Archive for April 2012
After a busy week of trading and coaching, I thought a diversion might be nice on a Saturday morning. A diversion but still something worthwhile to see.
Many of you know that I made my living as a musician before getting involved with trading and coaching. I’ve written about my experience as a musician and the skills I learned that were incorporated into my trading. What I really like about a live performance is the energy that is generated by players, the ensemble and the audience. Pat Metheny’s Minuano (Six Eight) is one of the best examples of that energy.
Crank your speakers. This is worth it. Enjoy!
People that know me and my coaching know that I’m a big believer in intuition. I’ve written about being in the moment as an important aspect of trading. Some of the best traders rely on that unexplained something that puts their trading above everyone else. One of my favorite stories is that of George Soros and his famous trade shorting the Bank of England. Yes he had a lot of technical and fundamental evidence to back him, but to hear him tell the story, the final call was a gut feeling he had that helped him place nearly 100% of his fund on the bet the British Pound was going to take a dive. He made over $1 billion for his trouble.
That’s the power of intuition. The ability to see beyond the perceived. So how intuitive are you? Would you like to get an idea? This article by Vishen Lakhiani from finerminds.com asks the question How Intuitive Are You?
I took the quiz and scored a 45. There’s room for improvement but I’m pretty proud of my score. What’s your score? Post your score in the comment section of the blog. I’d be interested in knowing.
How many times have we been told that to achieve your goals you need to express them out loud and tell others so that you may be held accountable. Well according to Derek Sivers, professional musician and founder of CD Baby, the best thing to do is keep it to yourself. At this short TEDGlobal 2010 presentation, Derek gives some scientific evidence that telling the world your goals isn’t the best course of action.
In today’s market, with the advent of high frequency trading platforms, it is even more important to clarify the reasons for entering the market. Super computer trading platforms are designed to take advantage of market movement in fractions of a second. The idea is to make $.01 on a stock trade 40,000,000 times. If you think about it, what clearer value could there be for a trading strategy. Tiny profits many times over and over again.
To get a better idea of this, 60 Minutes’ Steve Kroft hosted a segment on the secretive world of high frequency trading. It’s a small peek into who might be on the other side of our trades.
Most marketers of trading methods spend a lot of time telling you how to get in the market. (They also spend a lot of time telling you how great their methods are but that’s a discussion for another posting.) Volumes are written regarding the perfect setup, the perfect entry, the perfect execution of a trade. These approaches treat trading methods like on/off switches. The setup conditions exist means on, if not, off. If you don’t have a setup you don’t place a trade. Although the absence of a setup is a common sense answer to avoid trading, it is not the only reason to stand aside. Once you have a tradable opportunity, now you need to determine if it is a good opportunity.
Since all decisions require an emotional commitment, the need to feel good about a trading decision is very important. There are two ways of accessing a trade’s viability; internally and externally. An internal point of view looks at the trader and their state of mind. I’ll talk more about this in the next installment. Risk assessment addresses the external considerations for qualifying if a trade setup is a good one.
Not all opportunities are created equal. If that were true, the act of trading would be much easier. Hence, in my coaching practice I’ve had hundreds of conversations that sound something like, “I followed the rules, but the trade went against me. The strategy said this was a setup. What did I do wrong? Where did I miss read the rules? Can you explain the trading rules to me again?” Bright, intelligent, well-educated, successful individuals become completely befuddled following a simple set of rules. This is akin to being able to fly an airplane but can’t follow instructions to scramble eggs. It’s no wonder that frustration levels are very high.
Assessing the risk of a trade is vital to your success as a trader. Traders need to be very selective about which trades are worthwhile. This is due to the fact that methods are designed to take advantage of specific market conditions. If the market doesn’t cooperate, then the method is going to fail. The responsibility falls on the trader to determine if this is the right market to trade.
So here are some questions to consider just before you enter the market:
- Is this trade worthy of my money?
- Are there any upcoming news announcements that could affect my trade?
- Does the stop placement and target seem reasonable?
- Are there any historic price levels I need to consider that could effect my trade (i.e. support/resistance, trend lines, price patterns?)
- What is the relationship between my price target (or my expectations for the trade) and historic price action?
At the end of the day, this is your money. The trading method you spent money on or the advisory service you pay a monthly fee isn’t going to reimburse you for bad trades (if one exists, please let me know.) Trading should be about choices in line with your values. The clearer you can be about your choices, the happier we will be with our trading results, regardless of the financial outcome. Better decisions will lead to better results over time, and keep you trading longer.
As a trader and a coach, I believe that it’s not what you use that matters but how you use it. People that have worked with me know that this is kind of a mantra for mine. Thousands of methods and indicators are available to traders. To my knowledge no one indicator stands out exceptionally above the rest.
This due to the fact that the very core of technical analysis is based on what has already occurred. Indicators are built on the same two pieces of past information, price and time. And no matter how we manipulate the past data, we will never know what the future will hold. This leaves us with only one time frame to focus on. The present. The here and now. This is where we can have the greatest impact on our trading results.
I’ve written about being in the moment in previous postings and it’s not always easy. But the ability to be in the moment, to create that space that is optimal for you when you are trading is far more important than understanding how an indicator is calculated. This is why I wanted to share with you this video of Vishen Lakhiani from Finerminds talking about entering a state of Flow. I love the definition he puts forth for Flow:
Flow is the mental state of operation in which the person is fully immersed in what he or she is doing by a feeling of energized focus, full involvement, and success in the process of the activity. It is a state of supreme creativity.
As you watch the video, think about your trading as the business and how some of Vishen’s suggestions might be applied in that business. This is a great presentation.
This time of year, the reasons for which elude me, generates a lot of activity in my house. It’s not the same activity as the traditionally hectic calendar events like Christmas. There is more prep time for the festive holiday season. Usually everyone from October forward reminds you only have so many days of shopping left.
Easter just seems to come out of nowhere. One minute you’re in winter and then, bam, Easter, spring break and Opening Day all happen at once. Perhaps it’s a glimpse into my state of mind more than anything.
I say all of this as preface to the fact that writing has been very difficult the past couple of weeks. So I’m going to put up some interesting posting I found around the web that I would like to share with you. They don’t have anything directly related to trading, but in my world, everything has a connection at some level.
My first selection is the comedian Chris Bliss. He does a juggling finale that is reminiscent of what jazz players do in an ensemble when they solo. Talk about being in the moment. This is great fun to watch.
We’ll get back to our regularly scheduled writing shortly. Have a Happy Easter everyone.