Slow Trader

Tag: Who trades?

  • Don’t fiddle

    I’m sure there are few things that provide more frustration than that of financial trading. The need, that we often have, to make the price on a chart move in a desired direction. We try to move price by will alone. The same as when we see a golfer on the TV try to move the path of a ball after the swing with body language.

    We therefore commit, but constantly fiddle as we go. We do this in sports, we’ve done this in our professional lives – If we do this with our trades we don’t do so well.

    Maybe it’s because we consider price, and therefore the chart, to be predictable and considerate. But the chart is active through the cumulative input of lots of lives, (not true, it’s mostly computers but they’re programmed so stay with me) built-up from inputs from multiples of institutions, agencies and individuals, each making their own interpretation of the outcome of price, working from multiple time frames and criteria.

    Price is therefore without emotion, price does not care about our trade. Self pity about a failed trade is pointless, other than the valuable lesson it generally always provides.

    Moreover, price is a ‘zero sum game’, meaning that price will only move if enough institutions, agencies or individuals are on the other side of the trade to accept the alternative trade, which builds uncertainty.

    Therefore any plan for price that we have is going to seem, at some point or other, more often than not, floored; a pure fantasy. However, if we don’t trade to a strategy then we will be in and out of trades like a jack-in-the-box with small to medium losses that destroy our confidence, our resolve and our account quicker than we think possible.

    So, what is the answer? Well, maybe: clarity, boldness and acceptance help.

    Clarity is clarity of strategy, which means a way to trade that is so clear to us that we’re almost embarrassed to mention its simplicity. Anything more than that is too complicated and unclear to us that we will dither when we need to take a trade.

    Boldness is boldness in our commitment to a strategy. No questions asked. Commit to the risk and no half measures… like reducing (or much worse increasing) the stop position, or exiting before target without good reason.

    Acceptance is acceptance of change. We cannot win every trade. To try to do so clashes with clarity of strategy and boldness and the loop will quickly collapse. Acceptance in our strategy, acceptance that it works most of the time; or at least some of the time.

    And if we manage correctly (rather than fiddle) then that is enough to be profitable.

  • Trade without bias

    “No data yet!….It is a capital mistake to theorise before you have all the evidence, it biases the judgement.”                            Sherlock Holmes

    We’ve previously touched on an issue that: doctors, engineers, solicitors etc may have when they try to trade – and I was no exception.

    For a long time we have, through professional good habit, been comfortable predicting the way ahead based on our experience, good judgement and assumptions.

    In technical trading, however, such attributes do not help. Having a preconceived idea of what the market will do blinds us to reading the market in the moment. Or, as Arthur Conan Doyle wrote, “it biases the judgement”.

    We have previously considered (from Joshua Foer) that a grand master chess player does not look several moves ahead, as we all assume, but rather is coldly reacting, more or less, to the opposition pieces presented in that moment.

    A form of trading, which I like a lot, is what I call “always in” trading. This is best done on a single market and timeframe. Always-in provides the dual meaning of direction of trade and committing to a trade direction wherever possible.

    Whenever we are confident of an always-in trade direction, then we are to do everything we can to enter the trade.

    In a neutral, or 50/50, event the trader waits. But as soon as the always-in is defined with some probability then the trader enters the trade.

    Okay, there is more to it than that and why ‘always-in’ is a method, I think, for the experienced trader only – but bizarrely all beginners seem to start out with this or a similar methodology.

    To do the same in my previous career, it would be like joining the Red Arrows before completing flying training.