After a great win streak, it is always good to sit down and review the top priorities.
1. Money Management
It is easy to think that you are invincible after series of wins. Winning can be due to the fact that
your style matches with current market context, improvements in your execution, and sometime just luck.
However, never forget your sole goal as a trader... TRADE WELL.
Focusing on becoming a better trader, managing risk well, understanding market better, and better emotion control... Then winning will take care of itself in the long run.
Don't rush. Don't raise trading size. Just focus on the task list as always.
2. Right Expectation
We often raise expectation of ourselves and market after good run.
Pressing too hard and expecting to make more can be mentally very harming.
Keep study goals high but return expectation low will keep a developing trader in a good shape.
3. Learn from wins
When you lose, you should not lose the lesson. Same applies to winning trades.
You can always find the good portions of what you did good, rewind and replay it, and make it
part of you for the future.
4. Reduce Size
This is linked to the first priority. I often find it is good to reduce size to 1/2 to 1/4 of your normal size.
It will make sure you don't get over excited, and keep in sync with market context.
Another way is to diversify the instruments you trade.
It is not about how much money you can make in the short period of time.
It is about how much you can KEEP in the long run.
Wednesday, April 4, 2012
Tuesday, April 3, 2012
Vital Components of Open Trade Management
There are a lot of techniques in play in open trade management.
Based on my experience, they make a huge difference in terms of trading results.
On the fly, in the face of non-stopping flow of the movement of instruments,
interweaving with news and events hitting the wire, how to manage your open positions can be very intense. Not to mention that changes your account balance.
Four important skills to train:
1. Initiative profit taking
Don't passively waiting for your target to be hit.
set a target zone and scale out.
Expecting to exit at precise top/bottom can be poison to traders.
If you hold that unrealistic expectation, your mind is anchored to some precise location.
If you miss it, chance is, you will want to wait for it for too long till you are wrong.
2. Exit before stop get hit
Before you build position, you need to have conditions attached to your positions.
When X happens (or does not happen) at Y time, then you will exit or reduce.
Waiting for stop getting hit and proven to be totally wrong is mentally damaging.
Often you will miss the time to re-evaluate market and good chance on others,
not to mention the extra loss.
3. Multiple Strikes in planned direction
Depend on multiple timeframe analysis, you can get a good idea on the rhythm of different groups of market players. Thus making odds in your favor.
Enter/Exit positions (partially) multiple times can reduce your mental stress and improve the winning.
Don't sit still unless it is proven strong trend in the making. 80% of time market stays in range.
Striking multiple times reduce your risk to a large extent.
Improving your entry price in this way will keep you in the right trend without too much cost of mentality.
4. Mentality of re-entering position
Wanting/Planning to enter and re-enter your positions is different from actual EXECUTION.
Often it means re-enter an instrument which you have win or lose money on.
Neither case is easy.
After winning on one instrument, you will get torn between two opposite feeling depending on your personality. One is that you are afraid of it taking back your gain. The other one is that you worry that you are too confident and become careless.
After losing on one instrument, you will have flashing memory of past losing on same thing again and again.
All the right mentality comes from your training. When you are in the market, you always focus on the basic sizing rules, patience to control entry, open positions. And most importantly, treat it as another new trade. Nothing more, nothing less. Just one trade. Win or loss, as long as it fits in all your trading criteria.
Training makes all the difference, but it is easier to say than to do.
Based on my experience, they make a huge difference in terms of trading results.
On the fly, in the face of non-stopping flow of the movement of instruments,
interweaving with news and events hitting the wire, how to manage your open positions can be very intense. Not to mention that changes your account balance.
Four important skills to train:
1. Initiative profit taking
Don't passively waiting for your target to be hit.
set a target zone and scale out.
Expecting to exit at precise top/bottom can be poison to traders.
If you hold that unrealistic expectation, your mind is anchored to some precise location.
If you miss it, chance is, you will want to wait for it for too long till you are wrong.
2. Exit before stop get hit
Before you build position, you need to have conditions attached to your positions.
When X happens (or does not happen) at Y time, then you will exit or reduce.
Waiting for stop getting hit and proven to be totally wrong is mentally damaging.
Often you will miss the time to re-evaluate market and good chance on others,
not to mention the extra loss.
3. Multiple Strikes in planned direction
Depend on multiple timeframe analysis, you can get a good idea on the rhythm of different groups of market players. Thus making odds in your favor.
Enter/Exit positions (partially) multiple times can reduce your mental stress and improve the winning.
Don't sit still unless it is proven strong trend in the making. 80% of time market stays in range.
Striking multiple times reduce your risk to a large extent.
Improving your entry price in this way will keep you in the right trend without too much cost of mentality.
4. Mentality of re-entering position
Wanting/Planning to enter and re-enter your positions is different from actual EXECUTION.
Often it means re-enter an instrument which you have win or lose money on.
Neither case is easy.
After winning on one instrument, you will get torn between two opposite feeling depending on your personality. One is that you are afraid of it taking back your gain. The other one is that you worry that you are too confident and become careless.
After losing on one instrument, you will have flashing memory of past losing on same thing again and again.
All the right mentality comes from your training. When you are in the market, you always focus on the basic sizing rules, patience to control entry, open positions. And most importantly, treat it as another new trade. Nothing more, nothing less. Just one trade. Win or loss, as long as it fits in all your trading criteria.
Training makes all the difference, but it is easier to say than to do.
Monday, March 26, 2012
Importance of Emotional Bank Accounts
Stephen Covey started the concept of "emotional bank account" in his book to describes the trust that's built up in a relationship.
Another type of emotional bank account is our own personal account.
Are we aware that we are depleted of our own account, when we try to fill others?
Very often, we try to give to others but we fail, because we are empty.
How we talk to ourselves? How we manage our mind? How we manage our emotions? Fear, anxiety, stress, criticism, anger, self-blame?
