New testimonial

Just before Christmas I received the following from Stefan, an aspiring trend follower based in Germany:

Jack Nicklaus and trading - part 3

A couple of my more popular posts from past years relate to Jack Nicklaus, where I listed a number of quotes from his extensive writings and interviews over the years. 

Below I've pulled out a few more of nuggets of wisdom from The Golden Bear, which again may require some thought on your part, but the underlying message can easily be applied to your trading and mindset:

Ten years on - the critical lessons I learnt from 2008

Ten years ago the equity and financial markets were in the middle of an unprecedented period. My interactions with the markets around that time were the ultimate proving ground for putting into practice what I had learnt and developed over the previous few years, and my experiences over those few months helped propel me forward as a trend follower.

Some of it wasn't easy, and some lessons learnt (and re-learnt!) cost me money. But in the long run, the tuition fees paid have been covered many times over.

Here are some of the lessons I learned from that time, which still form part of my overall approach:

The payback for following your rules

Quite often I get into a trade where price starts moving nicely in my favour, before reversing and taking out my stop, leaving me with either a significant erosion of open profits, or may be even taking a small loss. 

Not very interesting or exciting I know, but that is what following my rules allowed me to get.

Do you have what it takes?

Last month I had the pleasure of catching up with a trader I have known for a few years now, and mentored for a while. We talked for a couple of hours about trading in general, as well as how he has continued to develop himself as a trader. He is now trading full-time and has developed his own method (more of a swing-based style) which he is trading profitably.

If there is nothing to do, then do nothing

The last couple of weeks have been frustrating in that, while I have been able to identify plenty of interesting looking setups, they have either:

• continued to see price consolidate and are yet to trigger; 
• had earnings releases or trading updates; or 
• price has fallen away rendering the set up being no longer of interest. 

This has coincided with an uptick in volatility in the major market averages and a pullback from the recent highs.

An example in trade management - the trailing stop

When trading using a clearly defined set of rules, it can easily become frustrating for an inexperienced trader to get stopped out of a position, only for price to then reverse and start moving back in the direction of your trade.

Some see that as a weakness of their method. Yet I, and many other traders who religiously follow their rules (be they automated or not), see that as a strength. 

Are you a Borg or a McEnroe?

Given that this year's Wimbledon is currently in progress, I have a tennis theme to this post.

Any trader who has been profitable over the long-haul has developed a method and mindset that works for them.

Usually, this means approaching the markets in an unemotional, rational state, rather than an emotional, irrational state.

In my opinion that is the way to be, but that statement is not complete. Behind that, it is quite possible to go through emotional ups and downs on a daily basis and be successful.

Regrets and trading

If your trading is not 100% systematic then there is always the danger or possibility of making an irrational, emotion-driven decision which can cause damage to your trading account, as well as issues with your own mindset.

It is very easy for one such decision to eliminate several months of disciplined trading in one go.

If you are looking at your trading as a long-term endeavour (and NOT as a 'get rich quick' scheme) then you don't want to suffer having any trading 'regrets'.

Creating good trading habits

Being successful as a trader over the long-term involves being consistent in your approach. This means creating a pattern of good habits that you can repeat.

Losing traders may be using an approach that has a positive expectancy, but they are not getting the results that they should - this can be down to poor execution, poor preparation, or making emotional, irrational decisions, as well as other factors.

A positive start to 2017

Markets always go through different market 'states' - either trending or non-trending, stable or volatile.

During the last couple of years it has been difficult (but not impossible) in making money adopting a trend following approach, for me using my preferred timeframe and parameters. That is the nature of the beast. You cannot force the market to march to your beat. You can only take what it is prepared to give you.

Adding some accountability to your trading - helping a day trader to improve

A while back I was approached by a day trader who wanted some help in improving his performance. This took me back a bit - as readers of this blog may know, when I started trading back in 2003 it was as a day trader (and I initially struggled) before I got into trend following.

I've long believed that the essentials of good risk management and being able to avoid mental errors are applicable to ALL types and styles of trading. This would therefore be an interesting exercise - for both of us.

New testimonial from Germany

Julian is trend following trader from Germany who I have worked with over the last couple of years. Here is his testimonial which he kindly forwarded:

An example of how emotions can affect your risk to reward performance

A couple of years back I had a meeting with a trader who wanted to improve. He had taken a break from the markets, and came to me for help in putting together a clear plan in place with good risk management and having the right mindset at the top of his list of priorities.
I've talked in the past about how closely your attitude to risk can affect your level of emotional control, and ultimately your discipline, as a trader.

With this in mind, we talked at length about his previous trading experiences and in particular his most profitable trade, which was this set up on the a UK stock. Here is the chart:

Stress testing yourself and your method - sowing the seeds of future success

These days, I always try to look at things from a positive point of view. Where others can only see the negatives or downside, I try to look for the potential upside or opportunities which may arise.

Attaining that mental state was not easy to achieve. In my early days as a trader, I struggled to keep my emotions and approach to risk under control - particularly when things went wrong. Things would get flung across the room, combined with a lot of negative talk and shouting, which can easily damage your self esteem. To change from a negative to a positive mindset took a lot of effort, but it has been crucial in helping me get to where I am today.

New testimonial

Over the bank holiday weekend I received the following testimonial from Mark:

“I have been in the Steve’s mentoring programme for just over 4 years. Quite simply: as a result of his fantastic mentorship my trading has completely evolved and ultimately become consistently profitable.

Regardless of the trend following method used, I have learnt the importance of psychology and risk control and that they are and will remain paramount to profitable trading.

20 truths about trend following

People are often attracted towards adopting a trend following because of its robustness and longevity, together with the returns it can generate.

This is no 'get rich quick' scheme - the basic concept has been proven to work over many decades, in up and down markets, and some of the most successful traders and Market Wizards have used it.

That said, it demands a lot from you. If you are considering adopting a trend following approach, here are some basic truths that you need to understand and accept:

Much ado about nothing

Well that's the first quarter wrapped up for 2016. And, as the metrics show, nothing much has happened in terms of performance. Looking at the monthly returns over the last year or so in particular, these losing months have been kept as small as possible. And, even after a period of non-performance, the returns on all closed trades is about 5R off of all time equity highs. Which, in the longer-term scheme of things, is nothing. One relatively decent trend will cover that.

As a comparison, below is a screenshot of the published monthly returns for Mark J Walsh & Co. While he was not one of the participants in the Turtles experiment from the 1980's, Walsh was an associate of Richard Dennis. You can view the monthly performance of other trend followers (including some of the former Turtles) here. 

Bucking the trend

What a start to 2016! The markets have certainly been 'interesting' to say the last, with the major market averages taking a bit of a hit.

As always, no-one knows what will happen over the coming weeks or months. All trend followers will do is follow price action. 

One thing that people who trade individual stocks should look for, is decent set ups and signals given which seemingly are going against the general market - if you will excuse the pun, they are 'bucking the trend' of the market as a whole. These signals can often deliver wonderful results. What these stocks are doing is exhibiting a high level of relative strength or weakness compared to the market.

A trend follower's first big win

Yet again the mentoring programme continues to deliver results. Here is an excerpt from an email I got a few weeks back from Paul, who is a trader based in Scotland: