Archive for August, 2010
The goal of a trader?
Like a good tennis player, anticipate where the ball’s likely to land on its return BEFORE the opponent hits it.
Or, like a poker or chess player, think 1-2 steps ahead of those floundering around on the retail/losing side of the trades … lest you join that “other” side.
Work like heck to find the bias and defined channel in play, and then trade it with conviction.
And when no less than NINE signals all line up as they did for the attached sequence this afternoon, well, if you don’t take that trade, then – and I’ll be frank as always – this business just isn’t for you.
Is any trade guaranteed to work? Of course not … thus the premise based 3LB stop in the notes.
Yet when you’re approaching the net anticipating a soft return and your opponent obliges with the gentlest of lobs, well, you go for the kill.
Our professional tennis player from the beta Jellie team would be proud.
I truly believe it’s one of the greatest gifts we’ve been given on this planet.
It’s an opportunity for us – as imperfect beings – to make up for past amends, errors, sins … you name it.
And while redemption of course an incredibly important – and necessary – aspect of life, it’s equally relevant to the game of trading.
For fight as we may, we’re all imperfect beings with personal weaknesses, limitations, and shortcomings.
At my end, the gap between perfection and reality is as wide as the Grand Canyon. Maybe even wider.
And while there’s not enough disk space on the Internet to list my personal shortcomings, somewhere near the top of the list is being far too intense … to the point where words and actions have sometimes been perceived by close friends, family, and business peers (including likely a few Jellies) as being downright off putting.
Yea, I know this isn’t exactly breaking news. Let’s just say after 50 years, you get to know yourself pretty well … and sometimes it just ain’t pretty.
Along the same line, I also tend to be a Go Big or Stay Home kind of guy, as the term “moderation” often seems as foreign to me as James Cramer giving a course on speaking softly.
I’ve often said that my oldest daughter – from the day she was born – never seemed to have a volume control … only an on and off button. Full speed or nothing. And it’s crystal clear which parental genes she got that from, as it sometimes seems that I don’t even have an off button.
So what has this got to do with trading? Well, for me, everything.
First, let me say that I’m truly grateful and appreciative of everyone reading this post, and for every friendship that’s stood the test of my being a royal pain in the a$$ at times. For I fully realize it’s not easy being “around” constant intensity … just ask my wife. And yes, I’ve likely lost a few friendships over time as a result.
Intensity of course has its place in terms of fighting for just causes, sparking innovation, spurring action, or – on the trading front – creating outliers. But as they say, there’s a time and place for everything.
I’m also grateful for all of the traders I’ve had the pleasure working with over the last 12 years, including the early Jellie teams who hopefully saw through the rough patches to see the genuine intent amidst the occasional drill sergeant antics.
Yet back to the trading front, the ever-present “all or nothing” piece of my personality remains one of my largest challenges in terms of trading goals, as the “what now” question (recall the October 2009 Catching the Rabbit post) often still eats at me.
Perhaps ironically, I’ve found that maintaining the highest level of interest in personal trading after a large degree of sustained success has turned out to my greatest trading challenge ever. Ever build a deck or finish a basement? It’s fun, challenging, and stimulating the first time, or even the second time. Then it becomes dull, boring, and monotonous.
I suppose it’s like a marriage … full of initial passion and spark, before becoming at times routine to a point where both have to work creatively retain the flame.
In a recent dialogue with Linda Raschke, I asked her if she suffered from the same challenge. Her response? “Every year.”
And that’s exactly how I’d discuss my “marriage” to trading.
Think about that for a moment … someone has been able to put up with me for 25 years.
Pehaps one reason it’s lasted is that we both realize – and accept – each other’s shortcomings … despite the fact they can drive both of us absolutely insane at times.
And it’s about constant moment-by-moment redemption.
With each other and with God.
Sort of like trading where one must live in a constant state of mental redemption that balances (1) retaining and learning from the past with (2) sole focus on the blank slate of the future.
Perhaps as we approach the fall season, we can use it as yet another opportunity to make amends for past sins, errors, indulgences, or misjudgments, while committing to once again reigniting that spark and passion.
In life and in trading.
Well, almost no one as Warren Buffet’s infamous “Rule #1″ speaks to it in spades. No surprise he’s been wildly successful.
Yet I suppose in a business that remains rampant with hype and the “I called the market right” syndrome (a.k.a. the “even a broken clock is right twice a day” theory), I suppose it should come as no surprise.
Here’s an exercise. Find your ten largest trading losses of the last twelve months. Then, remove any rare ”black swan” anomalies such as trading platform outages and the 5/6 flash crash over which you had zero control. The result should be losses over which you should have had some control. See my comment response for a further clarification as to the reasoning for doing this.
For many traders, the remaining sum - after changing the minus sign to a plus - likely totals a targeted annual income stream at one point in your career – i.e. earlier years for seasoned traders, or current targets for developing traders - that would have been avoided if you’d either not traded or cut back your trading.
Yet the popular trading “press” continues to ignore it.
And while stepping up the offense is of course critical to creating the necessary positive outliers, analyzing your ten largest losses will likely show you how very important playing defense can be.