You must achieve private victory (your relationship with yourself and your mind) before you can achieve public victory with others.
Another type of emotional bank account is our own personal account.
Are we aware that we are depleted of our own account, when we try to fill others?
Very often, we try to give to others but we fail, because we are empty.
How we talk to ourselves? How we manage our mind? How we manage our emotions? Fear, anxiety, stress, criticism, anger, self-blame?
You must achieve private victory (your relationship with yourself and your mind) before you can achieve public victory with others.
Sunday, March 25, 2012
Don't waste your time
“Time is really the only capital that any human being has, and the only thing he can’t afford to lose.’” – Thomas Edison
I've seriously started to reflect about time management lately. How I can improve the quality of work and life by more effectively using my time.
Multitasking is one thing I am doing. When I run in gym or doing household work, I start to listen to audiobooks and podcasts. It makes tasks more enjoyable.
With the time saved, I can balance out different aspects of life a little better.
Here is a handy iphone tool to track your time to get more conscious about of the time spent.
http://itunes.apple.com/us/app/atimelogger/id358979305?mt=8
I've seriously started to reflect about time management lately. How I can improve the quality of work and life by more effectively using my time.
Multitasking is one thing I am doing. When I run in gym or doing household work, I start to listen to audiobooks and podcasts. It makes tasks more enjoyable.
With the time saved, I can balance out different aspects of life a little better.
Here is a handy iphone tool to track your time to get more conscious about of the time spent.
http://itunes.apple.com/us/app/atimelogger/id358979305?mt=8
Attitude toward trading and life
Back to some light writing as I can...
Helen Keller once said,
When one door of happiness closes, another opens; but often we look so long at the closed door that we do not see the one which has been opened for us.
Often we regret about the bad trade and decision we made. We loathe the mistakes.
We put our emotion and focus into blaming ourselves or any outside force.
But we ignore two important things: learn from past and stay focused on the present and the future.
Ironically, when we beat up ourselves about the past, we reinforce the bad cycles... unless we have a new solution and work consciously toward the new ways to deal with the problem.
So is our life.
Helen Keller once said,
When one door of happiness closes, another opens; but often we look so long at the closed door that we do not see the one which has been opened for us.
Often we regret about the bad trade and decision we made. We loathe the mistakes.
We put our emotion and focus into blaming ourselves or any outside force.
But we ignore two important things: learn from past and stay focused on the present and the future.
Ironically, when we beat up ourselves about the past, we reinforce the bad cycles... unless we have a new solution and work consciously toward the new ways to deal with the problem.
So is our life.
Tuesday, September 20, 2011
How to get out of a trading slump?
From time to time, it will feel like nothing is working.
How to get out of the trading slump?
To be written...
How to get out of the trading slump?
To be written...
Monday, September 19, 2011
Play good defense or good offense?
In trading, just like sports, one question keep coming to us is, shall we play good defense or good offense?
No easy answer. To be written....
No easy answer. To be written....
Friday, September 16, 2011
How to stay flexible and unbiased?
I have been always facing the challenge to deal with bias due to existing positions or previous trades.
Recently I had homerun on short swing, so in recent week I tend to hold short longer, turning profit into loss because I was right on 5min timeframe but wrong on 30min timeframe.
Bias due to recent trades or existing positions are very common, at least to me. The moment I become all cash, my mind immediately turn to much sharper mode and can read the market flow much more clear. And I can start to hit orders with better execution.
A lot to learn as always...
Recently I had homerun on short swing, so in recent week I tend to hold short longer, turning profit into loss because I was right on 5min timeframe but wrong on 30min timeframe.
Bias due to recent trades or existing positions are very common, at least to me. The moment I become all cash, my mind immediately turn to much sharper mode and can read the market flow much more clear. And I can start to hit orders with better execution.
A lot to learn as always...
Thursday, September 15, 2011
Risk tied to individual stocks
UA had a takeover rumor by Nike, which is denied this morning.
But looking back, this is substantial risk to hold individual shorts (or longs) overnight.
Wednesday, September 14, 2011
Market in massive range mode for DT
By looking at the market and reactions in all sectors, market is in massive range mode.
DT and short term trading are best approach at this point.
It is hard to believe retailer stocks such as FOSL UA would come back to range top. short ruthlessly again...
(update after market close: today totally wrong about the market direction. covered with loss in the middle of day)
DT and short term trading are best approach at this point.
It is hard to believe retailer stocks such as FOSL UA would come back to range top. short ruthlessly again...
(update after market close: today totally wrong about the market direction. covered with loss in the middle of day)
Tuesday, September 13, 2011
Shall we feel safe?
Merkel bids to quash Greece default talk is today's headline.
But is it trustworthy? EUR AUD GBP are in break down mode again realtime.
Looking at the whole landscape of market, a lot of momentum stocks and leading stocks are not showing much fear AT ALL.
Either this is still a good bull market... Or, it is much worse, the market has NOT materialize the fear yet.
My experience tells me, even in bear market, LONG stocks can still be very profitable, but you have to watch out for sudden and fierce downtrend. Usually those are:
1. Gap down caused by EUROPE
2. Open Hour Drive Down
3. Afternoon Drive Down
It is easy to understand. They are gap and two volatile intraday sessions. Learning to escape from sudden bearish moves, then 80% of time you are safe.
But is it trustworthy? EUR AUD GBP are in break down mode again realtime.
Looking at the whole landscape of market, a lot of momentum stocks and leading stocks are not showing much fear AT ALL.
Either this is still a good bull market... Or, it is much worse, the market has NOT materialize the fear yet.
My experience tells me, even in bear market, LONG stocks can still be very profitable, but you have to watch out for sudden and fierce downtrend. Usually those are:
1. Gap down caused by EUROPE
2. Open Hour Drive Down
3. Afternoon Drive Down
It is easy to understand. They are gap and two volatile intraday sessions. Learning to escape from sudden bearish moves, then 80% of time you are safe.
