Market Wizards - Trader Interviews

Every once in a great while, a great book comes along which changes your perspective on your career. It's been said many times that if there were to be a  trading "bible", Jack Schwager's Market Wizards would be it.

If you've never heard of the book, then you are doing yourself a disservice. If I were to put a label on the book, it would have to be "a guide to take your trading to the next level".

Why is it so important, does it have a "system" to trade inside? Well, not really. It's all about the mental game of trading and seeing for yourself how the pros handle losses, disappointment and gives you insight into their mindset each and everyday they trade the market.

Here are some of my favorite quotes from the book:

“If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.”
Paul Tudor Jones

“Don’t focus on making money; focus on protecting what you have.”
Paul Tudor Jones

“The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading… I know this will sound like a cliche, but the single most important reason that people lose money in the financial markets is that they don’t cut their losses short.”
Victor Sperandeo

“I think investment psychology is by far the more important element, followed by risk control, with the least important consideration being the question of where you buy and sell.”
Tom Basso

Do you see a pattern here? Risk control, cutting losses, letting winners ride, etc. Yes, we've all heard these mantras many times - but how many times have you heard it directly from traders who manage millions and sometimes billions of dollars?

I'm including a link to the pdf download, only because one could easily find it on Google anyway (I see there are about 200 available downloads of it) so here it is:

http://optionboost.com/Market_Wizards.pdf

Please visit Amazon and get your hard-copy. It's an absolute must-have on your trader's bookshelf.

Hope this helps.

 

Market Wizards - Trader Interviews

Trading Scared and How To Avoid It

So what exactly does it mean to be "trading scared"? Well, allow me to begin with an example:

This morning I was looking at buying a washout on a stock ($ANGI, to be exact). I've had some good success with buying morning washouts on volatile stocks lately and decided that this was a good candidate. I entered a decent size shares, had my mental "stop" in place and let the trade work out. As my eyes shifted around to other things, I noticed out of the corner of my eye that a massive print lower in the stock happened.

Staying calm, I wanted to size out on the uptick and re-assess the situation to hopefully wait for another setup in order to size back in. Well, needless to say this never happened and there was another massive downtick in the stock - when I sent the order to fill at the offer, it didn't fill and had to cancel and resend to finally get a fill.

It happens sometimes I guess - you plan, plan, plan and things just happen that are out of your control. As a trader, I have learned over the years to move on and make back the losses slowly throughout the day......but for some reason, this rattled me.

I made a few more trades later in the day, but I noticed that I was cutting my profits too soon and not letting them work out the way they should. This is a rookie mistake; after having a big loser, trading differently that you normally would.

So what is the point of all this? Well, the first point is to REALIZE what you did wrong and fix it. Some of the ways I could have coped better with this is trading smaller size and ADDING to my winners. This would have given me more confidence to let the rest of the day work itself out and perhaps even finished in profit.

Another thing I should have done was to detach a little bit from the computer - take a walk and come back with a fresh set of eyes on the market.  Around my desk, I have several notes that remind me what I am supposed to be doing and to keep my psychology in-check. One of those notes reads as follows:

Remember that this is a mathematical process, of which you are not respecting by skewing the numbers with cutting profits too soon. You WILL have red days. This is a fact and they should be welcomed, because they need to happen in order realize profits in the future.

Good advice! I'll be sure to remember it next time and learn from today to become even better.

Good Luck Everyone.

Trading Scared and How To Avoid It

My Trading Toolbox

I am an option trader - through and through. My bread-and-butter has always been trading options throughout my professional trading career. Within the last few years or so, I feel like my mind has started to open up to other strategies and thoughts about how and what to trade in the markets.

Having spent almost 3 years at a hedge fund, I had the privilege to see inside the minds of other traders who often had very different styles compared to mine. None of us were every "right" or "wrong", we just understood that there will always be different styles and strategies between us which will work or not work depending on the situation in the markets at hand.

Experience sometimes makes you humble and appreciate the process of stepping outside of your comfort zone and trying new things. For me, I am fortunate to be able to expand my trading strategies at my own pace. I guess it's one of the perks of working for yourself - YOU decide when you want to learn something new during working hours.

The new tool I've been perfecting in my trading toolbox has been day trading equities. Often times, certain stocks will make an exaggerated (some would say irrational) move in a certain direction which is a great opportunity to take the other side of the trade - however, not ALL stocks have options on them (in case you haven't noticed) so these have been my candidates for short-selling.

