Trade Team

Last week I wrote a comment on a friend's blog. Luckily he found it of use and kindly put it up as a blog post of its own, you can read it here if you're interested. On this occasion, I haven't reblogged his post as it felt silly to have three versions of exactly the same thing rattling around the internet. However, the exercise got me thinking about the continuing struggles we all go through when learning to trade and things I'd like to do to combat them.

trader / athlete

I often think of traders as aspiring professional athletes; hours and hours per day training, extremely strict routines, diet, mindset, psychology, studying etc. But the difference between the two professions is the distinct lack of support even professional traders have. Athletes have coaches for technique, coaches for strategy, coaches for routine, dieticians, physios, psychotherapists, training partners and teammates at their disposal every day! Even hedge funds and investment banks don't provide this kind of support to their traders.

I rarely mention it here but I was an amateur boxer for many years and I am now (after quite some time off) training at an MMA gym with an idea to compete at some point in the future. At my gym, I have unlimited lessons, 3 Brazilian Jiu Jitsu coaches, an MMA coach, a Muay Thai coach, a Boxing coach, a Wrestling coach, a Judo coach and a Strength and Conditioning coach. I get one-to-one coaching for an hour a week and I have 200+ training partners and 50+ teammates (those who are looking to pursue fighting). For all this, I pay £230 per month (the private sessions are what drive the cost up). But even so, this is extremely cheap when you think of all the support that is available to me.

Having said all this, what I would say is that in terms of progress, every part is equally important. You, of course, need your coaches to instruct you but you have to have your training partners to drill with and teammates to encourage you. Without them, you wouldn't last long. It's a hard sport that is designed to make you quit, a bit like trading really.

trade team

As traders, I doubt we will ever be able to get the same amount of support that is available to sportsmen and women but like my trading coach has always said, we could be far more effective in the way we utilise each other. I think much of what is lost in trading is the comradeship of a team, too often we fall into a slightly competitive mindset with each other, most likely due to the nature of the game we play. 

When I wrote my comment on my friend's blog I wanted to be his teammate. I wanted him to feel like someone had his back and would go to war with him. This is the feeling you get when you're in a fight team, you train with each other, you sweat together, struggle together and win together. We're honest when someone's doing something wrong, encouraging when they're doing something right and playfully competitive when you're able to be.

Going forward I would like to pursue this idea of building a "trade-team". A band of traders who go to war together. It's great to share victories and commiserate losses, however, I feel often when you need the support is when you're in the trade. In the midst, is often when you most need an objective friend, to either encourage you to continue with the game plan or tell you it is no longer working and to change tactics.

If anyone is interested in this trade team mentality drop me a comment below.

Fear Beats Greed (catalyst)

there's a catalyst(s) in here somewhere

So Wednesday evening we had quite a few events; US monthly budget statement, which came out worse than expected, then, of course, the 3 hour US press conference.

Rex was banging on about Syria...

then Russia...

and finally, Trump came along talked about the USD...

the catalysts

The above events had the effect of killing the USD (it has since recovered much of its loss) but there was quite a lot going on here and felt I needed to revisit them and identify the individual effects and causes.

NB: When trying to identify catalysts what I am looking for is events that that will trigger either weaken (fear) or strengthen (greed) the status quo.

1. US monthly budget statement: worse than expected is "technically" bearish for the USD but this is not a highly watched or volatile event, the numbers weren't drastically off so really was very low impact. Not a catalyst.
2.  Assad/Syria: War uncertainty,  to me this means Gold, Bonds, JPY and USD should appreciate and stocks should suffer. This is definitely a "negative" catalyst, war triggers uncertainty and fear and weakens the status quo.
3. Russia Relations: Uncertainty, even, fear of war. Again to me this means Gold, Bonds, JPY and USD should appreciate and stocks should suffer. This is another "negative" catalyst, uncertainty/fear over the status quo.
4. Trump wanting a weaker USD: This a funny one as there is clearly a winner and loser. This is dovish for the USD and positive for stocks. Ultimately this is best seen as a "positive" catalyst for stocks, as it creates some sort of stability (strengthens the status quo) and hence greed.