Keep it Simple ?
My friends all know I am very verbose. :). It does not necessarily mean I am confused though.
I name everything with a nickname. For every thought we encounter in trading, I try to find similar example in real life.
For all these I do, I seek simplicity.
All my setup sums into follow categories:
1. Trend Following
2. Range Fade
3. Range Break (start of a trend)
4. Market delay (I've talked in previous blogs)
Sounds easy, isn't it?
Reality sucks. The most difficult thing is how to distinguish between trend and range , and detect the potential transition between them. Pretty much all my trading techniques are around this central topic.
In range market, you deploy totally different mechanism that you will be using in trending market.
The only way you can keep things simple is to dig out all the complexities first, in my humble opinion.
I name everything with a nickname. For every thought we encounter in trading, I try to find similar example in real life.
For all these I do, I seek simplicity.
All my setup sums into follow categories:
1. Trend Following
2. Range Fade
3. Range Break (start of a trend)
4. Market delay (I've talked in previous blogs)
Sounds easy, isn't it?
Reality sucks. The most difficult thing is how to distinguish between trend and range , and detect the potential transition between them. Pretty much all my trading techniques are around this central topic.
In range market, you deploy totally different mechanism that you will be using in trending market.
The only way you can keep things simple is to dig out all the complexities first, in my humble opinion.
Monday, September 12, 2011
What you do after a series of good strikes?
Usually what we suggest is, after a few nice run, stop and rest.
However, my experience is that it is usually better to reduce size while staying in the market if condition permits.
To be written...
Power of multiple strikes
The goal of trading is to consistently win with the right risk exposure.
A specific skill that many of us use is to trade multiple times on the right side of trend.
I call that multiple strikes. I like to give everything I use with a nickname.
It helps me to dramatically improve the results. But it is much harder than it seems to be.
More to be written when I am free :)
Saturday, September 10, 2011
Monday Morning Quarterback and 马后炮
In trading communities, we use a negative word toward someone who gives advice in hindsight. Another phrase is "Monday morning quarterback", which is not exactly the same meaning, but whatever.
In Chinese, it is called "马后炮".
There are usually a variation of meanings.
I am going to use "I" below so my friends don't misunderstand me and think I am mocking at any of them. By all means, we are more of less like what I am describing below...
1. I announce I have such and such positions. Then after market condition turns against me, I will claim I did certain things and safely took advantage of market and won, regardless of what the initial plan is.
2. I will often show off what I did in the past. But amazingly, when I start to publicly announce something, 80 percent of them if not all does NOT work. Believe me, that happens, at least to me. Maybe it is only 50 percent of time, but heck it feels like 100 percent.
3. I will give advice in hindsight. I talk about what I should and would have done in the past. Market is full of uncertainty. As Mark Twain said, history never simply repeat, they just rhyme. Hindsight bias is the inclination to see events that occurred in the past as being more predictable than they were before they took place.
There are more variations. But let us look deeper behind all these for now. I am providing objective analysis to this, by the way. Each scenario has the virtue and the evil.
Scenario 1 above, what happens behind scene? What happens to me is, I am drawn to public attentions. Maybe I am good at trading and I need appreciation; Maybe I want emotional support in the lonely trading world; Maybe I just want success. Maybe I did not announce the full plan. Maybe market is too fast and I can not tell others in time. Nothing much wrong with that... However, ego comes in and makes me more concerned about the result. I become less flexible. That leads to performance anxiety, the same type of feeling like going for a speech in the 50k people stadium... The worst that can happen is that we start going down to the path of "false pride and search for glory", the topic which I discussed in previous blog.
What happens to the audience is important to discuss too.
We watch good traders and we start to follow them in hope of making money at least, if not a fortune. Crap, they start to fumble? Even worse? They start to talk about their contingency plan? They start to tell contradictive things? They start to lie? Then the online trading communities become a stage for entertainment and discovery of all aspects of our weakness.
First thing to point out is, we might wrong ourselves in the first place. We should always be independent thinkers and be responsible for ourselves. The tendency to follow others and blame others are the worst habits for traders. Period.
Second thing is, if we just hate "Monday morning quarterback", we might be walking on the wrong path. We all love someone calling sth right for us and helping us to make money. Yes. Make money! Now! We don't want to know how to fish... just freaking tell me where the fish is, and better catch it for me now.
I realized I have covered scenario 2 already, :) so I am jumping to scenario 3. I give hindsight. I love to analyze market after hours, search for perfect plays, and learn how others made home runs.
Over the years it helped me to speed up the learning. I think that is the key to success.
So, I do like Monday morning quarterback. In the meantime, we have to be very careful not to overemphasize the things we learned. Market changes all the time and we have to evolve too. So a good Monday morning quarterback should do a good job.
L Analysis should include:
When: what time and what context
What: which instruments and sectors, what happened, what did I do and did not
How: how it happen? How I managed? How I executed ...
Why: what is the hint and lesson out of this...
The list goes on.
I spend time to review major scenarios every day when I can. It is not an easy task. As far as prediction, I prefer the idea of what I call scenariao- based planning. This is widely used in all fields.
Every once a while, my friends will ask me what do I think about next day's market.
I will simply always say I DO NOT KNOW. What I really mean is, I think I know, I planned for each possible major themes as I can, but I really have no idea.
I predict all the time, but with probability attached. And I especially work hard on the most unlikely scenario that might hurt me the most. Because I know, if I don't get proactive now, sooner or later, I will run into risk of ruin.
Deep inside, we all want an idol to depend on in the volatile market. It reduces our fear and responsibility. We all want to become idol of others too. Man, it feels good to be idolized.
The motives can help us to grow, if we channel our motives and turn them into the true inner strength, instead of false pride.
Again, I disjointly went too far in this blog article. :) But I meant well, my friends.
In Chinese, it is called "马后炮".
