Monthly Archives: August 2012

Miss-directed rebellion

In the last few weeks I’ve kind of been ‘on a break’ from looking at making trades because I’ve realised there are some psychological bits and pieces that I need to sort out. (ok, ok, some huge dirty great rocks)

On the plus side I actually (now) have the means to get inside my own head and root about for answers. As I wrote here I started meditating regularly well over a year ago now.

The fact that trading prompted me to even start doing this means, even if it ends up nowhere, meditating has really changed my life so I’ve not wasted my time. This isn’t the right post to get into the muck and bullets of that statement so back to the first paragraph…

It’s clear to me that through all the stuff I’ve learned about the technical part of trading there isn’t really any more to cram into my brain. Where I am now on this is all about application and probably has been for at least the last three months. I can keep ‘information gathering’ but that’s really all it will be in the vast majority of cases.

So we get onto the super duper part of application. Applying the knowledge I have in the market. Exciting, right?! Hmmmm… not so much. In fact I have discovered a number of challenges.

  1. I absolutely cannot get out of bed in the morning
  2. I have a lot less ‘self-discipline’ than I thought
  3. Definitely under capitalised due to my life circumstances

Point number 3 is something I’m working on (hey, work – gettit?) but I’m going to have to come back to that one elsewhere. However points 1 and have definitely been the source of endless frustration. Being generally pissed off at yourself for something that you can’t seem to overcome despite a lot of ‘good intentions’ is not healthy.

So eventually after a lot of sitting (i.e. meditating) and when this quote hit me in the face from somewhere I figured it out. First the quote: –

habits – you make them and then they make you

What I figured out is that from a quite young age I’ve been in the habit of rebellion. Now this doesn’t mean I’m some sort of anarchist 😉 it just means that early on (as a teenager) for a number of reasons I had to define my own identity and in part was only able to really do this by a certain degree of non-conformity. This could also be described as ‘f**king things up’ 😀

Now where this really becomes a problem is that ‘rebellious voice’ may have served me for a time as a teenager but I’ve let it stick around and it’s significant influence has become something of a habit.

Doing stuff for yourself and that ‘I’ll show them’ approach may work to solidify a sense of self when you’re 16-24 but it’s now quite counter productive.

What I’ve come to realise is this part of my inner world stopped rebelling against ‘others’ (or my parents) a long time ago and then took it upon itself to rebel against my own desires, wishes and intentions.

Read that last bit again. As soon as I became functionally independent that part of me decided it’s ‘job’ was to rebel against what I’m looking to do!!

Now clearly this part of me didn’t want to die so it had to be very clever and keep very well hidden so I have made progress it’s just maybe not with the speed and precision I could have.

It’s job is to rebel, to pull in the other direction. If I want to go left it wants to go right. If I want to improve my diet it’s busy convincing me that it’s ok to eat chocolate in the morning with my coffee (loaded with sugar).

Now the strategy might be to apply more self discipline. I can tell you now this doesn’t work and it’s tiring as hell. Why fight, fight, fight with a part of your own mental landscape? It’s just too hard and I’m smarter than that.

So what have I done? I have re-tasked this part of my rebellious self away from being an internal ‘blocker’ or guardian to have an external focus.

This is how it works. My higher self want’s to go to the gym. Rebellious me doesn’t want to and starts coming up with all sorts of reasons and justifications not to. Here’s the conversation…

Me: Right, time to go to the gym

Reb: No I’m tired, why not coffee rather? Do it tomorrow etc. etc.

Me: Hi Reb, you know this isn’t your job anymore right?

Reb: What?! How did you notice me?

Me: I’m aware of you now – you’re job is now to look out for external stuff ’cause you’ve grown up. You’re built to push back on stuff out there not ideas from within

Reb: Awww, but it’s harder!

Me: Yes but let’s go to the gym and I’m sure you’ll get the chance to do something later.

Reb: OK, but give me an example so I know what to look out for.

