Tag Archives: feedback

Talent is Overrated

I thought I’d post a review ’cause I’m reading this book at the moment and I’d suggest anyone who is learning to trade should read it. The basic premise is that ‘talent’ is not only over-rated in relation to becoming ridiculously good at something it in fact may not actually exist…

I’m not going to regurgitate examples from the book here (go read it for yourself) but simply state that even genius level performers got there not though some ‘divine spark’ but from deliberate practice and the development of ridiculous levels of domain knowledge.

Students of Chris Lori reading this will understand the point I’m about to make regards exercises/practice.

IF you go about looking at a singular aspect of the market in a structured and logical manner that gives you feedback then you will learn that part of what’s occurring faster and more efficiently.

If you just throw on trades and read books about trading hoping to find some sort of shortcut (and we’ve all been there) you are absolutely not using your time in an efficient manner. You could actually be wasting your time.

The kicker here is what’s called ‘deliberate practice’ and just as the name sounds boring and un-sexy this is what it is and therefore why so few people do it. The number of hours of deliberate practice you do in order to learn a skill are basically what governs your ability in that skill. The sooner you start the better you will be…

So that’s my big lesson for the week/year 😉 If you’re trying to learn anything at all then I’d suggest you buy a copy of ‘Talent is Overrated’ by Geoff Colvin

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Trade 040113

Ah and so to new beginnings… and I’m going to clear this point up right now before anyone reads any further. Post-trade analysis is always 20-20

Which means it’s challenging to put yourself back in the moment when you placed the trade. It’s inevitable that there might well be a lot of ‘coulda/woulda/shoulda’ in these types of posts so I’m open to suggestions as to how to improve them. Comments purely along the lines of ‘that was a shit trade’ are only welcome if you can point me to your blog/analysis/audited trading results.

The intention here is for me to objectively look at what I did so I can wring all the lessons from each experience. If you feel compelled to point out a bunch of mistakes then I’m going to insist you’re not a dick about it. That was a ‘Be Nice‘ warning on behalf of the ‘Feeling Slightly Vulnerable Here’ party. Thanks for your polite consideration.

I’ve started writing this up and have also begun to realise what an awful lot of work I might have let myself in for but lets press on regardless shall we? Need a brew first though!

Trade Thesis – EURUSD

Essentially although there’s been an equity rally the euro has just not gone anywhere the last few days so I’m looking at places to get short. Based on previous observations there’s usually a reaction when price gets back to the days range pre-europe open about 06:00-07:00. in this case that’s around 1.0342 for a short.

M5 Big Picture

So the NFP number came out and it was near as dammit on expectation so there was a steady hitch up to that number. It sat in/around 1.0340 for 10 minutes without getting above 1.03048 so I did get short at 1.03042 as per my plan. Bonus points for sticking to the plan but many negative marks for not being patient enough to wait longer. If I had waited and stepped back from the trade a little things would have been much better.

My rationale for this trade was invalidated by the ‘non-miss’ nature of the unemployment number. The price behavior usually seen at this point was overcome by a larger part of the market seeing am opportunity to buy and I’d avoided an opportunity to look at the bigger picture – which I’ll get onto later. Other participants reading the situation differently meant I was going entirely in the wrong direction at this point.

Couple of execution issues also didn’t help. Firstly put my stop much, much too close to the action i.e. within the previous dealing range rather than outside it… This should have been above two dealing ranges (1.3071?) to give me some protection and I wouldn’t have gotten stopped out.

See the two boxes to the left in this screenshot to really see what I’m talking about.

M5 Big Picture order flow blocksSo with all that in mind here’s the real error from this trade. Let’s remember the retro-active analysis challenge of this type of thinking but the next screenshot is what I had put up yesterday evening when I was looking before all this happened. The box with the red line and the arrow in it was where I was expecting price to get back to before falling further…

M5 YesterdayQuite… I’d basically drawn in a line where price goes right back to 1.3090 area which is exactly what it did do this evening. I got suckered into only looking at a very, very small extract of what was happening and entirely forgot the bigger picture. All I was focused on (unfortunately) was the price in Asia pre-market and the sell off without reference to the higher time-frame.

[Hindsight warning] I should have been buying at 1.3034’s and I’d have had a defined take profit already in play. With some further thought I guess I could well have avoided this but I’m only just coming back to look at everything now rather. Still it was an interesting exercise.

The last screenshot is something I’ve just noticed while writing this which is that when the payrolls number was announced a clear trendline break occurred. Having focused only on the price from this morning without the larger context I made the wrong directional call.

M5 trendline

There you go.

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.

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.

Eating the elephant logically

Question: How do you eat an elephant?
Answer: One bite at a time…

I’ve been taking apart the problem of learning to trade because it finally hit me that my trading practice has totally lacked any sort of structure. All the books etc. talk about finding your own trading ‘style’.

BUT if you just launch into trading it will take you a LONG time to find this because you’re hoping to get lucky and find what works for you by accident

I’m not explaining this very well… OK, let’s try again. As a newbie trader you look at a chart. If you’ve got half a clue you’re also attempting to figure out what the market is doing and why. For FX you might look at other pairs to see which currency might be stronger/weaker versus the dollar. You place a trade based on a setup (1) and it may/may not work… What did you learn? Possibly precisely nothing.

You look at another chart/timeframe and decide you’re seeing another setup (2) that could be a low risk idea. You enter the trade, it does/doesn’t work and go on to use setup (3) but hey you’re trading so this means you’re focussed very much on the result (cash) and not the process of learning anything… By now you’ve forgotten about your experience with setup number 1 or any lessons learned from it. Probably.

Another challenge I have with teaching myself (which is effectively what I’m doing) is that I cannot sit in front of a price chart all day. Why? I’m actually employed full time. So… what is the plan?

