Archive for February 2012
In a previous posting, I talked about trading as an art form. I based that statement from my experience as a musician for many years. Trading has more in common with the arts then it has with math and probabilities. The less judgment I can place on myself in my music, the better I’m going to express myself. As a trader, the less judgment I place on the results of my trading, the more likely I am going to be able to trade successfully.
In my travels, I found this article from Dennis Palumbo on Commitment to the Creative Life. In it he talks about the struggle people have in keeping commitments in their working and social life. Now Mr. Palumbo is a licensed psychotherapist and many of his clients are in the creative world of writers, actors and directors but the bullet points he specifically cites are Constancy, Resilience, Fluidity, Openness to Surprise, and Patience. Do these sound familiar? These are the exact same things that I strive for as a trader on a daily basis.
He also mentions that Love is the foundation of commitment and without it the struggle is eventually meaningless. I think this is an interesting thought that warrants future exploration.
I encourage you to read the article. Here’s a quote from it.
“A commitment to the creative life, in the end, means that you accept, with as much grace as you can muster on any given day, its myriad demands and delights, failures and triumphs. Of course, like in any committed relationship, sometimes it seems like you’re doing all the giving.” Dennis Palumbo.
There is a school of thought that says that if you really want to be a profitable trader, you need to have all sorts of methods to trade. Sort of like a carpenter that needs to have a variety of tools to do the job the ‘right’ way. Well, having done some wood working myself and having worked with a few carpenters, I know that a master carpenter has one hammer that he or she uses all the time and only goes to something else if there are extraordinary circumstances to do so.
This thought that more methods means more trading opportunity and, by association, more money, is simply false. More trading MAY lead to more money but it will certainly lead to more risk. The objective of your trading strategy should be to eliminate risk from your trading life.
This article talks about choices from a marketing point of view, but if you think about all the pressure put on retail traders to buy the next greatest strategy, the article is very appropriate.
So when last we spoke about Fear we were in the water with the shark from Jaws hoping to hear the theme song. But do we really need to have a theme song? Don’t we already have internal indicators that take care of that? Before we get into a discussion about Fear, I think we need to lay some ground work.
As humans we are ingrained with the need to have an emotional commitment to all our decisions. For example, deciding what to eat for breakfast is going to require an emotional commitment. Hence, if you are rushed and need to get out the door, the decision to grab something quick can be as “right” a decision as the leisurely Sunday afternoon brunch. If we were to reverse those two decisions, the leisurely breakfast with the quick one, given the same circumstances, we wouldn’t be nearly as happy with our decisions.
The reason the decision feels “right” is because there is something of a greater value that we’re holding up as a standard. Perhaps the quick breakfast is chosen because we need to get to work or we have an important appointment to keep. That holds the greater value and hence we feel good about the decision.
Same can be said for the Sunday brunch. The desire to take some time for ourselves, perhaps spend it with friends and family, or we’re simply tired of too many quick breakfasts, is the greater value that we are holding dear. Either way, each decision has the feel of being “right” and we’re happy we made it.
Now I grant you the emotional weight of breakfast is not the same as investing in the market. What we can take away from our breakfast dilemma is an understanding of what is important in our lives and making choices that are in tune with those values. I’ve talked to hundreds of traders over the years and a common theme is the quest for the holy grail of trading. That “thing” (replace “thing” with indicator, software, course, advisory), outside of themselves, that will answer their trading woes. These searches, although profitable for some, typically yield poor results for the individual leaving the trader to take up a new quest in search of a new “thing” (more on that in a future posting.)
My ‘a ha’ moment as a trader came when my focus turned inward on my trading decisions. That the battle for success lies between my decisions and values that I either don’t understand or can’t acknowledge. Our feelings are a gateway to that understanding and acknowledgement. Being aware of those feeling is the first step.
In the next installment, I share my insights about the use of those emotions.
One of my mantras that I share with my clients is that trading is not about the money, it’s about the trade. If we are focused on the money aspect of trading, we’re setting ourselves up for failure. This slide show that I saw in Forbes magazine is a small validation of what I’ve been preaching for quite some time.
To paraphrase the opening slide, making money trading is a result of our decisions, not a reason to trade. Thanks Forbes.
It’s very easy to loose perspective when we’re trading. I know that I can get caught up in the process and start to take myself a little too seriously. I found this fun link and it demonstrates just where we are in the universe.
Take moment from your important decisions about the market to regain some perspective about just where we stand in the universe.
A trader, client and good friend of mine, Tony Ingrassia, came across this curiosity and passed it along. At first glimpse, it seems like one of those paintings that if you stare at it long enough you can see another picture with the picture. Stare at the center dot and the other dots disappear. When you blink or move your eyes, they reappear. Here’s a link to the exercise.
Having stared at this it got me to thinking. What if staring at charts does the same thing. How many times have you stared at your charts and gotten in a trade to immediately regret it because you now see something that you didn’t see 5 minutes before? As traders, are we experiencing our own version of Motion Induced Blindness?
Perhaps the best way to avoid this type of blindness is to simply look away from our computer screens. Before we commit our money to the market, we get up, walk to the kitchen, pet the dog, get a drink of water, and then come back to the charts to see if that great opportunity is still there. It might save some valuable heartache not to mention money to give ourselves the chance of a second look.
I started learning about myself and who I wanted to be when I decided to make music a full-time profession. I was in corporate America during the dot Com era of the early 90’s. After the 3rd computer sales organization closed on me I took a very hard look at what I wanted to do with my life. I had dabbled with music as a side line for a number of years and decided that now was the time to get serious about my craft.
Becoming a professional musician is not for the faint of heart (gee, where have I heard that before?) Going into it I had some romanticized ideas about being a musician and living the musician life. In full disclosure, there were some excellent perks to the gig. I got to play some interesting venues, meet and played with some great players, was the keeper of my own hours and generally had a great time. The down side was that the gigs didn’t always come through, venues were sometimes questionable, audiences were occasionally less than cordial and the money wasn’t always the best.
But through the trials and tribulations of being artistically and financially viable as a musician, I learned some very important lessons about who I wanted to be.
I learned about being in the moment. Not concerning myself with what was in the past and not worrying about what was in the future.
I learned that mistakes are only mistakes if you acknowledge them as mistakes. ‘Mistakes’ became a way for me to express myself in new and interesting directions. Sometimes they worked brilliantly and sometimes they were a complete and utter disaster. More times than not, the only people who could tell were my band mates and my wife.
I learned about not passing judgment. If I walked off the bandstand thinking I stunk up the joint inevitably someone would come up to me and express what a great performance they just heard.
I learned that perceptions are our own personal reality and often have nothing to do with the reality of the rest of the world.
So what do these lessons have to do with trading? Quite a bit. These are the exact lessons I needed to apply as a trader. When I’m asked, “when did you think you ‘made it’ as a trader?”, I have to say it’s when I realized that being in the moment, changing my attitude about ‘mistakes’, not passing judgment on my performance, and realizing that my perception of the market may not be reality were part and parcel to the success of being a trader. These are just as important as having a way of identifying opportunities, proper money management, and risk assessment (more on these topics at a future posting.)
The Art of Trading comes with the practice of these lessons. If a magic pill existed that allowed me to live in the moment, or change my attitude about mistakes, I would buy it in a heartbeat and stock up on the supply. For better or worse, I don’t know of such a wonder drug and therefore have to rely on myself to make those adjustments.
The good news is that those adjustments are possible but they’re not quick and they don’t come without sweat. Those adjustments are going to be a topic of future postings.