Here’s a wild guess as to causes for the large losses:
1. Missed the beginning of a monster move and tried to make up for it by fading at inappropriate times and adding the the positions;
2. Had a losing day (which of course should be COMPLETELY irrelevant) and couldn’t bear the thought of booking a negative number so traded the hell out of the market and magnified the modest loss by a factor of at least three;
4. Wasn’t in sync with the market in the morning, so traded the lower-probability afternoon session heavily;
5. Saw other traders in chatrooms or in your office trading and doing well, and gave into peer pressure;
6. Saw the Dow was +300 on the day, figured that meant your P&L also had to be up nicely, and traded accordingly;
7. Went “all-in” on day two after having a monster win on day one … giving back your prior day gain by at least 50%;
8. Forgot (or didn’t know) that it was more than OK to scale out of a losing position versus barfing it out in a single projectile at the retail extremes (I know, great visual);
9. Doing your best Mortimer Duke impression by fading an extreme trend after 3:45PM ET on a Friday looking for a full reversal, somehow thinking the market may stay open another four hours just so you can cover at better prices. One of my earliest crushing bonehead losses … somewhat appropriate given today’s market close which was Exhibit A for our mandatory no-fade rule after 3:45pm.
I could go on, but you get the picture.
And in every case, reducing your trading activity (playing defense) would have saved the day.
Why might it seem I’m staring at your trading diary from your losing days? Because I’ve done them all.
Thankfully, most were earlier in my career.
In ten days, the incoming Jellies will hopefully learn SOOT defense in spades.
Defense via size adjustments. Defense by simply watching the market play offense before tiring and becoming vulnerable to the wholesaler. And defense when personal fatigue sets in … regardless of the market action at the time or what “other traders” are doing.
In doing so, the idea is to get them thinking strongly about the adage, “a penny saved is a penny earned”.
And in many cases, it will be a full year’s worth of pennies.
One of the advantages of my order entry platform (X Trader from Trading Technologies) is the ability to have all of the trade data input to Excel live throughout the trading day without my having to do any downloads.
In addition, I worked closely with one of the Jellies (many thanks to John) recently to create a comprehensive statistical and trade sequence tracking package that met my (NOT the non-trading programmer’s) specifications.
One of the elements we programmed was an automatic time of day profit analyzer that calculates the profit or loss by 30 minute interval in bar chart fashion.
And like a picture, the resulting chart (today’s is attached … click to expand) often tells 1,000 words.
Note the times reflect the beginning time of each 30 minute period.
In my case, I’ve even gone so far as to highlight those intervals in beige where I’m traditionally not that strong, or that have caused problems in the past – which in my case includes the opening 30 minutes of the Europe session, the 9:00AM-9:30AM ET transition phase between the overnight and normal sessions, and the post-2pm period where I rarely trade due to a combination of fatigue and often (but not always) far lower probability trades compared to the earlier sessions.
In today’s case, the chart reveals that I chose to sleep in a bit and pass on most of the Europe session, traded the early U.S. session, and then pretty much shut down for the rest of the day except for a few very small sequences late in the day after I’d napped a bit.
Generally speaking, today’s chart is pretty typical to that of most days in terms of activity levels during the various times of day, although as I’ve said recently, I’m sometimes much more active in pre-9:30AM session if the prior day U.S. session or current day Europe session sets up accordingly. And of course, all intervals traded are not always profitable … duh.
In terms of the post-2pm period, I know many traders who trade the afternoons well.
Yet of the millions I’ve made in this business, I firmly believe that I’m net negative after 2pm for the reasons I mentioned above.
And in this business, knowing and avoiding your personal landmines is sometimes all it takes to avoid undoing that which you tend to “do” well.
For anyone can make good trades.
Yet few can retain and grow the accumulated capital.
Less is More – ES continues its summer rhythm of outstanding and very readable Europe (pre-9:30am ET) session opportunities, followed by more limited opportunities in the U.S. day session which continues to be characterized by early dogpile in/out moves and then several hours of limited chop.
As such, my trading sequences and volumes have tended to mirror that of the opportunites presented with my heaviest trading being before 9:30am, followed by modest early U.S. session trading, and then SOOT preferences after 11am ET. Overall personal trading volumes continue to be light at under 1,000 total daily contracts traded.
After Labor Day, I suspect the pace will change a bit as the overall volume and flow of the U.S. day session picks up.
Personal Schedule- Several major non-trading events are on the calendar over the next two weeks, including helping my daughter Chelsea move into Tufts University next Wednesday, and then celebrating our 25th wedding anniversary on Labor Day Weekend, before kicking off the final Jellie training session on September 7th.
A reminder to all former Jellies that you’re invited to attend the three Monday evening sessions, which this time around will include trader psychology segments by Robin Dayne.
My main focus remains on continuing to strengthen the mind & body from my bout with pleurisy, which experts have told me takes 2-3 weeks to run its full course. And as is the case with trading, timing is so critical and I’m extremely grateful that I was hit with this in August vs. September.