There are usually a variation of meanings.
I am going to use "I" below so my friends don't misunderstand me and think I am mocking at any of them. By all means, we are more of less like what I am describing below...
1. I announce I have such and such positions. Then after market condition turns against me, I will claim I did certain things and safely took advantage of market and won, regardless of what the initial plan is.
2. I will often show off what I did in the past. But amazingly, when I start to publicly announce something, 80 percent of them if not all does NOT work. Believe me, that happens, at least to me. Maybe it is only 50 percent of time, but heck it feels like 100 percent.
3. I will give advice in hindsight. I talk about what I should and would have done in the past. Market is full of uncertainty. As Mark Twain said, history never simply repeat, they just rhyme. Hindsight bias is the inclination to see events that occurred in the past as being more predictable than they were before they took place.
There are more variations. But let us look deeper behind all these for now. I am providing objective analysis to this, by the way. Each scenario has the virtue and the evil.
Scenario 1 above, what happens behind scene? What happens to me is, I am drawn to public attentions. Maybe I am good at trading and I need appreciation; Maybe I want emotional support in the lonely trading world; Maybe I just want success. Maybe I did not announce the full plan. Maybe market is too fast and I can not tell others in time. Nothing much wrong with that... However, ego comes in and makes me more concerned about the result. I become less flexible. That leads to performance anxiety, the same type of feeling like going for a speech in the 50k people stadium... The worst that can happen is that we start going down to the path of "false pride and search for glory", the topic which I discussed in previous blog.
What happens to the audience is important to discuss too.
We watch good traders and we start to follow them in hope of making money at least, if not a fortune. Crap, they start to fumble? Even worse? They start to talk about their contingency plan? They start to tell contradictive things? They start to lie? Then the online trading communities become a stage for entertainment and discovery of all aspects of our weakness.
First thing to point out is, we might wrong ourselves in the first place. We should always be independent thinkers and be responsible for ourselves. The tendency to follow others and blame others are the worst habits for traders. Period.
Second thing is, if we just hate "Monday morning quarterback", we might be walking on the wrong path. We all love someone calling sth right for us and helping us to make money. Yes. Make money! Now! We don't want to know how to fish... just freaking tell me where the fish is, and better catch it for me now.
I realized I have covered scenario 2 already, :) so I am jumping to scenario 3. I give hindsight. I love to analyze market after hours, search for perfect plays, and learn how others made home runs.
Over the years it helped me to speed up the learning. I think that is the key to success.
So, I do like Monday morning quarterback. In the meantime, we have to be very careful not to overemphasize the things we learned. Market changes all the time and we have to evolve too. So a good Monday morning quarterback should do a good job.
L Analysis should include:
When: what time and what context
What: which instruments and sectors, what happened, what did I do and did not
How: how it happen? How I managed? How I executed ...
Why: what is the hint and lesson out of this...
The list goes on.
I spend time to review major scenarios every day when I can. It is not an easy task. As far as prediction, I prefer the idea of what I call scenariao- based planning. This is widely used in all fields.
Every once a while, my friends will ask me what do I think about next day's market.
I will simply always say I DO NOT KNOW. What I really mean is, I think I know, I planned for each possible major themes as I can, but I really have no idea.
I predict all the time, but with probability attached. And I especially work hard on the most unlikely scenario that might hurt me the most. Because I know, if I don't get proactive now, sooner or later, I will run into risk of ruin.
Deep inside, we all want an idol to depend on in the volatile market. It reduces our fear and responsibility. We all want to become idol of others too. Man, it feels good to be idolized.
The motives can help us to grow, if we channel our motives and turn them into the true inner strength, instead of false pride.
Again, I disjointly went too far in this blog article. :) But I meant well, my friends.
Friday, September 9, 2011
Power of Delay
One crucial advantage for speculators is to react faster to the big market movement.
Market is not efficient. There are always chain reactions. One wave leads to another. One tier leads to another.
It takes different players different amount of time to react to market.
A good example that I traded this morning is UA and FOSL.
There are a lot of context in play:
*Weak indexes
*Friday before 9/11 plus the warning of attacks
*Weak commodities
*LULU earning and gap down 5% at open
*UA and FOSL small gap down in the morning
I have UA and FOSL short from overnight. I covered a portion at open.
After FOSL fill the gap, I faded with all my strength.
This is the power of market delay. It takes time for the different tiers to move, even for the same sectors.
The delay can be one minute or five minutes or 30 minutes, depending on your strategy and time-frame.
The bottom-line is that we need to have a grasp of correlation between the instruments you trade.
This also comes back to the "power of speed and effort" topic I discussed yesterday.
We make effort, and we gain speed, then we can take advantage of the market delay.
This is probably why a good trader on www.trader1688.com named himself "慢两步“ (2 steps slower).
We think ahead of market, plan ahead of market, but we don't rush into the forest when it is dark.
We act one or two steps late, but not too many steps later either.
Market is not efficient. There are always chain reactions. One wave leads to another. One tier leads to another.
It takes different players different amount of time to react to market.
A good example that I traded this morning is UA and FOSL.
There are a lot of context in play:
*Weak indexes
*Friday before 9/11 plus the warning of attacks
*Weak commodities
*LULU earning and gap down 5% at open
*UA and FOSL small gap down in the morning
I have UA and FOSL short from overnight. I covered a portion at open.
After FOSL fill the gap, I faded with all my strength.
This is the power of market delay. It takes time for the different tiers to move, even for the same sectors.
The delay can be one minute or five minutes or 30 minutes, depending on your strategy and time-frame.
The bottom-line is that we need to have a grasp of correlation between the instruments you trade.
This also comes back to the "power of speed and effort" topic I discussed yesterday.
We make effort, and we gain speed, then we can take advantage of the market delay.
This is probably why a good trader on www.trader1688.com named himself "慢两步“ (2 steps slower).
We think ahead of market, plan ahead of market, but we don't rush into the forest when it is dark.
