you’d be best thinking first.

If you have experienced this I’d love to hear in the comments what was the tipping point where you realized that your past experience was actually hindering your performance.

If you want a place to start with tuning up your emotional intelligence, I’ll give you two prescriptions:

-> Complete a trading journal: being very dilligent in writing about your feelings as you interface with the market.  Review this journal at the end of every day, week, month and year. (More: here & here)

-> Make a meditation or breathing practice a central part of your day.  Do this every day……………………………………………………………………. for ever. (More: here, here, here & here)

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

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

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

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

It made me genuinely laugh out loud because for all those frustrated by trading or who have been in the past this is so true.

I’ve written a number of posts recently that cover all the above things. 

I’m not trying to be a smart ass but you do need all of these skills.

If you want to be a successful trader or investor:

One You need to be able to persist and keep committed to your goal of being successful for the long haul.  If there is nothing that is going to stop you from being a trader you will get there.

Two You do need to know when to quit but not as relates to the above point.  You need to know when to quit a trade, a theory, a strategy and you need the wisdom from your persistence at this business to know how and when to do this.

Three You’ve always got to be flexible.  You have to duck and dive with the best of them.  You’ve got to be able to change direction on a dime or you’re dead meat in this game.

Got something to say about this post?  Go for it in the comments below.

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

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.

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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/ 

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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

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

2 Lessons From The Zen Zig-Zag Bridge

Most generations who are reading this are distracted. 

We have things that draw our attention away from the present everywhere. 

Quite literally all around us we have things that can make us lose focus.

I’ve written about how the news and ‘info-tainment’ may not be doing you any favors, promoted slowing down and spoken of the advantages minimalism may offer you.  

I’m not talking down to you.  I know that you know this.

The real question is what do we do to get more present?

Enter today’s learning tool - the zig-zag bridge:

(Image thanks)

The objective of a zig-zag bridge in zen philosophy is to focus the walkers attention on the current place and time. 

Clearly failing to do so can end with a somewhat wetter less mindful experience!

Yeah but so what?

I find it a useful memory trigger to think of a zig-zag bridge to help me presencing myself. 

Tell me you never do this:

I like everyone else can spend time being off in the future or dwelling in the past. 

As traders a few common things that don’t help your trading at all that are based on the past or future rather than the now are:

* Dwelling on a losing trade or string of them.

* Wishing and hoping that a trade will do something.

* Wanting a set up to happen.

* Thinking of what we will do with all the money we make.

etc, etc.

If you find your mind wandering off…..

I am getting better and improving being mindful but it is not easy and I’ve found a few little tricks can be useful.

Maybe you will also find when your mind is wandering off into the future or the past that thinking about the zig-zag bridge may be a visual cue that brings you back.

If you catch yourself off in one of these unproductive places think of the zig-zag bridge and why it’s designed that way.

Then when you’re back: a simple technique is to focus on your breath.  Feel the air at the tip of your nose as you breathe in and breathe out. 

Close your eyes and concentrate on your breath for 5 deep natural breaths and then look at where you are now, what situation you are in now and deal with whatever you want to do now.

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Let me know in the comment section what you favourite place to mentally wander off to is?

If you try this technique drop a note below to tell me whether this helped at all?

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.

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

Trading can be so infuriating sometimes.  You’ve probably experienced some major difficulties while you’ve been looking to make your money in this game. 

I bet you feel like you have worked really very hard.  You’ve read books, forums and blogs until your eye lids felt as heavy as your chubby loving mates newest girlfriend.

Now though all that hard work feels worth it as you have found a couple of approaches that you really feel are yours to own. 

You’ve decided perhaps to be a breakout trader, range trader or scalper because of the great fit it is to your character.

You’ve had a little go at trading the approach with a paper trading account and now have got real money on the line in the market.

BUT it’s not working out quite how you expected and damn it’s frustrating you!! Big time!!

Enter Lao Tzu:

“Do you have the patience to wait until your mud settles and the water is clear?

Can you remain umoving until the right action arises by itself?”

So often, and I mean really so very often, the problem is that you don’t have the patience to wait for the correct set up to present itself exactly as required by the strategy.

You wait and wait and then the market starts to take the shape you are waiting for but a small part of you is saying in the back of your mind: “this isn’t quite right”.

You’ve been waiting a long time, it seems like forever, so you don’t really listen to the little voice and pull the trigger and enter your order anyway.

Sometimes you get away with it and the trade ends up being a winner.  This actually is not a good thing for your development as it reinforces a bad habit.  However, what usually happens is that the trade doesn’t play out right for you and you get this overwhelming feeling of “sh#t I knew that was going to happen! Damn it, why didn’t I just hold off placing the trade?  I would have saved myself that money!!”

All the time you had been given that little queue from your mind or body that said things weren’t quite right.

In my experience what then tends to happen is that you think “OK no harm, no foul.  Life goes on.  I’ll just re-focus and make sure I don’t do the same on the next trade”.

