Saturday, May 11, 2013

My own trading 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 - as it turned out, it was 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 in a short period of time. 

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 primary sources 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 also helped enormously 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 Livermore to the general trading community, 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, and his attitude towards fundamental analysis.

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 successful 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 practitioners. 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 their own way. Reading particularly the first book in the series, however you approach the markets, you cannot fail to identify areas of improvement in your own trading, particularly with regard to risk and discipline.

Ed Seykota said in his Market Wizards interview "It is a happy circumstance that when nature gives us true burning desires, she also gives us the means to satisfy them. Those who want to win and lack skill can get someone with skill to help them."

When I started trading, I was unable to find a mentor or a "sounding board", who I could talk to, particularly with regard to trend following and the psychology involved. All I had was those mentors mentioned above, and their written words of wisdom. 

I have no doubt that this would have accelerated my own learning - while you get pointers from the written word, often going through the process with a mentor of identifying areas for improvement, formulating a plan, and making the commitment to make the necessary changes, will accelerate the learning process even faster.


  1. Please to say I've read all these books. I found Market Wizards particularly enlightening (including several a-ha! monents). Just re-read Seykota and Hite's interview last week. Thought the 2nd book was less useful though.

  2. Nice selections. Surprised not to see Stan Weinstein in there, his book was my "ah-ah" moment. Nearly 30 years since it was written but his ultra-simple approach is as relevant as ever.

  3. Weinstein's book is a good book, no question. I have a copy of it around here somewhere. The books I listed are simply those that I have found the most use, AND keep referring back to