Tag Archives: emotion

Blog update for November

Well that’s just super… WordPress ate my blog so this is a re-type… hence it’s going to seem curt, short and to the point. I can’t remember the jokes from the first version either but take it from me they were hilarious 😉

It’s been two months since my last post and I’ve pretty much taken my brain out of the whole ‘trading’ subject. Ok, that’s a lie. What I’ve been doing is attempting to re-frame how I think about the sharp end of this topic which is placing and managing trades. This has resulted in me realising a few things about the contents of my own brain which I’ll go into.

Developing non-attachment

Really what this comes down to is that I’m too attached to the outcome associated with an action.

This is supremely ironic because in my day job (project manager) I’m very much at home with making decisions and proposing a course of action. Where I think this falls over in trading is that I’m way too attached to the outcome…

‘Attachment is the origin, the root of suffering; hence it is the cause of suffering.’

In my meditation practice being attached to the outcome of a situation means that you fail to see it clearly. That filter of attachment introduces fear, doubt and uncertainty which makes for sh**y trading decisions. Getting in too early and then getting out too early are big ones for me.

So I’ve spent a lot of time re-framing how I perceive myself when trading. In fact what I’m attempting to do is develop what’s called ‘witnessing consciousness’ which is the dispassionate observation of the ‘chatter’ in your own mind. This isn’t trading without emotion, this is avoiding being triggered by emotions that do arise – think of this as being able to look at yourself doing something from the outside.

This leaves room for intuition/fear/emotion etc. but it means that you’re looking to create a ‘gap’ between feeling and action which is based on trading experience and reason. It’s an attempt to short circuit your screaming monkey brain which is trying to throw pooh at the monitor 😉

Being here now…

I have consistently attempted to push my life forwards and then gotten incredibly frustrated when it’s failed to move at the speed I’d like. I’ve recently realised what a waste of energy this is and my disappearance two months ago was really the result of me throwing my toys out of the pram to go and sulk…

There is no good time to start anything new. Waiting for the perfect moment or opportunity to start doing something is preventing you from starting. The trick is simply to start because inevitably you’ll get there a lot sooner because whatever it is that you want to do will probably take you longer than you think anyway… so just start.

If I’d have waited till I knew everything about exercise and nutrition before starting to go to the gym I’d be in even worse shape now if I’d never have started. As it is – seven years later – I’m in the best shape I’ve ever been and I still don’t really know as much as I’d like about what works or doesn’t work for me. A couple of things I’ve tried recently have paid off but again, this is seven years after I began by puking up trying to run round the local park.

Probably because it’s more cerebral and not physical I’ve delayed really starting to get my head around trading till fairly recently – I have been waiting for perfection when it’s clear that may only be reachable in a few more years. The learning isn’t in the learning, it’s in the doing.

So there needs to be a lot more doing.

Forget about the future

I have literally no idea what my life will look like with respect to trading two years from now. What I do know is that thinking/planning/worrying or being concerned about it now is a complete and utter waste of time and effort.

The thing to focus on is the trade I will place tomorrow, then the one after that, then the next one.

In a number of years (as with going to the gym) I will be able to think back to this point and think ‘Aha! look how far I’ve come’. Being overly concerned with the end goal now is a total waste of time and inhibits my freedom of action/movement.

These three things are the same thing

Fear. Fear of making a mistake whether it is with regards to trading or any other topic. Having some idea that I’m able to get to a point of understanding or ‘completion’ in trading/life is essentially an illusion. As with all things you have to engage in experiences and then learn along the way as part of an iterative process. Had I had less fear/concern about the future I’d have got laid a whole lot more by now too…

In my work life I’ve pretty much had enough of these that I know what works. In going to the gym all this time I’m finally getting there where I know what works for me nutritionally. In trading this comes down to knowing way more theory than learning from real experiences.

So the way forwards is to practice non-attachment, to be unconcerned with the distant future and place one foot in front of the other. Then one day I’ll look up and find I’m at the top of the mountain.

Thanks for all the comments / encouragement over the last few weeks. There will be a number of blogs coming out in the next week with stuff I’ve stumbled over as well as some decent trades too so stay tuned and thanks for your patience.