Me: Ok, like someone trying to take advantage or use emotional blackmail or manipulate you (us)

Reb: Right, external stuff as we discussed!

Me: Absolutely partner.

I get to go to the gym and don’t carry a stack of crap around associated with not going the gym/eating cake. Since I figured this out (last week) it’s actually been pretty cool seeing this in action although of course this new habit of correctly focussed rebellion isn’t bedded in 100% yet.

Sometimes it’s not more positive pressure that’s required but less negative influence – maybe from an area that’s hard to accept.

Who knew I was still such a rebel? I didn’t 😉

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Why is learning to trade so hard?

This post is driven by the following question…

Why is learning to trade so hard?

Pulling together a couple of threads here I hope to add to the discussion and suggest an answer. I’d be interested to hear people’s feedback since it’s a pretty significant question for anyone starting out on this path.

If you’ve not had the opportunity to read it I’d suggest you get hold of a book by Nobel Prize Winner Daniel Kahneman called ‘Thinking, Fast and Slow’. The observant will notice there’s an important apostrophe in that sentence.

For a trader this covers some very, very useful topic like heuristics and biases, the endowment effect, formulas versus intuition and so on.

You know all those ‘pop-psych’ books you’ve read on the tube? Their underlying research may well have derived from this guy and his research partner Amos Tversky (now deceased) who carried out most of the original experiments over the last 40 years.

In the book Daniel explains two modes of thinking with their own strengths, weaknesses and characteristics.

FAST 

This is automatic thinking which operates at a instinctual level with little sense of voluntary control. This could include involuntary reaction to expressions, automatically filling in missing words from songs and turning to find the source of a car back-firing.

SLOW

These are effortful mental activities that demand concentration. Maths, decision making and choices. Trying to remember something or drawing conclusions from complex data… you can see where this is going.

Now the question that I asked earlier is also linked to a second question which really should follow on…

Why is trying to teach other traders so ‘hit and miss’?

If you want to learn anything in life then you find a teacher. This has been the way of the world since man invented fire. So part of the learning to trade ‘journey’ if you will is finding a system, suite of tools or approach that (as many have written) matches your personality… You can spend a long time looking for this.

Now, if there was just one way to trade that would be great – we’d all be done and there would also be one way to teach others how to trade. This is so far from reality that I’ve just seen a squadron of pigs fly past the window.

What are traders teaching non-traders mostly? They’re teaching them setups. If the blah, blah, blah and the x, y, z then it’s time to etc…

What they’re trying (and mostly failing) to do is present a myriad of complex information in SLOW thinking terms because these types of terms can actually be communicated. No wonder learning to trade is so damn hard and teaching people to trade is (maybe) even harder. I’d guess more than half the info is missing!

By the time a trader has actually gotten good (i.e. looked at a f**k load of charts) they’re not operating from this perspective at all. They’re approaching trading from the perspective of FAST – to them it’s all intuitive.

They’ll get asked ‘this trade met all your (setup) criteria but you didn’t trade it… why?’ and I’ve heard examples of this that the best answer given in reply has really been nothing more than ‘it doesn’t look right’.

Yes, you still need rules to avoid doing something really dumb but this still doesn’t bridge the gap between what’s taught and it’s implementation by someone else.

You and me are looking at the world of the market represented as a bunch of charts using our ‘slow’ brain. The guy trading successfully and consistently is looking at exactly the same data with his/her ‘fast’ brain.

This is the difference between pushing a wheelie bin versus piloting the space shuttle. How can the guy in the shuttle explain to the wheelie bin dude what flying looks like? There’s an in-built information chasm here.

So what to do… These are definitely two things I think all newbie traders like me need to accept.

1) It’s just gonna take time. If you’re not able to trade full time (addressing myself here) then it’s gonna take more time than someone who can watch price for 8 hours a day. Week in and week out. Look at charts. Look at more charts. Really deeply and seriously look at charts.

2) Record keeping. Keep records of your trades, your emotions, what the market was doing in general and how you managed a trade. Put as much detail into recording what you did as you can and really investigate all your losers. Really, really investigate your winners.