We act one or two steps late, but not too many steps later either.
Thursday, September 8, 2011
Power of Speed and Focus
I value the speed of thinking a lot. It is extremely important to short term traders.
In the meantime, it can also substantially improve efficiency of swing traders.
Market is not a place for fun. If you are looking for excitement, go to Las Vegas.
At least you get free drinks there. Market is a place full of wolfs and alligators, as an excellent trader said in the Chinese trading forum www.trader1688.com.
Over the years, I accumulated experience on short term trading, especially intraday, through a lot of trial and error. I learned to appreciate how speed can affect trading performance.
I will just talk about speed of monitoring market and absorbing market information. Thanks to the modern technologies, now we have too much access to too much data, news, charts. I am not talking about over- analyzing market and get buries in excessive flow of information. Market sometime is simple, but it is never easy. The moment you step into market, you are competing against market makers, institutions with superior info access and exchange access, and those evil trading robots. So don't pretend you are the smartest ass out there in the universe. Market is a good place to find out all your weakness.
Ok, where am I? Right... Speed of monitoring market. How good are you on analyzing the main themes of market?
At any given moment, time yourself as if you are the reporter of cnbc. How many minutes you need to find out what is going on in the market, forex, bond, commodities, indexes, major sectors. Which groups are leading, which groups are lagging, sentiment, market breadth, technical indicators and support resistance levels, volume, what news are happening ... Try to cut that time down in any way you can. Use your workflow to simply it. Learn to filter out noise. Write tools to do it. I designed my own tools to monitor the market and target to see major moves within 60 seconds. And try to make decisions within 5 minutes if not shorter. Don't get me wrong. I am not talking about overtrading here. If you speed up the ability to analyzing information, it frees up your mind and reduce stress. Clock runs slower.
Today's market is a good example. When ES was making new high at 1203 and NQ was outperforming, between 11.10am and 11.20am i think, some subtle signal was detected. I was basically reading through market sectors every 60 seconds, 10 times nonstop. I was looking at the sentiment, volume, leaders, laggards, non-stop. Could it be noise? Yes. 80% of time. But it was alarming. I slowly added my shorts on index future and stocks. Fading at top and monitoring closely... I was not sure. I set up more limit orders (which was never really filled later).
I know there will be speculators challenging my way. But to me, market is a place of unlimited risk if you don't manage well. Only by speeding up your brain, you can free yourself to execute better.
How we can get there?
First, I hold the belief that talent is 20% born, and 80% trained. More than three decades of academic research showed that a focus on effort, not on intelligence or ability, is key to raising successful kids. After all, raising successful kids are as hard as raising good traders. There are two types of learners, fixed mindset type versus mastery-oriented mindset. The mastery-oriented people think intelligence is malleable and can be developed through education and hard work.
Second, we need a systematic way of training. An easy method my son's piano teacher taught him is to break down the learning into small pieces. Play two measures and repeat many times. Master it before you move on. Professional sports players all do this. The best tennis school in Russia, which produced Safin brother&sister and other outstanding players, don't take kids to competition until years of training. All they do is precise and deep training on basics. You get my point...
Third, grade performance based on the right criteria. Not just money, but on how well you stick to your training plan. I had written "we all need a glorious day" to talk about this. It is about hard work and well-planned practice.
I have always admired great sports players like Federer, Jordan, and Beckenham, ... The list goes on. Federer plays with so much speed, force, and precision. And this Beckenham, man, almost every single time, when needed, he could send the soccer ball into the corner and then gave false hope to England fans. ( I admit that I have some resentment toward him, mainly because my wife still thinks he is cuter than me.)
The superior performance did not come from nowhere. They spent a decade in the training for those moments.
The title of this blog is power of speed. But I am talking about power of focus and effort now. So, enough is enough. Hope you get what I mean. And I meant well, my friends.
Market is not a place for fun. If you are looking for excitement, go to Las Vegas.
At least you get free drinks there. Market is a place full of wolfs and alligators, as an excellent trader said in the Chinese trading forum www.trader1688.com.
Over the years, I accumulated experience on short term trading, especially intraday, through a lot of trial and error. I learned to appreciate how speed can affect trading performance.
I will just talk about speed of monitoring market and absorbing market information. Thanks to the modern technologies, now we have too much access to too much data, news, charts. I am not talking about over- analyzing market and get buries in excessive flow of information. Market sometime is simple, but it is never easy. The moment you step into market, you are competing against market makers, institutions with superior info access and exchange access, and those evil trading robots. So don't pretend you are the smartest ass out there in the universe. Market is a good place to find out all your weakness.
Ok, where am I? Right... Speed of monitoring market. How good are you on analyzing the main themes of market?
At any given moment, time yourself as if you are the reporter of cnbc. How many minutes you need to find out what is going on in the market, forex, bond, commodities, indexes, major sectors. Which groups are leading, which groups are lagging, sentiment, market breadth, technical indicators and support resistance levels, volume, what news are happening ... Try to cut that time down in any way you can. Use your workflow to simply it. Learn to filter out noise. Write tools to do it. I designed my own tools to monitor the market and target to see major moves within 60 seconds. And try to make decisions within 5 minutes if not shorter. Don't get me wrong. I am not talking about overtrading here. If you speed up the ability to analyzing information, it frees up your mind and reduce stress. Clock runs slower.
Today's market is a good example. When ES was making new high at 1203 and NQ was outperforming, between 11.10am and 11.20am i think, some subtle signal was detected. I was basically reading through market sectors every 60 seconds, 10 times nonstop. I was looking at the sentiment, volume, leaders, laggards, non-stop. Could it be noise? Yes. 80% of time. But it was alarming. I slowly added my shorts on index future and stocks. Fading at top and monitoring closely... I was not sure. I set up more limit orders (which was never really filled later).
I know there will be speculators challenging my way. But to me, market is a place of unlimited risk if you don't manage well. Only by speeding up your brain, you can free yourself to execute better.
How we can get there?
First, I hold the belief that talent is 20% born, and 80% trained. More than three decades of academic research showed that a focus on effort, not on intelligence or ability, is key to raising successful kids. After all, raising successful kids are as hard as raising good traders. There are two types of learners, fixed mindset type versus mastery-oriented mindset. The mastery-oriented people think intelligence is malleable and can be developed through education and hard work.
Second, we need a systematic way of training. An easy method my son's piano teacher taught him is to break down the learning into small pieces. Play two measures and repeat many times. Master it before you move on. Professional sports players all do this. The best tennis school in Russia, which produced Safin brother&sister and other outstanding players, don't take kids to competition until years of training. All they do is precise and deep training on basics. You get my point...
Third, grade performance based on the right criteria. Not just money, but on how well you stick to your training plan. I had written "we all need a glorious day" to talk about this. It is about hard work and well-planned practice.
I have always admired great sports players like Federer, Jordan, and Beckenham, ... The list goes on. Federer plays with so much speed, force, and precision. And this Beckenham, man, almost every single time, when needed, he could send the soccer ball into the corner and then gave false hope to England fans. ( I admit that I have some resentment toward him, mainly because my wife still thinks he is cuter than me.)
The superior performance did not come from nowhere. They spent a decade in the training for those moments.
The title of this blog is power of speed. But I am talking about power of focus and effort now. So, enough is enough. Hope you get what I mean. And I meant well, my friends.
Wednesday, September 7, 2011
False Pride and Search For Glory
I read the book of "Trader Vic-Methods of a Wall Street Master" many years ago.
There was one chapter that stroke me most. It talks about the "False Pride".
The ideas/words here are referred and digested from chapter 16 of the book.
False Pride is an illusion that hinders many traders regularly, myself included. And this is why I write this post. So I can look into the mirror and make sure I don't walk down to that path.
False Pride System, wrote in another academic book, consists of "idealized self-image", "the search for glory",
and "neurotic pride".
Idealized Self-Image
Through the use of imagination, we build a fortress against perception of a hostile reality. We create an idealized image of ourselves. In this process we endow us with unlimited power and become a hero, a genius, a saint, a god.
Search for Glory
Self-idealization inevitably grows into a more comprehensive drive called the search for glory.
The need for perfection, neurotic ambition, and the need for a vindictive triumph.
We starts out on the chase for the phantom of glory, but the inner distress is still as great as ever.
The worst element of the search for glory, in terms of the damage and human suffering it causes, is the need for vindictive triumph.
This need for vindictive triumph is inherently destructive, both the the individual with the need and to the people he deals with.
In the search for glory, we are also compelled to act compulsively, with disregard for our best interests, in order to keep intact our idealized self-image.
Neurotic Pride
Driven by the search of pride, we must evade reality on a grand scale. We appear to thrive on admiration,
respect, and blind obedience. We may be generous and charming, especially to newcomers in their lives who offer us further sources of admiration. We may pride ourselves on sexual conquests, on our circle of influential friends, on our unique material acquisitions, and so forth.
We don't accept our mistakes. when a trade goes against us, we blame it on the "stupidity" of everyone else in the market. We claim that we are just one step ahead of everyone else. We are stubborn not only about trading, but also about politics, economics, the nature of relationships, or whatever.
We all have goals in our lives and want to excel. But there is a distinction between true humility and false pride. As a trader, I write this post (in reference to the book) to warn and remind myself to work hard on the path of searching for genuine values and achievements, rather than false pride.
There was one chapter that stroke me most. It talks about the "False Pride".
The ideas/words here are referred and digested from chapter 16 of the book.
False Pride is an illusion that hinders many traders regularly, myself included. And this is why I write this post. So I can look into the mirror and make sure I don't walk down to that path.
False Pride System, wrote in another academic book, consists of "idealized self-image", "the search for glory",
and "neurotic pride".
Idealized Self-Image
Through the use of imagination, we build a fortress against perception of a hostile reality. We create an idealized image of ourselves. In this process we endow us with unlimited power and become a hero, a genius, a saint, a god.
Search for Glory
Self-idealization inevitably grows into a more comprehensive drive called the search for glory.
The need for perfection, neurotic ambition, and the need for a vindictive triumph.
We starts out on the chase for the phantom of glory, but the inner distress is still as great as ever.
The worst element of the search for glory, in terms of the damage and human suffering it causes, is the need for vindictive triumph.
This need for vindictive triumph is inherently destructive, both the the individual with the need and to the people he deals with.
In the search for glory, we are also compelled to act compulsively, with disregard for our best interests, in order to keep intact our idealized self-image.
Neurotic Pride
Driven by the search of pride, we must evade reality on a grand scale. We appear to thrive on admiration,
respect, and blind obedience. We may be generous and charming, especially to newcomers in their lives who offer us further sources of admiration. We may pride ourselves on sexual conquests, on our circle of influential friends, on our unique material acquisitions, and so forth.
We don't accept our mistakes. when a trade goes against us, we blame it on the "stupidity" of everyone else in the market. We claim that we are just one step ahead of everyone else. We are stubborn not only about trading, but also about politics, economics, the nature of relationships, or whatever.
We all have goals in our lives and want to excel. But there is a distinction between true humility and false pride. As a trader, I write this post (in reference to the book) to warn and remind myself to work hard on the path of searching for genuine values and achievements, rather than false pride.
Wednesday, August 31, 2011
Psychological Trauma in Trading
Note: Below text are referenced from http://en.wikipedia.org/wiki/Psychological_trauma
I used yellow color to highlight important words.
In this article, I might be referring to ideas/concepts that I digested from many other books and articles, of which I am not able to directly point out the exact source. Feel free to correct and comment.