Searching for the silver lining

This post is somewhat unusual in that it actually contains a chart – whump! (sound of reader falling off chair) and describes a failed trade. That last bit isn’t (currently) so unusual 😉

The silver lining is related to the ‘recovery’ or indeed what’s known as the art of getting out… but before we go there I’ll cover why I thought getting in was a good idea…

Essentially I ‘felt’ that we’d got to the bottom for the euro ahead of the US open and that we should see the cavalry appear to buy back the lows. I didn’t believe there would be a whole heap more selling interest last thing on a Friday…

This was sort of propped up by the super amount of chatter along the lines of ‘OMFG the Euro is going to TANK!!’ which generally gets on my nerves…

It probably didn’t help that I was looking at this on my phone while sitting in a coffee shop. This is never a good idea. At the time I also believed that there would be a short sell off then a recovery – which meant I at least placed my initial stop a thousand light years from my entry.

Now in retrospect what I failed to check when attempting to pull this sort of stunt was the ATR for previous days. We’d moved about 100 points and the previous few daily ATR’s was about 120 so at the very least I was getting in significantly early…

So I got filled at 1.21790 and had to leave what I was doing, move about and get back to work… The next point I have an opportunity to see what’s going on I have one of these moments…

Anyway I’m now pretty much looking to get out of this because the original ‘thesis’ for my trade is very wrong. The only saving grace here is that what I originally believed would happen will still happen it’s just this is going to take me out at/around me entry point rather than at +30 which is what I had originally been looking for

So I’m now ‘happy’ cause while I made a rookie mistake (not checking what the ATR actually was before going into this) I’ve enough experience to ‘know’ that rather than throwing all my toys out of the pram and puke for -20 price should grind back to at/near my entry and I can get out pretty close to even.

There’s a point later where I could have got out exactly flat but I wanted to exit before people started fading the london close and didn’t want to grind out another hour with a potential 30 point loss ‘at risk’ if the market decided to take another leg down. What’s the benefit of risking losing 30 to gain another 5 points on my exit? There isn’t one and I obviously can’t see into the future. If anything this post proves that. LOL

Now there’s all sorts of things I could have done to improve the outcome like adding at 1.2150 but I’m trying to manage this through my phone and generally stick to my (new and on the fly) exit strategy. Adding to losers isn’t on the list of ‘new and wacky things to try‘ especially not on a Friday afternoon when I’ve not done it before.

Or I could have had a stop under 1.2175 but I wasn’t really prepared to do that ’cause I was a little close to the US open bell.

Or I could have closed my trade then got short at 1.21800 but really, by this time I was a bit fried mentally. Worth considering for another time though… Maybe not last thing on a Friday however.

So there you go. I made a mistake, it didn’t kill me, I learned a lot and maybe some of you learned something too (e.g. time of day is important)

While it was a ‘failure’ from a results perspective from an ’emotional management’ perspective there was a marked improvement from previous encounters like this.

p.s. Thanks to everyone for the ridiculous number of views (2000+) related to the previous post which was completely staggering. Your support and interest is essentially what is currently keeping me moving forwards – seriously.

I’m also considering changing the theme/format of this blog but if I go there it’ll be in a couple of weeks time. People don’t seem to like change so I’ll only do this if/when I can find something really sweet/zen looking etc.

Fear and acceptance

I’m going to point out in advance that the following post is possibly a bit long and is an amalgam of a few references. However I hope it will help any newbie traders who’ve hit this point.

There’s a bruise on my forehead from this one kids so pay attention… 😉

Anyone who starts trading and actually wants to succeed has the odds stacked against them on two levels. Number one… They have no idea what they’re doing. Number two… They don’t have the psychology in place that will help them trade successfully. It’s possible that number three is ‘unrealistic expectations’ but I’m not going to go there ’cause I’ll end up on a 20 minute rant about training companies (calm down dear)

So, this week has seen the coming together of some information from a number of diverse sources…

  1. Reading ‘The Disciplined Trader’ by Mark Douglas as recommended by Jimmy Young during his excellent two day FX course
  2. Free online training from Mike (@FtseDay on Twitter who writes an excellent blog here) who basically spent 100+ minutes talking about trading psychology
  3. Japans very own ‘Gone with the Wind’ called Musashi which is a ridiculously long book about the Samurai ideal and the pursuit of perfection among other themes
  4. As mentioned before – 21 weeks of getting my arse handed to me on a plate by the market

The problem I’ve been trying to deal with is basically fear associated with pulling the trigger on trades. It’s clear from the previous post that not having a clue what I was doing (problem number one) has created a certain reticence with entering a position.