Case in point is this bunch of tweets from @Trader_Dante on the Twitter losing it about people not keeping records and how it can help or hurt them.

This is cut from TweetDeck so you need to read from the bottom up.

Follow Tom on Twitter @Trader_Dante or visit his site here if you’re interested. I borrowed this as it illustrated a point so emailed Tom for permission to re-post it.

If you don’t keep records then surely, surely there’s no way you can progress other than by accident. No-one accidentally finds themselves piloting a space shuttle. Wheelie bins go out on Thursday nite all down my road though so doing that seems pretty simple.

So there’s my answer. Whatever system is being taught the person teaching it has access to a set of ‘cues from the market that they couldn’t give to you even if their life depended on it.

  1. Record and examine your own trading excursions
  2. Look at a lot of charts – figure out your own ‘cues

Whether or not this progress from ‘slow’ to ‘fast’ encompasses trading psychology is another debate but I think it does. Once the engagement with the market is that unconscious and seamless then I can’t see how negative psychology could interfere with the execution. This is where the oft quoted statistic of 10,000 hours to mastery may well come in.

If anyone else has further insights into how to cross the chasm from ‘slow’ to ‘fast’ thinking I’d love to hear them.

Trading practice – learn it to earn it

That’s possibly too grand a title but I’ll try to explain where that’s come from based on what I’ve been doing recently to improve my trading skills.

What I’ve been doing is ‘trading’ through a lot of historical EUR/USD price data using Trade-Interceptor‘s great charting package.

You can wind back the clock and do simulated trading for free and their ‘Trading Intelligence’ module records all the results and gives you a summary.

Now for a number of reasons I didn’t do any significant amount of paper trading before I opened a trading account. I was fed the line that ‘demo doesn’t count’ and I wanted to get onto the ‘making money’ bit.

This basically proves what an idiot I am. Yes, from a psychological perspective it’s not the same BUT you can still learn an awful lot about how you see the market and the technical aspects of trading before you even begin to throw money about (or away).

If you’re looking at trading you absolutely need to spend time getting familiar as to how the instrument you’re trying to trade actually moves. You’ll also learn what sort of path your equity curve might follow. Here’s mine after 32 ‘sim’ trades.

Just looking at this graph shows a number of different things.

1) I lost 4 trades in a row there. What was I doing wrong?
2) It goes up!! 😀

Trade Interceptors package also give you a bunch of useful summary data…

Key take home points from this are as follows: –

12 Wins (1159 pts) and 20 losses (418 pts) resulting in +741 pts
11 shorts and 21 longs

Delving a little deeper and using excel I found some interesting underlying challenges.

Holding period for winners was 25% more than for losers. In other words I’m holding winners for about 10 hours and losers about 8 on average.

Maybe cut losers earlier? Anyway, the results data I’ve used for this post is also really old but hopefully you get the point.

Once you’ve traded through this sort of thing look for information you can use. In this ‘run’ 16 of the 20 losing trades I had in EURUSD were longs. That’s a really large amount and goes to show I have a long bias – probably attempting to pick the bottom of a falling market 😉

Anyway – this type of analysis is mandatory in my humble opinion and also (for me) long overdue. I hope this helps illustrate a tiny, tiny, tiny amount of what’s actually required to get better at this skill. Practice!

I wrote this post about 8 weeks ago now and realise the following – having done this a dozen more times…

  1. I wasn’t structured enough in what I was looking for/trading/trying to understand about the market when I did this exercise
  2. Be very clear before you start what time-frames/other inputs you’re going to accept
  3. Your ‘success’ rate should theoretically be higher in live trading because you don’t have access to whatever the sentiment of the market was 29 days ago and so on.

Any new or would be traders out there reading this you need to do  a LOT of this type of work and if you decide not to ’cause it’s boring for you and you just want to get to the making money bit then you are a fool… and you know what they say about fools and their money.