Thursday, January 27, 2011

Its impossible to be perfect

I have two passions in my life, trading and golf.

I am completely addicted to both to the point that my wife questions where she ranks in the order of my passions.  While I have found a way to make a living from trading, I consider myself a hack in golf.  Truth be told I am much better than most at golf, but a 16 handicap is nothing special(loving every minute thou). I love to get on the course for a few hours and forget all my issues.  Generally I find golf to be the perfect release from my daily trading routine. The fact that I will never break par is fine by me.  Just like the fact I will never be a mega trader. I do have a hole in one that I can vividly recreate in my mind just like a few home runs I have hit trading. The two activities are quite different physically but the mental aspects are shockingly similar. Lets take a look at a few.

1. Ninety percent of the people will never be any good.
2. Most people quit after realizing it will be hard.
3. The most difficult part of each is the mental aspect
4. Its not the tools you use, but the carpenter who executes the actions.
5. There is no such thing as perfection
6. Emotions determine the outcomes
7. Both are streaky
8. Having a game plan is essential
9. Practice is vital
10. It helps to be lucky sometimes
11. Have to adapt to unforeseen events
12. Over confidence is dangerous
13. Both can be expensive
14. Predominately male
15. Simplicity is usual the best
16. A deep breath will always help
17. Both can be done for a lifetime
18. Greed will cost you
19. There are many ways to achieve success
20. You can talk endlessly about them

I am sure there are many more similarities but I need to go and grab a beer.

The Evolving Trader

Tuesday, January 25, 2011

Obama's chance

The State of the Union(SotU) address is tonight and President Obama has the world's attention.

Obama can take the stage tonight and lead the world not only the United States out of the economical funk we have all found ourselves in.  When Obama assumed the Presidency he inherited a world of pain on a vast number complex  fronts.  Whether one agrees with every policy decision that our government has chosen, you must acknowledge we didn't return to a global depression that many were calling for and we found some footing.

Its been two years of slow stabilization but we as a country find ourselves at yet another crossroad.  The giant sucking sound of capital leaving this country and going to the BRIC countries must be slowed.  If we don't acknowledge the problems (Fiscal)there is a risk that we will forever lose our position as the global leader.  We will be mere puppets of the engines of growth around the globe. One way it could be eased is by President Obama to use (SotU) to speak up and say we now there is a fiscal problem in this country and we are going to meet the challenge head on.  We must ensure the greatness of this country.  I hope not only for my position but for my kids chances in this global economy that he takes action and says the Buck stops here.

Monday, January 24, 2011


I have traded now for almost twenty years and I have seen the best and the worst of myself several times.  Through out my career there have been times when I could do no wrong in the markets. I was able to take confidence in myself at these points and branch out into new ventures with an unbridled passion and a sense that I could do anything I wanted. Then there have been times that I wanted to run away and never trade again.  During these times I have questioned my personal self worth not only as a trader but as a man. I have beaten myself up and torn down all the internal confidence that I had work on for years in a matter of minutes.  The traders mind is a battlefield, and I refuse to be defined by my P+L.

The battlefield is littered with emotions.  There are memories of other traders mistakes and the personal tolls that both success and loss have created.  There are your own experiences that become weaved into your psyche to determine the tapestry that is your career.  What will this tapestry look like when you are done?  How do you know when its complete?  Or will it ever be completed. 

I haven't written this blog for two weeks now because I was in a personal downturn that has challenged my perception of myself.  I initiated a short position in the Euro currency a few weeks ago at 129.50 with the idea that the Euro was on its way bellow 120. I had great confidence that I was correct in both my fundamental and technical views. The market started to turn against me and I thought, stick to your game plan and tolerate some pain.  I added to my short at 131.50.  The market now jumps 150 points in a matter of hours and I have a serious loss.  I still think I am right my position long term at this point but I am not happy with myself.  I know as a trader I have two choices now.

1. Take the loss and forget about it
2. Continue to take heat and live within my personal battlefield.

I decided to do none of the above and I added to my position at 133.80.  Anyone who has been paying attention to the market knows I am wrong.  Not only was I wrong my forecast but more importantly I was guilty of a major trading violation of not adding to a loser.