Schindler’s List – While continuing to recover and SOOTing this afternoon, I finally watched Schindler’s List for the first time. It certainly puts trading and minor health nuisances in perspective, and has given me new personal meaning to Chelsea’s farewell solo of the theme a few months ago.
Any attempt to further describe my feelings on the events as depicted in the movie wouldn’t do the atrocity justice.
I thought that title might get your attention.
Thoughts about the importance of determining market rhythms versus looking for a holy grail “system”.
Also, please note that I’ve decided to cancel the proposed September Clambake due to conflicts in attendee scheduling.
Lastly, please note I expect to be posting infrequently over the remaining summer weeks and throughout the September Jellie training.
For I made a conscious decision to simply focus on today’s MATD in solitude, and - to use a golf analogy – finished this week’s trading “round” by going birdie-birdie on Thursday and Friday on the heels of the mid-week bogeys.
So what happened since Wednesday’s “going to put the car in park” post?
Two things. First, the market provided classic TD (Trend Day) – MATD sequences on Thursday and Friday, which is about as obvious a pattern in this business as there is. And whether I was fully recovered or not (still getting there), it would have frankly taken a coma to mess it up.
Second, and as I’m sure other traders will attest, it’s not surprising that once one sets his/her mind to not trading, trade setups and optimal wholesale entries just seem to fall in your lap. I’ve seen this time and time in my own trading, and it’s largely because any self-imposed pressure to perform is magically lifted. The result is that “too early” or “too late” often morph into “right on time”.
In terms of trading solo, it was a change of pace that everyone probably needed. For me, I tend to get into some bad habits of babbling instead of trading more aggressively when in the networking room. And while additional sets of eyes can be helpful when one gets tired or unfocused, the charts will always provide everything you need in terms of price action.
For the team, they probably enjoyed the relative serenity after my Thursday rant.
And such are the risks and benefits of group trading. As I’ve mentioned in the past, there are significant pros AND cons of group trading dynamics, and I’ve long been hot and cold on this topic.
There’s a reason I emphasize self-sufficiency in one’s trading, which in addition to not wanting people to pay me some ongoing revenue stream (I make nothing from the ongoing room) is in part because the last thing a good golfer needs while putting is 15 caddies reading the green when you already know how to read it. You focus on the putt … and nothing else.
Perhaps the scenario that best balances the two is to use such a support system as an occasional booster shot or check and balance rather than a continual tool which can become a harmful subconscious ”crutch”.
Lastly, I wanted to share an email response I sent one thoughtful onlooker last night who was concerned that I might be losing a bit of life perspective in terms of recent posts and events:
Hi and thanks for your heartfelt note.
It is definitely true that I’m driven in all that I do, and that some day, I’ll likely step down from the trading arena (or maybe they’ll have to take me out screaming).
As you probably know, trading is much like athletics in that careers can be short, and as such, we must push hard during those fertile times in our careers. This is especially true because we have no pensions or retirement vehicles other than to self-fund 100% of our future need, and as such, we must work harder than other professions to fund both current and future needs. And such is likely evident throughout any trader’s approach.
Having said that, you’re entirely correct in that I can be fully absorbed to the point where some may think that a deeply-held passion may be bordering on obsession. Yet for me, it’s never been about wealth accumulation. Never. Instead, the challenge of trading and teaching others remain passions of joy and giving, much like it was for Larry Bird when people asked him why he was so obsessed with getting up at 4am every day to shoot 300 baskets. His response was that he simply loved what he did.
Yet your words ring true in terms of stopping to smell the roses … something that I can always get better at.
God is still working on me.
Thanks again for the thoughtful words.
Well, so much for yesterday’s post.
While I hadn’t planned on trading much today, plans had to change as two-way volatility in both the Europe and U.S. sessions decided to show up in spades today.
Sort of reminds me of when Borsellino cancelled his flight plans to Europe at the airport years ago when he learned the market was crashing.
And while it wasn’t pretty and I’m still slightly off my game, I managed to scratch and claw amidst the market chaos to nip this rare and silly two day drip before it could gather any further momentum.
And we all know how powerful personal mojo can be … on both sides.
I still have a ways to go to reach peak mental and physical levels given the events of last week, but it may be a good sign that I was more than irritated with the networking room today as I felt (1) there was a lack of PJO trade setup conviction and (2) some seemed to revert back to old retail ways of seeing the market, which frankly put some momentary doubt in my mind – and cost me dearly as I had to recheck my bearings as I was ready to lean hard into a setup.
While trading in a group environment can be helpful if done properly and everyone is looking for the same thing as is the case with the Jellies, it still carries a HUGE risk of the loss of personal conviction which is so very important as this business is all about leaning hard during those times when you know you have pocket Aces.
So I got on my friends’ case … hard.
As I’ve told all of the incoming Jellies, I have more respect for each and every trader I’ve ever worked with than they’ll ever know. Yet this isn’t a business for the lame or timid, and I’ll frankly be “drill-sergeant” blunt at times – even in the ongoing networking room – in the spirit of trying to correct glaring errors and ensure profitability.
The good news is that today’s irritation may be a good sign that my fully-restored health is just around the corner.