But… when I thought about this it didn’t seem ‘enough’ somehow. This issue I’ve been struggling with couldn’t really be held by this one idea as the feeling I was experiencing was too large. So let’s work on the basis that I now have a certain idea about what I’m doing. I’ve spent enough time on the mechanics of how to drive the car but I’m still scared to pull out of the driveway into the traffic… Seems a bit dumb, right?

Mark Douglas’s book has some great insights into trading especially with respect to the relationship between the trader and the market. It also contains some pointers to overcoming issues with trading. He tells it straight and is (imho) more accessible than Brett N. Steenbarger. Anyway I picked up a lot of tips but it wasn’t quite fitting together…

Then listening to Mike (@FtseDay) talking about how he went through the process of learning to trade he said something that stuck in my head which clearly hadn’t penetrated my thick skull before.

It takes a trader to take a loss

Now what that doesn’t mean is that you trade like a moron. What it does mean (to me) is that when you place a trade you accept that it could be a losing trade (obviously don’t expect it to lose) but the key point it that you’re not afraid of it failing to meet your expectations. Or if you happen to be a Samurai you’re not afraid of the other guy cutting you into tiny little pieces – lol

The samurai ideal was crystallized in the legend of Musashi who sought to become the greatest living swordsman by eradicating his fear of death so that he was able to fully commit to every action/movement in each battle to defeat his opponent. In the story he gets to a point where he realises every conflict is actually a battle with himself and the enemy acts as nothing more than a mirror.

Also this isn’t about abandoning hope but a complete acceptance of the reality that the trade will go your way (profit) or not (loss) without you being attached to the former or fearful of the later outcome. It should go without saying that you’re only going to place trades that meet your other criteria for a ‘high probability of success’ trade!

What’s pointed out in Mark Douglas’s book is that fear very much restricts the brains ability to gather, weigh, and process all the information available. Being afraid is not a state of mind that allows you to calmly consider all the options. Tunnel vision isn’t a good state to trade in! If you’re afraid then you’ll miss vital information. Calm is the order of the day.

What I resolved to do and actually did on Friday was put a trade on, accept the outcome of the trade in advance and then leave it to play out. All the usual OMFG nonsense about putting the trade on, watching it going (for/against) and then putting the stop too close or closing it out for a loss only to watch it reverse… none of these things happened to any great degree internally. Overall my emotional state was detached, un-afraid and interested.

I managed the trade without my lizard brain freaking out in the background… Much better!!

I put my stop in a logical place, I had a take profit target and I was able to calmly think. In fact I realised that my reason for entering the trade wasn’t actually playing out and was totally invalidated by the time I got out.

I closed the trade for a tiny loss by patiently waiting rather than panicking out for a 20+ point loss. Funny that my lack of trading experience defeated me on this occasion rather than crappy psychology!

  • Bad trade + bad psychology = massive / possibly irrecoverable loss
  • Good trade + bad psychology = still possible lose / possible small win(luck?)
  • Bad trade + good psychology = possible loss / possible small win(luck?)
  • Good trade + good psychology = possible win / very good win

Now, you can see that new, inexperienced traders or anyone with bad psychology with respect to trading is more than likely going to lose. Yes, you might get lucky a couple of times in the middle there but luck isn’t the basis for any sort of long term success. Relying on luck is called gambling 😉

Being realistic it may well be that only by being in the last category (good trades+good psychology) does a retail trader even begin to have a chance to be successful… and then they’ve still got to get everything else about trading right too! You can place a good trade and have good psychology but STILL lose due to some un-foreseen news etc.

Anyway, next step will be to practice the mental/emotional approach I took on Friday till it becomes automatic.

  • Examine the trade setup and other factors – reasons to enter
  • Confidence to place the trade with stop/take profit and without fear
  • Accept the outcome and detach from the result emotionally
  • Monitor in relation to my reasons to place the trade (reasons still valid?) not emotions
  • Close the trade at an appropriate point
  • Rinse and repeat for the next few decades 😉

I suspect this won’t be as simple as writing about it but I feel very happy to have made this breakthrough. To quote the great sage “Do or do not, there is no try!’