I've been working with the traders in Nate's chat room at Investor's Live for about 2 years now and have to say that everyone there has been extremely gracious and helpful. While I'm still primarily 90% an option trader, I still have a few screens dedicated to this new day-trading venture. So far, it's been going well and I've been lucky enough to notice that there is some "crossover" between what I've been doing for years and the day trading strategy.

As a professional trader, don't ever be afraid to step out of your comfort zone and try something new. It goes without saying that you should ALWAYS trade smaller size when trying out a new strategy until feel confident and see real results.

Nate's Chat on my screens:

 

My Trading Toolbox

Stock Lockup Expirations

As traders, we're always looking for that edge - that one thing that we can exploit that will hopefully pay our bills until it stops working.

This morning, I read a lot of chatter on Twitter about the expiration of the lockup on $GPRO.  For those of you who are unclear about what a lockup expiration is, here is a great explanation from investopedia.

In the above article, it mentions a certain statistic which says, "There is also empirical evidence suggesting that after the end of the lock-up period, stock prices experience a permanent drop of about 1-3%".

The trick is, "when do I know how to pinpoint the turn in the stock so I can capture this 1-3% drop?".

I like to handle lockup expiration a little differently and take advantage of the flurry of volatility in the options market shortly after the stock opens on lockup expiration day. I'll look to sell volatility on a few out-of-the-money options and take quick profits on the fade. If this trade works out, then I'll use the profit to purchase some bear put spreads farther out in time to capture some more longer-term fade on the stock.

If you are new to selling volatility on out-of-the-money options, this trade is NOT for you. However, you can practice the strategy by reading my three-part series:

Part One

Part Two

Part Three

 

Good luck everyone.

Stock Lockup Expirations

5 Steps to Surviving a Trading Slump

We've all been there as traders; you lost your mojo, your groove, your zen-like state and can't seem to get it back. In my humble opinion, psychology is the most important aspect of trading and when your emotional state changes because you are watching every day go by with loss after loss, it creates a kind of negative spiral that extends the slump even longer.

I've attempted to outline some of the important steps which help me from time to time. As traders, an important skill to have is self-examination in any scenario - so hopefully these steps will help get your profitability back on track.

1. Get Back to Basics

I can't really remember which of the Rocky movies deals with this - I believe it's Rocky 5 - In any case, he tackles the challenge of his new opponent, as well as problems in his personal life, by going back to basics. I believe firmly that going back to what has worked in the past will help you conquer your trading slump.

I always try to revisit my old trades to see what worked and what didn't work. It's helpful to follow people that can help you get back to basics and start hitting singles again. Once you start hitting smaller profits on your trades, your confidence gets stronger and you see the trading day more positively - which turns a negative spiral into a positive one.

Those of you who think that keeping a journal of all your trades is boring and not worth the time - then enjoy staying in your rut.

2. Trade Smaller Size

Along the lines of building confidence, it helps to reduce your normal trading size during slumps. Just for the simple fact that your emotions and fear of losses become more manageable, so you are able to have a bit wider of a stop to help you analyze the intra-day price action within the space of your stop without feeling a sense of panic.

It's all about gaining the confidence you've lost - so having smaller size allows you reduce your risk and take smaller wins, both of which helps get that confidence back.

3. Examine Personal Life

See those pretty charts you look at during market hours on your large computer monitors? Well, they're not really monitors; they're more like mirrors which reflect your current emotional state right back at you. Did you just get into an argument with someone? Guess what, you're probably trading angry. Have you recently experienced a loss in your family? You are probably not 100% focused on your entries/exits. Do you have some money problems? Then you are most likely trading aggressively in order to make some quick cash to alleviate those negative feelings.

I've personally witnessed traders/investors go into deep depression, break furniture and fly into a rage. If we are all supposed to be trading a system, with strict rules, then what does that tell you about someone's inner personality? There is more going on inside you than you realize - so take a step back and delve in a little deeper - your trading account will thank you later.

4. Thin Out Your Watchlist

As traders and even as humans we often think that since we are losing we need to work harder and look for more opportunities, even when they don't exist. If you diligently go back to your older trades and see what was working, hopefully you'll notice that you had a few big winners which really padded your account. Ask yourself, "how many stocks were I watching that day"? Your answer will help you thin out your watchlist if needed and help get your Back To Basics again.

5. Examine Each Loss and Learn From It

Write your journal! Everyday, every trade, every feeling and emotion and review it. There is a reason why all the great traders recommend this - because it works.

Brett Steenbarger has a great article on the qualities of great traders and their disciplin on keeping good records. Check out his article here.

 

Good luck everyone and don't give up!!!

 

 

5 Steps to Surviving a Trading Slump