Tuesday, May 20, 2008

My own mentors

When I first started trading, it took me at least a couple of years before I found a trading strategy that I was truly comfortable with - namely, trend following. Initially I started out day trading high-beta US stocks, lured in (like many were) of the thought of making large amounts of money quickly. However I soon found that this did not suit me - I was often too slow to react to the entry/exit method I was using, and the commissions were swallowing up what profits I made. I therefore took the decision to fully research differing methods and timeframes.

In this period it became clear to me that trend following suited my personality the best, and several books and traders became my source of information about the concepts involved, and how to go about utilising such a strategy. To this day, I still refer to the traders and books mentioned below, and it is surprising how, even now, when reading their material that I still find things of note, or gentle reminders about certain aspects of trend following.

Not only has this helped me with my own trading, but it has helped enourmously when giving training or mentoring to other traders. Having been through the process myself, and proved what worked for me, I am able to pass that experience on, and help others accelerate their own learning and understanding.

For me, there are several 'mentors' from history that helped set me on the right path in my own trading journey:

Jesse Livermore - perhaps the most 'infamous' speculator of the early 20th century. A lot of the modern writings and methods on trading can be traced back to Livermore. Reminiscences of a stock operator, the ghost-written biography of Livermore, is generally considered a classic book on trading, with much of it relevant even today.

Ed Seykota - maybe not as well known as the two mentioned above, Seykota was interviewed in Jack Schwager's book Market Wizards. Seykota is a purely technical trend-follower who has made phenomenal returns since the 1970's. Reading this interview made me look at purely trend-following methods. Also appealing to me was that Seykota spends very little time each day trading the markets.

Larry Hite - again from the Market Wizards book, Hite is also a trend-follower with an overriding respect for risk. Thanks to his words, as a result of trading smaller sizes, I now have an 'emotional indifference' towards a position, which is why I believe that trading psychology and good risk control are intertwined. This was the area I initially struggled with in my own trading, before I had the 'A-ha!' moment, as Seykota would call it.

Richard Dennis and the Turtles - the story of this group of traders from the 1980's, mentored by both Dennis and William Eckhardt, spawned a whole generation of trend followers. Most of the Turtles subsequently went on to become succesfull hedge fund managers after the group was disbanded. One of the Turtles, Curtis Faith, wrote The Way of The Turtle which fully disclosed their system rules, and is also a treasure trove of useful information.

I should also mention that I gleaned a lot of information from the books of Michael Covel, who has extensively researched trend following and its most successful practioners. His book Trend Following, as well his book on the Turtles story helped provide me with the framework for my own system.

There are numerous other prominent traders (many of whom were profiled in the various Market Wizards books), which also provided inspiration and assistance in theior own way.

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