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:

It is what it is

This is just a brief post, after seeing some comments on social media referring to the price action in the general markets (particularly in the US) today. 

I've seen some refer to it as 'ugly', while others are saying they have never come across price action like this, before looking to blame others for making price action react in a way which didn't conform with how they thought it 'should' have moved. 

Well, in answer to those:

Learning from the Turtles experiment - what should you learn first?

The ad that started a legend.

An often overlooked aspect of the Turtle Traders experiment was not simply what they got told, but the order in what they got told. We can piece this together from the various writings about the experiment, including that of the Turtles themselves.

"Rich and Bill first taught us the foundations of basic gaming and probability theory. They explained to us the mathematical basis for money management, risk of ruin, and expectation" - Curtis Faith, from Way of The Turtle

It is also known that, while a commodities trader, Richard Dennis preferred not to read economic or crop reports - his preferred reading was Psychology Today. So I think it would be fair to say that (whether it was directly done or not) there was some basic trading psychology covered during the training period.

Staying in my own circle of competence

Every so often someone contacts me to say they disagree with what I say and my beliefs, that some other successful trader they know of says the opposite to me, or simply to assure me that trend following doesn't work.

Well, I have news for you - and them.

I couldn't care less if your beliefs or methods are different to my own, which are rooted in those of people like Seykota, Dennis, Donchian, Parker, Hite, Livermore and others.

A trader's development - a case study Part 2

Back in the summer of 2013, I wrote this post about an aspiring trader called Tom (not his real name) who I first met in early 2012, and gave a potted history of how he had developed as a trader over that period of time. Tom was the first trader that I mentored. This post now updates that story...

A lesson from Steve Jobs

When traders seek improvement, more often than not they will ADD something to their routine or method of selection, or maybe start putting extra indicators on their charts.

Yet most of the successful traders I've had the good fortune to speak to or correspond with only really hit their straps when they REMOVED the superfluous elements from what they were doing.

They developed an understanding of what were the important elements in achieving profitability. They found simplification and clarification in what they were trying to achieve. They got rid of the extra elements or chart indicators they didn't need.

They used Occam's Razor in their approach to the markets.

Now here's a suggestion. Why don't you take the same approach to your thinking?

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.

Jack Nicklaus and trading - part 2

One of the most popular posts on this blog is 'Jack Nicklaus and trading', where I listed a number of quotes the Golden Bear made over the years. These should have a particular resonance when placed in a trading context, be it your own approach to the market, or the psychology involved.
Below I've pulled out a few more of Jack's quotes, which again may require some thought on your part, but the underlying message can easily be applied to trading.

A famous lesson for the Turtles from a winning trade

I saw a recent tweet talking about how losing trades can be more instructional than winning trades. I happen to think that, for a trend follower, you can learn more from winning trades. 

A famous example of this is the heating oil trade taken by the Turtle traders, which occurred during their initial training period early in 1984.

Now, out of the group, the story goes that only one trader was able to get on a 'fully loaded' position and then fully follow the rules given to them by Richard Dennis and William Eckhardt - and that was Curtis Faith. And therein lies an important psychological lesson for people who are attempting to trade using a trend following approach.

Improving your emotional control

A few weeks back, a trader friend of mine sent me the following message: "Just had my best ever trade...well, was a full -1R loss in record time!"

When I read this I thought he was being sarcastic, however he went on:

"There were f*** all emotions. Didn't hesitate on the exit, didn't think - just acted".

I've known my trader friend for a few years now. He actually has more experience in the markets than me, and has developed his own method, but he is continually learning and trying to develop himself as a trader. He has also been consistently profitable.

So why did he think this was his best ever trade?

Some thoughts on exploiting your edge

Traders who are successful over the long-term have clearly defined their 'edge' in the market or markets they trade. To me, an edge is basically a method that statistically generates a positive expectancy over a large sample of trades.

In order to capitalise on that edge, the trader needs to develop the ability to use that edge. This basically means that a trading plan which is constructed to exploit that edge is followed as closely as possible.

Trading in the Zone - and some recent setups

While away for a recent holiday my reading material consisted of two classics by Mark Douglas - The Disciplined Trader and Trading in the Zone. For many Trading in the Zone this is the book that brought trading psychology to the masses.

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:

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:

Unrealistic expectations

Someone who decides to trade using a trend following approach should expect to achieve a win rate between 30% - 40% across a large sample of trades. Depending on the parameters used, this could cover a period of several years.

If this were the case, then the sample would automatically cover the mixture of different market states, be it trending or non-trending, stable or volatile. You may also include in that period a sustained trend in a downward direction as well as an upward direction.

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.

Not 'jumping off' the ride, and letting trades play themselves out

A trend follower never takes positions based on predictions or opinions about what may happen. Trend following is reactionary, and based on what price is doing - therefore price has to show some strength before you look to go long, or some weakness before you look to go short.

Just as importantly, trend followers never try and predict potential turning points in a market. There is a process where price can look to change trend from one direction to another - this can happen very quickly, or in some cases take several months! Generally speaking though, this takes time, and a single day's movement does not constitute a change of trend.

It is for this reason that trend followers never get out of an existing position at the extreme of the move. There is always a process of 'giving back' some of the open profits before an exit signal is triggered, and/or a change of trend is signalled.

New testimonial

Craig is an experienced trader based in London who approached me a few months back to assist him with his trading development. He has been kind enough for forward the following testimonial:

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.

Pain and pleasure - The Dickens Pattern for traders

Recently I came across my copy of Awaken the Giant Within, by Tony Robbins. I originally bought the book 10 years or so ago, but after reading it once, I pretty much forgot about it until I came across by chance, gathering dust.

Over the last few years, I've become greatly interested in the whole self-help/psychology sphere and the impact it can have on a traders' mindset. This can ultimately determine whether a trader will become successful or not in the long run. And, in the meantime, I've read a whole bunch of books related to that topic. Re-reading Robbins' book shows where a lot of these ideas originally came from or became popular.