Why working on yourself is so important

We know we cannot change the past - what's done is done.

We also know that we don't know what will happen in the future - it doesn't exist, and anything (or anyone) can do something which may influence what will occur in the future.

So, what are we left with? We can only react and respond to the moment of now.

Sticking with the process

My historical win rate is about 30%, so with the majority of my trades generating losses, I have learnt to accept losing money along the way.

To me, what is far more important than the monetary outcome of any one trade is whether I am sticking to my process and my execution:

The joy of helping an aspiring trend follower

A while back I received an urgent message from one of the traders in my mentoring group. He managed to get himself into a trade where a trend had developed in his favour and was now (in his words) "going parabolic". 

This person had been developing his method over a period of time, so that it best meshed with his full-time job, which in a pre-COVID world demanded long hours and lots of transatlantic travel. As a result, his chosen timeframe and parameters are somewhat longer-term than my own, but the underlying principles remain exactly the same.

New testimonial

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

Focus on your own trading and the trends you are looking to profit from

We know that markets can move from a trending to non-trending state, or vice versa, at any time. But as Ed Seykota says, there is no such thing as 'the' trend. 

Also, different traders will have different interpretations about the type of trend they are looking for - one person's long-term trend may be another person's short-term trend.

The important point here is that how anyone else defines a trend is irrelevant to your own trading and performance.

Tesla - letting the big trends run

The recent price rise in Tesla is just another example where people who got into the uptrend, and been able to let the trend takes its course, have been able to profit handsomely.

Here is that chart. Based on my own entry and exit rules, entering on 13 December at the $363 level would have generated open profits of more than +22R as of now, with the peak being at over +31R in February. If ever you want an example of letting your profits run, this is it:

Don't think you know better than your rules

"If you take emotion - would be, could be, should be - out of it, and look at what is, and quantify it, I think you have a big advantage over most human beings." - John W Henry

In trading, hindsight can be a not-so wonderful thing. Your stop gets hit, kicking you out of a trade for a small profit. All of a sudden, price takes off in the direction you were looking to profit from, leaving you on the sidelines.

Take it from me. If it's happened once, it will happen a thousand times.

Is this type of event frustrating? Sure.

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:

Recency bias, and labelling markets as easy or hard

I've seen it said that one of the goals you should have as a trader is to try and make money when things are easy, and that you should be more defensive and protect what you have when things are hard.

That is all very laudable, but from a trend follower's perspective there is a problem with that.

New testimonial

A couple of weekends back, while on the train to London, I posted this up on Twitter:

The traders I was going to meet were Craig and Aaron, and our catch up marked the end of working closely together for three years.

Following that, Craig has now kindly forwarded the following note:

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.

The starting point for any trader - what are your beliefs?

I've talked in the past about the importance of constructing your own trading method which is based around your beliefs.

But how do you start this process?

Trading and the One Minute Manager

I've talked in the past about how I read books not necessarily related to trading, which can help you - one such example was Dale Carnegie's How to Stop Worrying and Start Living, which I wrote about here.

Another such book is The One Minute Manager. Originally published in the early 1980's, it became a business classic with over 15 million copies sold. Updated last year, can the The New One Minute Manager help your trading?

Lets look at the three 'secrets' discussed in the book:

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.

Working on yourself

In my previous post, I talked about ensuring you take action, after having a clear plan in place. 

But, for many, this is where any psychological issues start to rear their head, as you start to implement your plan with real money at risk in the market.

Most people solely focus on trying to develop a method that can generate profits from the markets. But, how many market participants do you know who spend just as much time (if not more) working on themselves?

I love taking losses - do you?

I was reading another trend following blog the other day when I saw a comment along the lines of "as a trader, you will never be happy taking losses".

Make your goals process related

A lot of traders talk about having written goals they work towards, and in the main this is good advice. One thing I would avoid however is making these goals financially based, or to give them a specific time limit.

One thing traders have to accept is that you cannot force the market into anything. If you are utilising a trading approach that has a positive expectancy, then you can only take what the markets are prepared to give. There will be periods where your approach works better than others. You have to accept that.

One good trend pays for them all

While still getting stopped out of a couple of trades this week which were at one time in profit, a couple of long positions have started to try and gain traction, combining for a current open profit in excess of 4R. While those gains can easily be lost in a day, it is nice to see some profits on my screen!

As Ed Seykota was fond of saying, "One good trend pays for them all!". Should a decent trend start to materialise, then it is quite possible that the run of losses suffered could easily be eliminated. Such is trend following.

What is your definition of a good or bad day?

Occasionally you will some traders say "Had a great day today" or maybe "Terrible day - got clobbered in several positions".

When most people talk about having good or bad days, they are talking about an increase or decrease in open equity.

The ebbs and flows of open profits

As mentioned in previous posts, I am more concerned with tracking my cash equity rather than open equity (i.e including profits on existing positions) when reviewing my own trading performance. The main reason for doing this is that, when trend following, you allow each a position a certain amount of 'wiggle room' or volatility that will keep you in a position, reducing the possibility of needlessly being stopped out.