>>>>>>>>>>>>>>>>>>
Psychological trauma is a type of damage to the psyche that occurs as a result of a traumatic event. When that trauma leads to posttraumatic stress disorder, damage may involve physical changes inside the brain and to brain chemistry, which changes the person's response to future stress.
A traumatic event involves a single experience, or an enduring or repeating event or events, that completely overwhelm the individual's ability to cope or integrate the ideas and emotions involved with that experience.
Trauma can be caused by a wide variety of events, but there are a few common aspects. There is frequently a violation of the person's familiar ideas about the world and of their human rights, putting the person in a state of extreme confusion and insecurity. This is also seen when people or institutions, depended on for survival, violate or betray or disillusion the person in some unforeseen way.[2]
After a traumatic experience, a person may re-experience the trauma mentally and physically, hence avoiding trauma reminders, also called triggers, as this can be uncomfortable and even painful. They may turn to psychoactive substances including alcohol to try to escape the feelings. Re-experiencing symptoms are a sign that the body and mind are actively struggling to cope with the traumatic experience.
Triggers and cues act as reminders of the trauma, and can cause anxiety and other associated emotions. Often the person can be completely unaware of what these triggers are.
Consequently, intense feelings of anger may surface frequently, sometimes in very inappropriate or unexpected situations, as danger may always seem to be present, as much as it is actually present and experienced from past events. Upsetting memories such as images, thoughts, or flashbacks may haunt the person, and nightmares may be frequent.[6] Insomnia may occur as lurking fears and insecurity keep the person vigilant and on the lookout for danger, both day and night.
The person may not remember what actually happened while emotions experienced during the trauma may be reexperienced without the person understanding why (see Repressed memory). This can lead to the traumatic events being constantly experienced as if they were happening in the present, preventing the subject from gaining perspective on the experience. This can produce a pattern of prolonged periods of acute arousal punctuated by periods of physical and mental exhaustion.[7]
In time, emotional exhaustion may set in, leading to distraction, and clear thinking may be difficult or impossible. Emotional detachment, as well as dissociation or "numbing out", can frequently occur. Dissociating from the painful emotion includes numbing all emotion, and the person may seem emotionally flat, preoccupied, distant, or cold. The person can become confused in ordinary situations and have memory problems.
Some traumatized people may feel permanently damaged when trauma symptoms do not go away and they do not believe their situation will improve. This can lead to feelings of despair, loss of self-esteem, and frequently depression. If important aspects of the person's self and world understanding have been violated, the person may call their own identity into question.
Responses to psychological trauma: There are several behavioral responses common towards stressors including the proactive, reactive, and passive responses. Proactive responses include attempts to address and correct a stressor before it has a noticeable effect on lifestyle. Reactive responses occur after the stress and possible trauma has occurred, and are aimed more at correcting or minimizing the damage of a stressful event. A passive response is often characterized by an emotional numbness or ignorance of a stressor.
Those who are able to be proactive can often overcome stressors and are more likely to be able to cope well with unexpected situations. On the other hand, those who are more reactive will often experience more noticeable effects from an unexpected stressor. In the case of those who are passive, victims of a stressful event are more likely to suffer from long term traumatic effects and often enact no intentional coping actions. These observations may suggest that the level of trauma associated with a victim is related to such independent coping abilities.
End of Quoted text from wikipedia
>>>>>>>>>>>>>>>>>>>>>
Specifically, you should cut your trading and swing holding size to a level that you can comfortably control, according to market volatility. For beginners, I always advise them not to touch small cap and illiquid stocks.
Face your past trauma experiences and review them, you will find gems.
I used yellow color to highlight important words.
In this article, I might be referring to ideas/concepts that I digested from many other books and articles, of which I am not able to directly point out the exact source. Feel free to correct and comment.
>>>>>>>>>>>>>>>>>>
Psychological trauma is a type of damage to the psyche that occurs as a result of a traumatic event. When that trauma leads to posttraumatic stress disorder, damage may involve physical changes inside the brain and to brain chemistry, which changes the person's response to future stress.
A traumatic event involves a single experience, or an enduring or repeating event or events, that completely overwhelm the individual's ability to cope or integrate the ideas and emotions involved with that experience.
Trauma can be caused by a wide variety of events, but there are a few common aspects. There is frequently a violation of the person's familiar ideas about the world and of their human rights, putting the person in a state of extreme confusion and insecurity. This is also seen when people or institutions, depended on for survival, violate or betray or disillusion the person in some unforeseen way.[2]
After a traumatic experience, a person may re-experience the trauma mentally and physically, hence avoiding trauma reminders, also called triggers, as this can be uncomfortable and even painful. They may turn to psychoactive substances including alcohol to try to escape the feelings. Re-experiencing symptoms are a sign that the body and mind are actively struggling to cope with the traumatic experience.
Triggers and cues act as reminders of the trauma, and can cause anxiety and other associated emotions. Often the person can be completely unaware of what these triggers are.
Consequently, intense feelings of anger may surface frequently, sometimes in very inappropriate or unexpected situations, as danger may always seem to be present, as much as it is actually present and experienced from past events. Upsetting memories such as images, thoughts, or flashbacks may haunt the person, and nightmares may be frequent.[6] Insomnia may occur as lurking fears and insecurity keep the person vigilant and on the lookout for danger, both day and night.
The person may not remember what actually happened while emotions experienced during the trauma may be reexperienced without the person understanding why (see Repressed memory). This can lead to the traumatic events being constantly experienced as if they were happening in the present, preventing the subject from gaining perspective on the experience. This can produce a pattern of prolonged periods of acute arousal punctuated by periods of physical and mental exhaustion.[7]
In time, emotional exhaustion may set in, leading to distraction, and clear thinking may be difficult or impossible. Emotional detachment, as well as dissociation or "numbing out", can frequently occur. Dissociating from the painful emotion includes numbing all emotion, and the person may seem emotionally flat, preoccupied, distant, or cold. The person can become confused in ordinary situations and have memory problems.
