Saturday, August 16, 2008

The Weekend Trader

Despite an enormous overnight thunderstorm, I finally got some good sleep last night and feel energized today. Crashed (me, not the storm) at about 7pm for about four hours, and then got seven more solid hours. Today's to-do list is simple: Transplant shrub, fix bare spots in lawn, go to the dump, and then have some fun (more on that below). Essentially, I'm going to pretty much shut down the trading brain until Sunday night.

Blog Reflections - Here are my current views on whether the blog is helping or hindering my results:

On the helpful side, yesterday's DAX posts #1 and #2 were strong examples of how talking through the market "out loud" helped me stay focused and off of the wrong side of the market. And despite initially front-running the early breakout signal and then not catching the majority of the first breakout, I was able to carve out some nice profits by (1) waiting for the first pullback, (2) catching the final short-cover spike, and perhaps most importantly - (3) NOT being on the wrong side of the subsequent cliff drop by paying more attention to the 3 Line Break signal than I might have otherwise. For example, given the extent of the DAX drop off the morning highs -- see the top chart of the second post -- there would have been many opportunities where the market "seemed" oversold and primed for a long re-entry, yet the primary signal (3LB) never went long. By commenting on "virtual" paper, I can say with conviction that doing so kept me out of what could have been a losing and frustrating situation.

This is perhaps the strongest evidence to date how the blog has helped me. And yesterday took a page right out of Dr. Steenbarger's The Psychology of Trading -- specifically page 40 that encourages traders to think out loud "as if you are delivering commentary to another person". I've said this before -- and I'll say it again -- Brett planted more seeds with those 318 pages than I could ever sow in a lifetime, and even after having read the book a few years ago, I've just now begun to truly water and fertilize those seeds that he planted. By the way, I know the specific page reference because I have no less than 24 Post-It markers sticking out of the right side of the book referencing key points. It's the most often-referenced book I have in my library. Simply put, it's a must-read for any serious trader.

Another benefit of the blog seems to be my ability to look back at past posts and draw conclusions of my own trading. For example, the word "tired" seems to occur too many times recently. So enough of that ... I'm going to stop simply talking about it and take some action, beginning with today where I'm going to do everything I can to have some fun, perhaps starting with a massage.

As far as whether the blog has hindered my trading at all, I sometimes wonder if I get distracted from market opportunities when I type during the day -- which is one reason I often type after a sequence is over except for small tidbits -- or whether it instead provides a healthy distraction to stay out of marginal opportunities. So far, I think it's been more the latter.

Another possible pitfall is that by choosing to openly share the blog with others, I may think I have to "perform" for people looking over my shoulder, a number which has grown over the last few months since I've been back "on the grid". Fortunately, I learned that hard lesson years ago when I wrote and taught for the industry, and have gotten well past any sense of needing to perform for anyone but myself. No one will ever be a greater critic of my trading but me, and my goal remains simply doing the best I can, and to leave no stone unturned in making that happen. I also continue to look forward to sharing my screw-ups along the journey ... which should instill the required humility to keep any ego in check.

Ultimately, time and the P&L will provide the most objective answer, as I compare pre-blog results with post-blog results toward the end of the year when I have a larger sample size of post-blog results. And while I won't tell people whether to trade or not, I do encourage those peeking over my shoulder if you do trade to continually seek ways to distance "yourself from yourself". Dr. Brett's seeds and a personal diary may be steps you can't afford not to pursue.

Enjoy the weekend.

5 comments:

nocved said...

Hi Don

I can't speak for others but I for one feel very fortunate to be able to read how a true professional processes each trading day.

Definitely need to make time for fun or one's soul can become dehydrated.

Thanks
Tom

BTW: You sure my wife didn't give you my to do list:)

Don Miller said...

Thanks Tom.

Maybe we could replace "true professional" with "someone striving to stay out of his own way".

Completely agree on hydrating the soul though. While my faith is strong, my Type A personality constantly gets in the way, which brings me full circle back to the comment above :-).

I never spoke with your wife, but she probably subscribes to the same magazine mine does.

Take Care.

Don

Eric D said...

Don - In sticking with the Olympic swimming hype right now, are you ahead or behind the green line? (The one showing the goal of the world record in swimming).

Also, since a large portion of your journal seems to be devoted to goal setting & the steps ned to achieve those goals, would you shed some light onto how you set your initial goals & then the things you would consider when you are ahead/behind your goals?

I am still trying to figure out whether I lean more towards the Ari Kiev method of setting significantly higher goals once initial ones are met or the common method of 'set a daily goal & quit once you achieve it'. I am leaning more towards the Ari Kiev thought process but having a hard time balancing that with the increased stress that sizing up positions larger can bring.

Thanks,
Eric

Don Miller said...

Hi Eric.

Intriguing questions, and I'll try my best to respond. As always, I'll preface my remarks by saying it's one person's opinion only.

First, I once experimented with a daily goal as you describe, but grew to learn through experience that stopping once a certain profit was achieved essentially capped my earnings on those days. As a result -- and based on how I trade -- many days of earnings could be (and were) offset by one poor showing.

As I mentioned in the first few blog posts, I've had a significant problem in the past with limiting my income, as the result of a combination of mental ceilings and perhaps misaligned goals -- including measuring them on too small of a timeframe (i.e. daily, weekly, monthly).

Right now, I have only one financial measuring stick on a single timeframe as I've mentioned a few times: $1.0M net after expenses in one year trading an initial capital base of about $0.7M. And while such a goal can still be dangerous (i.e. still limiting OR resulting in added pressure as the time draws near which would result in misguided trading), I feel both the amount -- a significant increase to anything I've considered in the past -- and timeframe -- one year -- are so far "out there" that I can simply focus on trading well.

This compares to past attempts to set daily, weekly, or monthly goals, and at significantly lower thresholds. The change essentially reflects a radical shift to get me far away from target measuring, except at the end of the year.

As I've mentioned, I did peek at how I was doing on June 30, and was "ahead of the green line" you reference. BUT that's all it was -- a peek at the lap turn. I suppose like a swimmer, I have a strong sense in terms of how I'm doing at major checkpoints (say, monthly), but I couldn't tell you my exact time (capital base or YTD earnings) and won't be able to until the clock stops on December 31.

The last thing I want to happen is to get caught coasting into the wall with a lead as Phelps is making that one last push to overtake me. So for now, it's stroke by stroke.

[I know the analogies are corny and this sounds like stuff you read in textbooks ... but suffice it to say it has taken me close to a decade of doing it other ways which has signifcantly limited my performance.]

Finally, increasing my size has always been a challenge for reasons you cite ... so I haven't increased it much this year as my capital base has grown. Keeping my trade size constant allows me to trade knowing that as time goes on, I'm actually trading a lesser % of my capital, which makes trading feel less stressful for me. [Of course, that might not work though for someone just starting out with a small capital base.]

And while I know I could trade much larger size than do, I've removed that stress from the equation by not growing it much. In other words, I can swim freestyle for two lengths of the pool ... but not three.

Thoughts from one person.

Don

Eric D said...

Don - Thanks for the comments & thoughts. They helped clarify some things in my mind. I like the approach you take of looking at an exceptionally long timeframe for your goal vs. a short one such as a day/week/month. Tom Basso basically had the same thoughts of looking at trades with the view of the next thousand trades in order to not focus on individual events as much.

Glad to hear you're ahead of the green line.

Regards,
Eric