Redemption

It’s Thursday the 6th of October and today I am a happy trader 🙂

Why?

Well, nothing spectacular actually but I feel a certain sense of achievement.

I began the week on Monday morning long AUDUSD, EURUSD and GBPUSD from about 8am with all finally getting in to profit… Closed the first two just before 9:30am (phew) and then got taken out by the UK trade numbers (-27pts) when I should have closed my position before the news release. I wasn’t paying enough attention otherwise I’d be +40pts up… So I walked away slightly battered and kicking myself for missing this obvious point where I should have closed everything. I’d rather recognise that I wasn’t paying enough attention than blame this on ‘bad luck’. News really matters!

Later in the morning I clawed back 17 pts from another news release by following a better strategy but not before I’d lost another 10pts to entering an idiot trade ’cause I was pissed off. Bad psychology reared it’s ugly head again slightly there though… need to pay attention to that still 😉

Today was good though for a number of reasons. I went long GBPUSD after the BoE announcement and picked up 45 points so am back in profit slightly for the week. This was based on a proper entry strategy and some confirmation so I was also happy to sit out the whole move as the position got into profit. This was a good trade.

Now I’ll be the first to admit these results are not earth shattering overall. However, even with some glitches (bad lizard brain) and Monday’s mistake I’ve continued to make progress as a trader. Of course great opportunities have been missed but I’m really beginning to enjoy the process as much as the outcome.

Today I did good, learnt some more things, I’m content and looking forward to tomorrow

Thanks for reading.

Novice Mistake #1 Trying to catch a falling knife

Ergh… terrible week for me so far based on my shocking results (down >10%) though of course I may be able to pull it all together tomorrow 😉

I present rookie error #1 – Trying to catch a falling knife

This is basically attempting to follow the price down on the basis that it looks like it’s dropping fast without taking anything else into account or actually having a strategy

I’ve now reached a new low psychologically/emotionally having discovered I’ve got the self discipline of a hyperactive teenager with ADHD

Bugger.

Step away from the assumptions!

This has been by far the most challenging blog update I’ve had to write…

Having procrastinated in an olympic fashion for the last three weeks I’ve given myself the deadline (today – Saturday) to get the following out of my brain and into the real world.

Maybe this proceeds an incoming mid-life crisis or is just the symptom of a frustrated trader not taking the opportunities that present themselves.

Not to make light of the facts but really my performance to date does pretty much suck. This has led me to question a number of assumptions about trading (as presented by numerous organisations, books and courses) as well as my own biases and why people take certain paths to try to conquer the mountain.

I apologise in advance for the length of this post. I’d also like to point out in advance that I’m not ‘down on trading’ even though some of what follows might sound slightly negative 😉

It’s been a couple of weeks and of course we’re in the midst of a full on ‘lizard brain’ attack in the financial markets. While I did short the Dow at one point the volatility gave me a significant pain in the neck and I decided to stand on the sidelines 😉

Another reason for doing this has been that I’ve not had the opportunity to watch this type of market before so have very little appreciation or understanding of what’s happening. At the moment I’d reckon that putting my toe in the water could get me my leg bitten off!

Also I’m un-satisfied with how I’ve been approaching trading and have been looking at some ways to improve my overall performance. What’s contributed here is that I’ve been reading the book ‘Thinkertoys’ which outlines some creative and different ways of solving problems.

The main question I’ve been asking myself is: –

How do I become a profitable trader?

Looking at the amount of stuff I’ve already waded through in pursuit of this goal as well as the outlay I’ve begun to wonder if I’m missing a significant piece of the puzzle somewhere?!?!

I’d suggest that 90% of the information about trading, certainly related to technical trading, is pretty much the same or variations on a theme which goes something like this: –

Strategy (entry/exit), Risk:Reward, Money Management, Psychology is all… etc.

Now, maybe I’m being somewhat unrealistic but I still suck at this subject after more than 9 months and a great deal of time, money and emotional investment. I don’t think I’m retarded or particularly slow on the uptake.

Either I’m over-thinking it or my approach is flawed… so I’ve been looking for flaws by asking different questions about what I’ve been doing to see what sort of answers I come up with. Thinking sideways through a problem which encompasses trading but includes some of my own biases and the way I approach life/finances in general.