Some traumatized people may feel permanently damaged when trauma symptoms do not go away and they do not believe their situation will improve. This can lead to feelings of despair, loss of self-esteem, and frequently depression. If important aspects of the person's self and world understanding have been violated, the person may call their own identity into question.
Responses to psychological trauma: There are several behavioral responses common towards stressors including the proactive, reactive, and passive responses. Proactive responses include attempts to address and correct a stressor before it has a noticeable effect on lifestyle. Reactive responses occur after the stress and possible trauma has occurred, and are aimed more at correcting or minimizing the damage of a stressful event. A passive response is often characterized by an emotional numbness or ignorance of a stressor.
Those who are able to be proactive can often overcome stressors and are more likely to be able to cope well with unexpected situations. On the other hand, those who are more reactive will often experience more noticeable effects from an unexpected stressor. In the case of those who are passive, victims of a stressful event are more likely to suffer from long term traumatic effects and often enact no intentional coping actions. These observations may suggest that the level of trauma associated with a victim is related to such independent coping abilities.
End of Quoted text from wikipedia
The above paragraphs is an academic description about psychological trauma.
In my humble opinion, it has profound impact toward trading.
There are many examples I can illustrate. Feel free to comment if you can find any similar experience. Many years ago, I held Nortel stock over earning, back in 2000, I think.
Right after the earning report, it dropped from 65 to 57 or so, sth like that. It has been a decade so I don't remember exactly what happened. But I never forget my feeling. It felt like hell.
I said to myself, damn it, I will never do this again. I cut it. This trade turned out to be one of the
best losing trade I made. Nortel never never looked back and returned to my sell price.
But this trade changed me. To this date, I still have inner fear on holding anything over ER or even overnight. And I mean real inner fear.
It was trauma. If you stay long enough in the market, you experienced trauma, year 2001 internet crash, 9/11, fat finger, 2008, and the famous spx 666...
A lot of experienced investors and traders were traumatized by the volatility of market and never was able to get over it. They basically doubt any bull market from the bottom of their hearts, no matter if it is valid or not.
Many of us still live in the trauma of missing the reversal day of spx at 666. How hard could it be, especially for Chinese. 666 means fortune and luck in Chinese. And this pain never went away for many of us. That freaking reversal day when Citibank announced the news that they actually make money...
We are trading stocks and future, but we are still living in the past.
Uncertainty is an important character of the market. No matter how we plan it, how we TA/FA/PA/...,
it has risk. We can not avoid it. Period. The moment we are in the market, with real money, it creates
stress. Stress is fine. But when stress is fierce in terms of speed and volume, it becomes trauma.
Specifically, it can be but not limited to the following triggers:
1. Over exposure to the market; creating volatile moves of your account balance
2. Gain turning into loss when market takes a sharp turn
3. Wrong timing or hesitation, and as a result, missing a very well planned execution
Interestingly, trauma does not have to be LOSS. EXCESSIVE GAIN can create trauma.
This can be more catastrophic. I've seen myself and other traders get traumatized by excessive gain.
The direct results can be:
1. Trader no longer follow the money management rules. Instead, using excessive size to seek unreasonable profit potential
2. Setting Unreasonable goals and in turn create more stress
3. Not able to follow the risk control when market turns against them
Trauma can dramatically change the way you think, you feel, and you act.
It is articulated very clearly in the wiki paragraphs I quoted above.
I don't have to rephrase it.
What's the solution? I'll probably explore a bit more in future posts on how I cope with trauma.
But the first step is to prevent yourself from exposing to trauma in the first place.
That means "prevent yourself from exposing to excessive risk in the first place".
Specifically, you should cut your trading and swing holding size to a level that you can comfortably control, according to market volatility. For beginners, I always advise them not to touch small cap and illiquid stocks.
After you win a series trades, always cut your size, so that you don't give away all the profit you made. It is not timidness. It is to "prevent yourself from trauma".
Face your past trauma experiences and review them, you will find gems.
That's enough bullshit from me for now :-) I did this nonstop, so please excuse me if I don't make much sense and cause trauma to you. You know I meant well.
What to do when you are almost completely clueless?
Sometime the waves of market can make you clueless.
You will just look at market and say, this is insane. This is not right. This is manipulation. This is casino!
This is EVIL! Well, this is the nature of the market. It can behave irrational (maybe just in your eyes).
What to do other than smashing your keyboard?
First of all, take care of your open positions. If you have some positions, plan for the worst scenario as usual. If you don't have any positions, then life is a bit easier. You go back and dive into the market. Try to find the rhythm and themes of the market again first.
Second, there are the time that's not meant for you to go out for a battle. It might be low volume days, low range days, or inside days. It might be the market themes that is not for your strategy. Market might have changed.
Third, focus on the basic things. Focus on the simple setups that work for you and the simple ideas that you can learn. Use small positions to regain your bonding with market.
There is no need to regret about the chance missed. Truth is, we will miss 90% of opportunities in this non-stop market.
Focus on the small things you can do, one step at a time.
You will just look at market and say, this is insane. This is not right. This is manipulation. This is casino!
This is EVIL! Well, this is the nature of the market. It can behave irrational (maybe just in your eyes).
What to do other than smashing your keyboard?
First of all, take care of your open positions. If you have some positions, plan for the worst scenario as usual. If you don't have any positions, then life is a bit easier. You go back and dive into the market. Try to find the rhythm and themes of the market again first.
Second, there are the time that's not meant for you to go out for a battle. It might be low volume days, low range days, or inside days. It might be the market themes that is not for your strategy. Market might have changed.
Third, focus on the basic things. Focus on the simple setups that work for you and the simple ideas that you can learn. Use small positions to regain your bonding with market.
There is no need to regret about the chance missed. Truth is, we will miss 90% of opportunities in this non-stop market.
Focus on the small things you can do, one step at a time.
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