Which in many ways is a good plan.  Yet you know I am going to put a ‘but’ in here and here it is:

BUT this is where another tricky thing comes into sight.  You often don’t stick to the same trading strategy but find another trade that meets the criteria that fits one of your other plays.  You then execute that trade and either have a repeat of the above process, in which case you start to go a bit insane over your days performance, or you are successful.  This time being successful means that you forget the lessons that you may have learned from the first trade and move on feeling good about your day.

The solution?

The solution to this problem lies in patience. 

Most people don’t like the word patience and it brings up all sorts of feelings that we like to sweep under the carpet so no one can see.

It is however one of the most important aspects to all types of trading, no matter your time frame or goals.  Learning to build on your patience skills is a pre-requisite to making it as a trader.

An example of this kind of patience can be seen in the interview with famed commodity investor Jim Rogers in Market Wizards.  Jimmy says something along the lines of the way he makes his money is through waiting and waiting and waiting until there is a bag of gold in the corner of the room then just going to pick it up.

Now I don’t know if Lao Tzu actually taught Jim Rogers this skill.  Jim does however highlight in the Market Wizards interview the great skill he has in laying in wait patiently ‘until the right action arises by itself’, just as old Lao Tzu asks.

So what are you going to do about this?

1) Great traders keep journals and I’ve written about this before.  If you have resistance to this practice let it go and force yourself for a period of time to keep one.  You will learn a lot and your trading will improve.

If you are smart enough to be taking a journal make sure that in the above situation of the losing trade that you note down the ‘little voice’ and the realisation that you didn’t wait for the perfect set up. 

2) Make sure you have a review practice.  At the end of every day review the trades you made AND review your trading notes in the journal.  See what you can learn and think about how you can refine the process next time. (It’s a good idea to schedule review sessions every day, every month and even a major one every quarter and year.  You will be amazed by the learning and development you will garner from these).

3) As Mike Bellafiore says in the Pro’s Process interview visualisation can be a very useful way of sharpening your trading blade.  I’m going to give you two things you can do should the above problem arise: 

a) Using your awareness derived from your journal find a quiet place and close your eyes.  Begin visualising your trading station and picture as vividly as you can yourself sitting there.  Picture the market setting up for the trade that you want to take.  Visualise yourself waiting patiently.  Calmly breathing.  Alert, yet relaxed.  Then visualise yourself seeing the market morphing and taking on conditions you weren’t expecting.  See yourself calmly reacting to this and making the right decision not to enter the trade.  Really feel comfortable and at one with not taking the trade.

b) Repeat the whole exercise again.  This time with the trade setting up as the strategy dictates and this time you taking the trade.  Visualise doing all the right things and executing the trade in the ideal manner.

The purpose of this exercise is to burn these actions into your memory.  The more you practice this the more you will refine it and the more comfortable you will be doing the right thing in these situations.

4) Another way traders manage to sabotage themselves in the patience department that can be seen in the above common scenario is by having a number of strategies learned before having mastered one.  As you see above the second trade was using a different approach to the first.  The risk of this at the start of your development is that you haven’t yet ingrained all the right actions for the first set up.

It is highly recommended to work on one trading strategy or play at a time.  That’s not saying you can’t or shouldn’t have more than one play.  It is saying have the patience to really know that you can execute one perfectly and have got all its nuances completely owned.  Work on the patience to spend the needed time getting one right.

If you are struggling you could use visualisation similar to that described above or meditate on the feelings that arise for you from having to be patient.

5) You have no control over the market.  Seriously you really don’t and the sooner you accept that fully the better.  Presuming you get that already, then you have to embrace the fact that you don’t have to trade all the time and there may be hours or days or even weeks where the right set up does not appear.  You cannot make the conditions appear.  You have to go with the flow and make your decisions off what the market gives you rather than your hopes and desires as to what it may give you.

This is a major trouble for traders.  With the above example we feel that since one play didn’t work we better use a different one for fear of missing out.  As I have eluded to, already this either leads to us missing valuable lessons or in not achieving any level of ownership or mastery over our trading (amongst other things).

The fear of missing out is a human emotion that really can impede trading performance and one you really need to be on the watch out for.  One thing to be very aware of is that there will be other opportunities.  There always are.  Think of how much better your trading would be if you didn’t churn your account from the losses that result from badly executed trades.  Contrast this to how sweet your account would be if you only took the prime opportunities and executed clinically when the conditions were exactly right for you.

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I know this is a long post and I really appreciate you if you have got this far.  I really care and write this blog for free and as a result if you are reading this far you really care as well so I’d like to ask you to do something for me…. 

I hope it helps and would love you to tell me if it did.

Have you struggled with patience in your trading? What great insights have you got dealing with this that you can share?

I’d love to hear some of your personal experiences. Please tell me in the comments below.

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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice.  I trade my own capital exclusively.  I eat my own cooking as should you.  If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.