Let’s take a step back from strategy, entry/exit etc. and the specifics as I try to break this down into easily manageable pieces.

In it’s most basic form a ‘trade’ is an idea. If I’m shorting the FTSE then my ‘idea’ is that confidence is leaving the market, people are moving their money out of stocks into safer havens (cash/bonds) and the index as a whole will fall.

Now, here’s another question… How can I be certain my idea is correct? In other words when I enter a position how do I know what my odds are that the position will come good? What is my percentage chance of being right? If you are a professional card player then you will know the odds. How is it possible to take a trade and decide based on the odds what amount of capitol to risk if you don’t know what your odds are?

Here’s where I believe there’s a significant issue with the information that exists out there in the land of trading education… Very few trading strategies seem to be taught or promoted that include data about their relative level of success (win/loss ratio) in a given market. If we define ‘retail traders’ as people with <£10K in a trading account then it’s no wonder that 80% (average figure I’ve heard quoted) don’t make any money!

They (and me) are tossing a coin in the air.

Now in an earlier post I mentioned that Richard Farley had spent some time looking at ‘trend following’ and calculated the odds are 55/45 in favour of this type of approach. I’d like to have at least an idea of the chances of being right in a given set of circumstances before placing a trade. Am I asking too much?

Back to the idea – again, making it as simple as possible… Shorting the FTSE based on a bunch of technical indicators (moving averages, trend lines, broken support or pick something more esoteric) implies that you believe confidence is lacking and buyers are leaving the market.

Let’s look at it another way… Going short because the 50MA crosses under the 200MA isn’t strictly following an idea. It’s more like following a cue for action based on a number of other ideas which are collected together and the symptoms result a chart on which the price is dropping/EMA cross over.

If you do this then you’re not trading based on the primary idea (cause) but on the effect or result as described on a chart.

Doing anything when you’re one step removed from the primary data means there’s a lot of room for error and miss-interpretation. You’re going to always be playing catch up with the market. It’s certain that more informed parties are acting on information you don’t have access to and your action is happening right at the death of a particular move.

Here’s the leap… Using only technical indicator movements to trade from charts (as most ‘retail’ traders do I think) is hoping that you have the the ability to judge the prevailing wind about a stock/index in the moment when you’re divorced from the idea that is already driving the price in a certain direction.

Now, this is where the argument breaks out between technical traders and fundamental traders and I’m going to attempt to avoid engaging with it too much except to say that if you have an idea you want to base a trade on which is backed up by a good chart then I’d suggest that it’s more than likely your trade will work out.

If you have an idea based only on a technical trade setup without understanding the environment it will be less likely that your trade will work.

Here’s why I think ‘retail’ traders rely so much on and are emotionally attached to technical trading (charts) and indicators… It’s an excuse to trade in a lazy way without having your own ideas about the world and what’s going to happen.

Talking to people about charts, Gann, Elliot waves and Fibonnacci turns something that is rather pedestrian into something different, difficult and challenging. It also means you can hint at a ‘magic’ formula which needs to be understood in order to actually come good as a trader. This makes ‘selling the mystery’ of trading good business 😉

Now, let me emphasise here that I’m not going to suddenly stop looking at charts! I reckon they’re extremely useful to help visualise what’s happening but expecting to make money from a technical system without reference to context is (I think) unlikely to come good.

Phew!

Here’s an example… I believe that economic and social conflict will escalate in the US during the next decade driven by the disparity between the rich/poor, the failure of the US government to lead, politics moving from debate to fixed faith in ‘fact and sound bytes’, competition for resources and disillusionment fuelled by unmet expectations.

This will be further compounded by China’s expanding sphere of influence driven primarily by having to secure the resources it needs to ensure internal social unrest is kept to a minimum. The communist party will try to maintain control through creating happy citizens who are economically better off.

Ironically they are now pursuing the model that the US has followed in the last 60 years but maybe they can avoid the hangover that the United States is currently experiencing 😉

Now, there are a whole bunch of trading ideas here. Long companies making riot gear, CCTV or providing security services. Find a way to invest in companies specialising in exploration for resources. Invest in sectors engaged in or producing the ‘shiny thing make it all better’ products of the future for a growing Chinese consumer base…

I’ve not looked at a single chart yet but I feel more confident about these ideas because these are backed up by beliefs rather than some technical voodoo (sorry, overstating the technical downer there a little!)