That position has inhibited any possible trading opportunities that may present itself but more damaging has crept into my non trading life.  I have become terrible to live with.  My kids and my wife who are everything to me are mere visitors in my life, I am transfixed to the screen.  I have no tolerance for anyone.  I am desperately searching for anyone to back my original thesis, I pour over the internet reading blog after blog.  There is no help.  All the experts have flip flopped and are now calling for the Euro to keep rallying to 137 or 140.  I still think I am right on the long term direction but my account is screaming your wrong!

I finally take part of my loss at 134.25 but I sit with 2/3 of my horrendous position.  One by one the so called experts are proven correct as the Euro rallies relentlessly.  I ignore my next mental stop loss and the market blast through on its way to 137.  I am not financially ruined because of my position but I am not the same person I was a few weeks back.  I have fought battle after battle in my psyche and I am wounded.  What does my tapestry look like at this moment?

If I asked my family what my tapestry looked like, they would surely describe a rich and intricate technicolor masterpiece.  I on the other hand can only see the two inches in front of my face and the colors are dark and uninspiring.  I will continue to weave because of the love of my family and the friends.  I am incredibly fortunate to have them in my life, especially when I am at my worst.

The purpose that one has in their daily life cannot be defined by dollars and cents.  There is more to life and I am grateful I have a support staff to ensure a rich technicolor tapestry.

The Evolving Trader

Thursday, January 13, 2011

Beyond the pain

I didn't know when I wrote my last post that I was going to be tested as ferriously as I have. I am wrong and I still have my position, which is torturing me at present.  To be completly honest this has been the worst I have traded in a year or so.  The saying that "the market can remain irrational longer than one can remain solvent" is very fitting

Tuesday, January 11, 2011

To the pain

Position trading is a test of how much pain you can tolerate.  No mater what your time frame for your trades there will be tests of your resolve. Even when you have a considerable lead, the market will retrace at some point.  I have found that the markets go to your pain spots.

I believe that the markets job is to screw people out of there money.  One of my favorite movies is the Princess Bride and there is a line in that movie that sums up my feelings on this issue.

Humperdinck: First things first, to the death.
Westley: No. To the pain.
Humperdinck: I don't think I'm quite familiar with that phrase.
Westley: I'll explain and I'll use small words so that you'll be sure to understand, you warthog-faced buffoon.
Humperdinck: That may be the first time in my life a man has dared insult me.
Westley: It won't be the last. "To the pain" means the first thing you lose will be your feet, below the ankles, then your hands at the wrists. Next, your nose.
Humperdinck: [losing his patience] And then my tongue, I suppose. I killed you too quickly the last time, a mistake I don't mean to duplicate tonight.
Westley: I wasn't finished! The next thing you lose will be your left eye, followed by your right —
Humperdinck: [exasperated] And then my ears. I understand! Let's get on with it —
Westley: WRONG! Your ears you keep, and I'll tell you why. So that every shriek of every child at seeing your hideousness will be yours to cherish. Every babe that weeps at your approach, every woman who cries out, "Dear God, what is that thing?" will echo in your perfect ears. That is what "to the pain" means. It means I leave you in anguish, wallowing in freakish misery forever.
Humperdinck: I think you're bluffing.
Westley: It's possible, Pig, I might be bluffing. It's conceivable, you miserable, vomitous mass, that I'm only lying here because I lack the strength to stand. But, then again... perhaps I have the strength after all.
For all the trades I have made in my career, there is a point in each one where I question my thesis. Its this pain that forces traders to except losses in order to save themselves from larger losses.  Its the I can't take it any longer moments that present the best opportunities for trades.  However if you are sitting with either a loss on the original trade or a lesser profit, most people myself included can't participate at that point.  I  am currently experiencing one of those today in the Euro currency.  I initiated a trade on the short side today at 129.19 with a profit target considerably lower but the second I put on the trade on I was presented with a to the pain moment. The market reversed all the way up to my pain spot around 130.
Time will tell if my thesis is correct but those lingering emotions of pain are not enjoyable to say the least.

Tuesday, January 4, 2011

Time frames

What is your time frame? What are your strengths?

As a starting out local in the Australian Dollar pit at the CME in 1992, my primary time frame that I held a trade from start to finish was less than ten seconds. The average volume of the A$ was about 1000 contracts a day, compared to the DMark that averaged dramatically more volume at that time.  The market in the Aussie was inefficient.   This allowed me to exploit an edge. I was a arbitrager mostly at that point in my career.  I essentially didn't trade unless I knew I had an edge, meaning that the resting bid or offer in the pit was out of line to the cash market. That style ended unfortunately.  As the Australian dollar market changed at the CME, more competition came in to drive out the inefficiency that briefly existed. 

My little niche I carved out vanished.  I needed to discover a new style of trade to profit from or leave the trading world.  It was at this point that I had the great fortune to find a man named George(Sandy) McRae.  Sandy had a system based trading model and he took me under his wing and became my mentor.  My time frame began to change from the arbitrage to a blended swing trade/ long term positioning.  I continued to trade the aussie and because of more liquidity in the market was able to scalp trade to take advantage of the short term ebb and flow.

Sandy's system got me to look at the markets in a new light.  I elongated my time frame for my trades as well as learned more markets to trade.  During the learning process I made mistakes but Sandy never beat me up for the mistakes.  He did point out why I was wrong and how not to make the same mistake again.  He also took ownership when his system didn't work.  As I learned Sandy's system, I discovered what my strengths were and what time frame worked best for my personal style.   It turns out that I was a macro thinker.  I saw things in the market that others didn't see yet.  Sandy got me to believe in my ideas and help me manage those macro ideas.

While I have continued to at times to trade markets on shorter term time frames, my historical P&L proves that my strengths lie in taking long term trades.  I have gotten lulled into the belief that I could profit as a short term trader.  However as soon as I get that feeling, I am humbled by the market. When I trade short term my emotions have usually gotten the best of me.  I have made so many trading mistakes over the years and at times refused to except they were mistakes and made them again and again. 

Except your weaknesses and work on your strengths.  If you let your weaknesses define you as a trader you are done for as a trader.  If you can identify what time frame and style work for you the best, put all your efforts into building on them.  You will be much happier and more successful focusing on what you do well rather than mentally beating yourself up for the weaknesses that you have.

The Evolving Trader   

Thursday, December 30, 2010

George Costanza Rules

Trading is hard, there I said it.

The markets are very humbling at times.  In fact there have been streaks in my trading career where I couldn't buy a winning trade.  No matter whether I went with the trend or bucked the trend, as soon as I placed an entry into the market I was a loser in an instant. It almost seems that the market is waiting for me to make a decision and as soon as I enter the market a secret signal is sounded to the trading gods, the message is lets screw with Dave's head.

These streaks are brutal to ones psyche.  It is very easy at these points to take a bad situation and make it career ending.  While I haven't lost my career during a losing cycle I have made some tremendous trading mistakes that have financially set me back.  What is worse than the lose of money is the loss of confidence. As a trader our biggest asset as well as our biggest liability is our brain.  In order to trade you must make decisions and ones confidence in themselves as paramount.  If you doubt yourself or become timid when a good opportunity comes around you will do damage to your profitability as well as your level of confidence in your decision process.

So during one of these cycles I decided to try something radical, and that was to borrow something from the Seinfeld show.  I used the George Costanza rules for trading to guide me out of this trading rut. For those who don't remember the episode where this rule came from, here is a brief synopsis. George decided that he was a loser in all aspects of his life.  He wanted a better job, a prettier girlfriend, he said every decision he had made through out his life was the opposite of what it should have been.  So to change his situation he was going to go against all his natural instincts.The results were life changing for George, he got that prettier girlfriend and landed his dream job.

If it worked for George why wouldn't it work for me. The joke is at first this plan worked, I suddenly started my next few trades with a profit and closed them out as a winner. I jumped from market to market and kept winning.  Then I started to think again, and the streak ended. 

Using the Costanza approach didn't help my confidence level one iota, in fact harmed it more.  But there was a positive that came out of my trial.  The trial made me look at my game plan, and whether I was executing that plan effectively.   It turns out I was trading like a junkie.  I was trading so often that I never really had a game plan and I was trading emotionally. I was trading my P&L and not the actual trade and was trading irrationally . In further blogs I will discuss the above common trading pitfalls and many more I have seen executed by myself or the 100 plus traders I have backed.

Happy and healthy New Year to all

The Evolving Trader