Eat the elephant a bite at a time and do 20(+) trades based purely on bounces off support and resistance.

No, it’s not going to be exciting or ‘svexeh’ (see, I’m down with the youff)  but it will mean I will learn all there is (you know what I mean) about one way of entering a trade. When that’s fully internalised I will pick another setup.

I KNOW someone out there will think ‘BORING’ and yes, we’re back at the stage where pre-conceived ideas of what trading is are getting killed. Good. All pre-conceived ideas of what trading is/traders are are wrong anyway… That’s another post title in the making right there.

So here we go… breakdown as follows for learning to trade Setup 1

1. Set an alert for price breaking up/down to a previous level (free SMS price alerts on IG!)
2. IF get an alert go look at the chart.
3. Check that the spike isn’t completely parabolic due to some freak news event i.e. Germany has bought Greece or France has decided to leave the euro 😉 There was at least one of those last week, remember?
4. Enter with a sensible stop (and take a screenshot)
5. THE MOST IMPORTANT BIT… wait at least 25 minutes (my own rule) and manage the trade out
6. Concentrate on picking up as much information from trades that go right as ones that don’t
7. Repeat 20 times – record them all then review how I traded these.
8. Make improvements – do another 20 trades JUST ON THIS etc. etc. etc.

Now, I’m not going to be taking a lot of trades based on this but I sure am going to learn a lot about how price moves in these areas AND how to manage myself in relation to these circumstances.

Some pretty pictures to illustrate what I mean.

I appreciate this probably isn’t a revelation to anyone who’s currently trading profitably and consistently. However it should mean that this high probability, low (?) risk setup becomes properly part of how I trade. Forty of these later without getting distracted and learning from each one, being able to compare them and what happened in/around these trades seems like a logical approach.

Didn’t do this today though due to NFP 😉

Teach yourself to trade – FEEDBACK (part 5 of 6)

So if you’ve read my previous post about adopting some humility you might know that I’ve completely failed to follow this piece of advice myself 😉

It’s a basic rule that if you don’t measure something then it’s unlikely you will improve at doing it… or… if you do improve it’ll be at a slower pace. If you’re not keeping records and measuring the activities you’re undertaking then how do you know whether you’re going in the right direction or not?

In order to have feedback that will help you course correct you need to record what you’re doing.

Rather than use excel I went slightly overboard and am using Filemaker (database creation for idiots) to record what I’m doing. There’s another table linked to this which helps me calculate risk/reward and whether it’s actually a credible trade. Will post this later at some point when I’ve got it all working smoothly.

Apologies for the picture quality. I’m hacking things from PDF’s, through ‘theGimp’ and back into a better size in order to create this.

So this (above) is more like an aim, an ideal, rather than an illustration of what I’m doing at the moment – also – all the crap you see on this chart from 5th May is no longer there…!

This is more like it…

So the moving averages exist just to help me spot trends because I’m still a little retarded when it comes to seeing the obvious. Here I want to see either a bearish engulfing bar back near 1600 to confirm a short or slightly less aggressively a drop through 1516/1500. Or the price could bounce off 1538 again with up-side resistance at 1650/1670… we’ll see. Anyway it’s certainly in a downtrend… probably best look for shorting opportunities eh?!

This is slightly off topic (feedback)! Right, so feedback is insanely important because you need a mechanism to determine what’s actually happening without relying only on your P+L

    1. Your opinion of yourself/abilities isn’t objective. If you’ve read any of my stuff in this blog, tried to diet or committed to an exercise program you’ll know this. My opinion of myself and the fact I’m awesome is unlikely to be totally objective. You will undoubtedly have the same issue 😉
    2. You need to know that you’re sticking to a system before even considering whether the ‘system’ is working for you or not. This probably means 30(?) trades with a single system before you can know whether it’s one you can stick to and if it actually performs in the real world.
    3. Contextual feedback is important – is this trade type working only in a certain type of market? I’d suggest that short trades have maybe a higher likelihood of success in a falling market. Now, actually the only way I would have to validate this idea over the long term would be using some sort of feedback. Gettit!?
    4. Feedback is what helps you learn and get smarter in the long term. It’s what should essentially prevent that bruise on your forehead from getting bigger. My head hurts from banging it against the wall – oh, I guess I better stop that then 😉 For trading I suspect the following is true..
    5. Help you identify personal trends i.e. by doing x,y,z at an emotional level then decision making seems to be more successful. Yes, everyone talks about the importance of keeping a trading diary. Have I been doing it? Nope, not until now! Putting all this stuff into a database seems the most efficient way to keep track of everything
    6. Recording trades and putting everything into a system also means you treat this whole topic as if running a business and not simply having a punt. Businesses keep proper records

Better records = better feedback = shorter learning curve + better ideas for later

Here’s a final feedback analogy to put the final nail in the coffin…

I enjoy going to the gym (weights) and since I started recording what I’m doing, weight (lifting) and how much I weigh my actual results and progress has been double what it used to be when I didn’t pay attention to recording what I was doing. I was in the gym, yes. I was working out, yes. What I wasn’t doing was either of these things at peak efficiency. So I got a bit disillusioned and pissed off as well as tired… I almost gave up…

Get to this point with trading and it may well be game over.

After I started recording what I was doing it was remarkable how quickly things improved. You can go after something with a record of where you’ve been. You’re aware of the pitfalls and things you shouldn’t do. All previous mistakes, trades, gym sessions, whatever are there to learn from.

So, if there’s one ‘secret’ of trading I’d suggest it’s keeping really, really good records of what you’re doing. Now I’ve managed to explain this to myself and convince myself it’s a super idea which will help me get an ‘edge’ I’ll be doing that then 😉