When financial confidence melts down then perfectly good companies also get punished – Google dropped last week and they’re an amazing company (IMHO) so it’s obviously important to pay attention to the environment.

So… Ideas? There are probably millions of them.

I’d not posted anything for two weeks because I was really having a quiet moment to look at what I was doing. As with many things in life you then stumble onto something that helps turn the tiny spark of an idea into something concrete…

When did this change of thinking really come into focus?

See my next post – Ooh! Cliff-hangar!!

A glimmer of hope

Note: I’m not suggesting anyone do the following. It ‘kinda’ worked out but a test group of ‘1 trade’ is not statistically significant in any way 😉 so I need to find some more opportunities to do this.

This last week, following my sojourn in a field in the Welsh hills, I’ve been trying to appreciate the small things in life more than usual and to just bloody well relax.

We all run around like freaking lunatics half the time worrying about all sorts of things that are frankly a complete waste of energy. I’m not going to make any attempt to link anything metaphysical to trading 😉 but it’s been great to take some of the mental pressure off myself and just re-examine what I’ve been doing. Looking at a couple of things with fresh eyes and a more chilled perspective…

Now, I’ve not had any significant ‘lightbulb’ moments but I have come to a new respect for RSI divergence. No, it’s not happening all day/every day for everything however when it happens (and you spot it) then it’s worth paying attention to…

On this basis I was looking at a bunch of stocks (yes, you read that correctly) because IG Index Advanced Charts has a module in it called ‘Pro Real Trend Detection’ that will filter instruments against mechanically generated support, resistance and other pattern criteria. This is still supposed to be a business and manually wading through hundreds of charts isn’t a good use of anyone’s time.

I’d seen a number of interesting results from RSI divergence. In truth I’ve probably read at least three books that highlight this as useful or at least something of significance and I’ve probably ignored them all 😉

However, with my slightly more relaxed mind I’ve been spotting these more and more often… So girding my loins, grabbing my 1 hour chart and a suitable candidate I plucked up the courage to go long on Wolseley (WOS) somewhere mid-Tuesday afternoon. There’s a 4pt spread off 1800 points so not bad at all plus the down-trend seemed to have halted forming a pretty solid ‘base’ under which to plant my stop.

If anyone’s under the impression I know what I’m doing go to my results page then keep reading. Just thought I better point this out before I continue… clear? Good.

Now in the trade but relaxed about the whole thing. Committed. Number of other factors in my favour…

  1. Price has got down to 6+month low from previous resistance in Nov 2010 – should provide some support now
  2. Price fall has not dropped below 1812 all day on the hourly chart
So on this basis I’m in long at 1834 and the following morning WOS gaps up >10 points and end the day with me +46 which is sweet. Now I, more than most, appreciate examples after the fact are completely sod all use to anyone so the rest of this post will not bang on about RSI divergence and how it’s the answer to my trading woes so far 😉

There are probably a stack of other technical and possibly non-technical reasons why this entry worked that I’ve not looked at yet. Maybe the 200 EMA got hit, maybe there was some news release or some other reason I don’t know about.

What I will say though is I’ll be looking for more opportunities like this to check which criteria (levels/price action/others) result in creating similar successes. Watson! The games afoot!

The bit I got wrong (again) was my stop management.

Having seen a +40point gain at the end of the day I moved my stop to something like +18 above my entry. Retrospectively this was due to lack of emotional management and wanting to bank something. I didn’t consider the context of what I was doing.

All prices retrace and I’m going long at the bottom of a six month low. So I’d assume that there are people desperate to get out of their positions but looking to claw back at least something before getting out. Had I personally not been greedy or anxious I could have put my stop just a point above my entry, been in ‘profit’ (psychologically), survived the retracement drop and been >60 points up the following day rather than getting stopped out about +18 as well as still being in the trade with a good ‘buffer’.

Hindsight is awesome. However the main point being is that even with my new found appreciation for green hills, rolling countryside and inner calm I still managed to get too ‘graspy’

Slight detour back to the RSI divergence point on Gold in the last few days…

Ok, so you could also make the point that 1580 is the new support but this is also backed up by RSI divergence too… Hence, a glimmer of hope 😉