fear beats greed

As the title and subtitle state, the rule I use to help digest events is; "fear beats greed".Ultimately most investors in Wall Street and Main Street alike are here to make long-term gains for their pensions, retirements etc. They have worked hard and saved that hard earned money diligently. They (clients and fund managers) will always be scared of losing their initial capital, so when an event hits the market that causes "fear"/ threatens the status quo, they will almost always switch to a capital preservation approach where capital will be less exposed to risk. As such my feeling from the events above is that Gold, Bonds, JPY and USD should appreciate and stocks will probably suffer. 

Weekly System (for 2 Year Plan)

overview

In my last post, I talked about my 2-year goal and outlined a very broad system: plan my trade, trade my plan, manage my trade, record my trade, build my numbers up and learn my KPIs.

This a nice sound bite but actually, it provides very little in the way nourishment or sustenance for the tired trader/investor at the end of each day. What follows is a breakdown of what actually needs to be done. To clarify this information is in my TTP and SBP but is not as clear or concise as it is here, I will print this off.

weekend system

The weekend marks the start of my trading week and is when I do the majority of my work. There are 4  major jobs which consist of 9 tasks, I find I need to take a short break between each job.

Week to week my energy levels differ, so it is hard to specify an exact time to as when this work should be completed. What I can say though is that in order of preference they would be 1, Saturday Morning, 2 Saturday Afternoon, 3. Sunday Morning, 4 Sunday Afternoon, 5 Sunday Evening,

job 1: markets

1. Monitor the MOTR (Momentum and Trend) of each market (approx 40) (MOTR)
2. Find potential W1 and MN trades (MN, W1 candle setups with momentum)

3. Define where the MOTR Matrix is heading to across the markets.

job 2: trades

4. Update profiles,  add those with matching MOTR, remove those without (D1 long/short watchlist)
5. Review profiles for setups (D1 long/short watchlist)
6. Review potential trades, do they pass all your requirements (ie pin bar tail at least 60% of candle)

job 3: review

7. Review trade sheet and journals if appropriate. This needn't take ages. Just a weekly check-in to take stock and remind yourself of your KPIs.

job 4: broader themes

8. Research economic data due for the upcoming week.
9. Be aware of the current themes (FTWeekend and MoneyWeek).

daily system

Each evening I have 3 jobs consisting of 5 tasks.

job 1: themes

1. Stay abreast of news developments (twitter and FX street app)

job 2: trades

2. manage open positions (end-of-day).
3. Check for new D1 trades in Long and Short Profiles (end-of-day).
4. Review potential trades, ensure they match trade criteria.

job 3: record

5. Record closed trades (Journal and Trade Sheet)

2 Year Plan (2017)

This post is picking up from a broader post I wrote on my private blog so unfortunately, you won't be able to read it. However I will happily share the gist of it here; I was a little low, mainly due to the time of year (family stuff). While over the long-term I was feeling a little uninspired about my future direction. I have since set myself some new goals/systems to follow and feel far more motivated.

The setting of these new personal goals/systems felt most empowering so it seemed like a good idea to repeat the process here in regards to my trading/investing, even if this process just means reaffirming old goals I've neglected or forgotten.

quick update

At the end of 2016, I mentioned that I felt that my actions in the market were now probably better described as Long-Term Trading / Short-Term Investing and this is very much the vein in which I wish to continue.

The act of changing my trading timeframe has been most liberating because it has suddenly freed me from three internal pressures.

