Me Management

New traders everywhere (and more established ones too) place almost all their attention on searching for the holy grail of trading. How to “beat” the market. How to get the perfect triggers that guarantee winners all the time.

Years of studying global economics (We all know where Ben the Benank went wrong(yeah right)). Read about the fundamental structure and every nuance of every detail of the derivative/asset you participate (compete) in, understand the importance of the open interest and the options skew. Then there is technical analysis….Pass your STA exam understand everything to the nth degree regarding Ichimoku, Tom Demark, Golden crosses, upside hammers, hanging afterbirth (Not sure about that one(may need to consult candlestick guru @FuturesTechs)). Head n Shoulders. Gap fills. Oscillators. Bollinger Bands. Stochastic, fast & slow plus everything in-between.

Almost there. Fundamental analysis, what drives supply & demand.

Statistical analysis and back testing, forward testing on sim, beta testing live. Run worst case scenarios through Bloomberg’s portfolio analytics & VaR. Understand your performance measurement – you’ve calculated your back test & forward test using not only Sharpe ratio but coz you’re so smart (maybe smug too) you’ve used Sortino too!

Now all we need to do is apply our faultless knowledge of programming in to the API connected to our trading platform. More IF statements than you shake an optical mouse at. Every single base covered. You even understand the infrastructure required for your platform to connect to the exchange and most optimal performance you can achieve. Throttling this & that.

Oh and to top it off you’ve got a copy of Sun Tzu’s “Art of War”

I might be being a little controversial here, but, sometimes you can just know too much to be any good.

You know who you are!

Turn on your system and wait for that funny kerching sound to start telling you your filled.

Many clichés on Twitter. Some are actually so very regularly posted, in many instances its because they are so true!

One of my favourites is Mike Tyson’s. “Everyone has a plan till they get punched the face”

Regardless of how many bases you’ve covered with your text book knowledge of trading. How many of you love reading the books about success stories of the big hitters? Goose bumps when you read about they built winning positions and everything went to plan. Models n Bottles. Yeeeeeah. Great fun to read but you’ll never be a successful trader by learning from the “what I did right” section. Mistakes, you only get better or good and maybe successful by learning from mistakes, whether they are yours or someone else’s. For me the most useful books are the ones that tell me how they lost it all. I want to know/remember what not to do!

Regardless of all the science, trading, be it scalping dax or building top down global macro portfolio is nothing more than a game. Don’t think you’re doing anything smarter than that geek on those empire type tactical games. There is one obvious and huge difference tho. The end result of losing in the trading game usually means you will not be able to pay your bills. The psychological impact of that fact has seen many a smart trader leave the industry at best and at worst leave their senses entirely!

Yes self realization is postdictive. You can’t be expected to perform under the pressure that trading your own money brings without the honest understanding of your emotions. You need to be self aware enough to manage yourself properly. What response do you have when you get the punch in the face? How severe is the punch in the face? How frequent is the punch in the face?

I used to be an emotional so and so. Couldn’t take the grin off my face when winning had to replace my screens when I wasn’t. It was hard work but very helpful to learn to measure my temperament. Treat every single position exit the same. Then focus on the next idea.

I know I’m a terrible loser in sport, I have countless broken squash rackets serve as a reminder! So I now, in hindsight know, that the majority of my career ending performances over the past decade occurred due to an inability to accept the small loss when I new I should have. As I have got older and become less competitive I think it has improved my ability to say “no, I’m clearly wrong. Cut it”.

My dad can be a real misery guts……everything has to be perfect. He doesn’t mean too but he always seems to see the things that should have been, could have been done better. Holidays, restaurants, concerts, Spurs performances you name it. Its something that I accept has been past on to me. So when setting out trade ideas in the past I’d think It shouldn’t go wrong, ever! Invariably when it does go wrong I’d just sit there cursing until risk got me out coz I didn’t have anything left! Now as part of my money management outlooks I assume that my first entry will not be the perfect trade. I will never be picking the turn, top or bottom. I will pick the entry that gives me the cheapest stops. If I think “it” goes up I wont just buy the first price I see once I’m logged in. I work out where/why I think my idea will change. Then look to front run that level. This does mean I miss plenty of opportunities but I’m comfortable thanks to my experience that there will be more opportunities to make money. I appreciate that they will only appear with a clear unbiased head and an ability to go in either direction.

Then there is my size management. If I become jittery or impatient I know I have too many on. Cut the position and take a walk away from the screens without feeling stressed.

Something that has helped here is that I have activity in so many markets. This way I do not micro trade, which is a huge benefit when you participate in stirs. You stare at them too long & you become a conspiracy theorist. I don’t give a flying f… about RSJ or Winton any more. I recognise these algos will always be steps ahead of me, they are constantly tweaked to current market conditions. So I’ll let them do their thing and accept it, leave the shouting at exchanges to others. I’ll just be more patient with my entry and exit.

I know sometimes I get a bit uppity and start front running my own ideas out of boredom or a lack of that patience. When that happens I have the next day off from trading in the office. I log in from home place small orders in my systems & watch passively in a more relaxed environment for a day.

In my head timing is more important than getting direction correct. So knowing this stops me from being stubborn as well. I can accept that my idea is right but I got in too early cant afford to hold here cut and start again. We all know Mr Corzine’s view of the Greek government bond market would eventually be the right call. Too much too early. The markets can remain irrational longer than you can remain solvent. Another popular twitter cliché/saying, another so so right.

Just remember, one traders lifting the offer and looking for follow through is another traders fading the rally looking for a sharp pull back. Whilst one relies on precise points of entry and exit in an outright another uses levels approximately looking for pace of momentum change. You can’t know what suits you until you can afford to expose yourself to each way of winning and see how you react when punched in the face.

So don’t go criticizing anyone else’s ways and methods. Find your mind, think about it all the time. Recognize your moods and include them in your diary (you do keep a trading diary don’t you?).  I’m not saying this works for anyone else. I just know it helps me. I will always make poor decisions and lose money when I probably shouldn’t. I sometimes create more complex trading positions to express quite a simple binary idea, it gives me a false sense of security. That helps me stay rational in my thought process and keeps me alive.

That is the most important thing to me, it keeps me happy and feel progressive positive & optimistic.

K. I. S. S.

Lee