1. Time: Trading longer-term you have more time to do your job correctly (plan trades, manage them and record them correctly). 
2. Hope: When trading short-term you forever flirt with the hope that your actions may produce an income. Longer-term you simply can't believe in this lie, so don't have the internal psychological pressure of false hope. 
3. Expectations: Very much linked to "Hope" but deserves its own category.  When trading short term you expect to be making more trades and hence more returns. This is extremely unhelpful because this produces expectations that are very hard to live up to.  Trading once a month the most you can hope for in your wildest dreams is a 2-3% return and that's only if it is traded perfectly and does exactly what your plan predicted on the upside. This is still a big return to live up to but nothing like the 6-trade-per-day day trader who could be looking at 4-5% a day in "hoped for" profits.

the long-term goal/system

I like all those on the trading courses I've attended have my coach's words rattling in my head. To paraphrase he said something like: "if you can make small consistent gains with limited drawdowns and document your progress correctly, I will help find you capital".

Now I don't think for a moment that this will happen for me because he will probably have retired by the time I'm anywhere near achieving his statement.  But the idea is a good one; trading/investing successfully is extremely difficult, so why are we all trying to see how high we can piss up the wall when hitting the toilet bowl is all that is required?

Now to be fair I have been following my plan, but I have noticed a drift in direction and purpose. This is interesting because it links to an article I read the other day. Its premise was: systems are better than goals. It reasoned that a goal for most of the time is in a failure state and that feels pretty bad to most people. And I would agree with this entirely.

So my goal displayed in a very broad system would be: plan my trade, trade my plan, manage my trade, record my trade, build my numbers up and learn my KPIs so they can tell me what I need to work on.

Good quality data is invaluable, data doesn't care about "winners" or "losers" it only cares about accurately recorded numbers.  And because I've recorded my numbers correctly I know that my hit rate is currently 39% and due to some terribly managed trades, due to not letting my profits run, my expectancy is 0.1%, but there's my work! If I'm taking 20 trades a year I should be expecting to make 2% a year.  In a year I want to improve my trade management and hopefully push this to around 4% and I know this is possible because when I average out my gross MFE I'm hitting 1.87%. Hopefully in my second year, I can push a little further, eventually, the dream would be 15%+ PA.

In order to achieve this goal, I will need a daily and weekly system in place but I'll save that for another day. 

Pricing In The Future

the market is a discounting mechanism

To be honest this is something that took me a long time to understand, mainly because the words seemed impenetrable. But I am now starting to utilise this more in my trading and wanted a record of it somewhere.

how I understand it

For me, it was reading Barton Biggs, Wealth, War and Wisdom that hammered home this principle. Using WW2 for numerous examples he showed how good investors consistently priced in the events before they happened, meaning that reactions to the eventual event were often relatively subdued or counter to what Main Street thought would occur.

The reasons for these subdued or counter reactions were due to the Big Money (smart) averaging in and out of the market. They would do this either to disguise the size of their positions or simply as a tactic to manage risk; get in small then add if the position is proved correct. The problem for most small traders is they believe the lie: "Big Money is forced to average in and out of positions". No, Big Money chooses to average in and out of positions because it helps them get a better price and improves their edge by hedging spread, slippage and commission risk.

pricing in the future

My prior post is probably far better at explaining how to price in the future but I will try and explain briefly why the opposite of what is expected often happens.

Big Money is a buyer before a positive/negative event arrives (they preempt it). So when the event comes to fruition Main Street is often left surprised. What they failed to notice is the three-month rally Big Money created leading up to the event.

Not only do positive events cause relatively subdued reactions they can often mark market tops (the same is true of negative events and market bottoms). This, of course, is an illusion: it's not that the good news causes a market to crash, it's that when markets are already as long as they're going to get it will only take slightly less good news for Big Money to start taking profit and begin shorting in anticipation of a market fall.

summary

The only thing that can move the markets is Big Money, so we need to stop pretending to ourselves that we have an edge being small and fast: jumping in and out exposes you to the three constant risks of trading: commission, the spread and slippages. Start doing what Big Money does; get ahead of Main Street,  be aware of what's on the horizon, buy low (demand), sell high (supply) and average in and out of your positions as the market approaches these places.