Saturday, May 9, 2009

The Weekend Trader - Three Little Words

There are three little words that continue to be sorely lacking in this world, words that I've never been able to understand why some refuse to utter them. I see it in all walks of life, in my past corporate life and current non-trading business, and especially in the trading industry.

And the words are, "I was wrong".

The absence of this phrase was especially true in the mostly-defunct 1995-2005 trading guru/fraud era where false gods would make "calls" and then conveniently hide or remain silent when the market didn't comply, or where even today, analysts will search for any excuse to -- as Desi would say -- 'splain their way out of it. Ego? In most cases, yes. Plus, I suppose admitting one is wrong is a lousy way to market an "advisory" service or sell books to lazy traders.

Well, I was wrong a lot on Friday. And last week. And last year ... including on one occasion being more wrong than a Ramirez/A-Rod/Clemens/McGuire panel on athlete innocence. Dead wrong. I'm wrong every trading day of every month of every year.

Not a great attribute for a trader you say? Well, I respectully disagree. Strongly.

Because so long as being wrong is followed by adaptation and recovery, being wrong can be a trader's best tool. And one of the main differences betwen the tiny few that survive long-term and the habitual wannabes is that the minority have an uncanny ability to adapt and recover.

Personally, I have a few blind spots in my trading that will likely always be there to some extent. Yet with all due humility, there's no doubt that for some reason I've been blessed with a strong ability to adapt and recover.

Skim the virtual pages of this almost-year long "live book" and you'll see it everywhere. Most of my decent days start off poorly, as do many weeks and even months. Last year's stats proved I generally suck on Mondays. Yet perhaps the best example is last October where on a Monday early in the month I had the largest loss of my career at -$94K, before ending the week positive by +$40K, and the month positive by +$315K. I mean look at the October portion of last year's daily performance by month, which will forever be a testament to the power of the comeback.

Yet I know many people who will likely never utter those three words so long as they're blessed with a breath on this planet. Never. And after pondering this concept for years -- including prodding a few close friends to simply say the damn words -- the only conclusion I've been able to reach is that they'd likely view such an admission as a weakness or character flaw which would expose their humanity. Amazing, admitting one isn't perfect. And I won't even go near the marriage pride arguments ... although I guess I just did.

Wrong in a trade? Like a biker about to hit the pavement, learn to fall gracefully. Then use the result as powerful knowledge that most won't gain because they're too stubborn to admit "they were wrong". And yes, even I can be a stubborn S.O.B. at times. I guess I'm wrong then, too.

Some things in life I'll never understand. Not being able to utter those words easily ranks in my top five pet peeves of all time.

It's not about being right. Umm ... there's a reason bikers wear helmets.

It is however about recovery. Fast and immediate recovery. And the faster, the better.

The temporary bruises will eventually fade, while callousing over to help soften the next fall ... cuz it's gonna happen again.

Personally, those three words are worth millions to me. Literally.

Have a great weekend.

15 comments:

Yngvai said...

Awesome post.

KN said...

I WAS WRONG…..no I was SPECTACULARLY wrong this week....you have an uncanny ability to virtually speak to me....

I had a disastrous start to May the worst for a very very long time lost nearly 10% of my trading account, but like you say this bruise will heal because I am going to fall again...

Max Ghello said...

Hi Don,

excellent post!

recovery, repetition, kaizen

greetings!

austinp said...

In 1989 I paid $197 for Larry Williams' “Money Tree” trading course. Twenty years later, I have no idea where that video package now is and have long since forgotten everything in there except for two facts:

#1: Small-range market periods lead to large-range market periods. Low volatility breeds high volatility, which in turn leads to low volatility.

Just about the time everyone is resigned that market conditions will never change is exactly when conditions will change.

#2: Trading is a business where you can never be right. Never. No matter what we do, our mistakes will always outnumber our correct decisions. That’s why grading ourselves on every minute` decision will come up with more of a batting average score than college test score.

Mistakes can always outnumber correct actions… so long as correct actions outweigh mistakes. It ain’t the size of our right or wrong actions that counts: it’s how much they weigh in $$ values. Size does matter.

The great news is, as traders we never have to be perfect. We don’t even have to be 50% perfect. We only need to maximize our wins and minimize our losses. And we only need to win once per day, more days than not to be good. Just barely profitable = the top ten percentile of our profession. Anything beyond that is outperforming 90% of the field.

That’s all I really learned in exchange for my $197 spent some twenty years ago. Looking back on that now from this stage of my career, I’d say it’s priceless :)

Mark said...

After a poor round Tiger will say I did not play well and go to the practice range and work on the problem.The average golfer after a poor round will go to the pro shop and look for a new putter or driver to fix the problem.

EricA said...

As Mark said...good traders work on themselves...dreamers work on finding the next indicator, chart setting or advisor service that looks good in a static, aftermarket environment.

As always, great comments Don. I also am a "perfectionist" who is continually seeking to improve myself. The one thing that stands out to me is the best "indicator" as a trader is yourself and approaching the business from the perspective that you will make mistakes each and every day, but to trust in your abilities and rapidly clear your mind and move on.

To use a sports analogy, I think back to John McEnroe (I know, I am in my 40's) and his anger...he found a way to frustrate his opponents while providing himself positive energy releases to beat the opposing player. I still miss his fluid playing and technique that allowed him to win against players that had "stronger games" but lacked the mental prowess he had.

The loss mindset you initiate daily, which I also use, is worth it's weight in gold.

ukxgerard said...

Don -- This is an interesting post I found on Bloomberg, published by the Harvard Business Review

http://www.bloomberg.com/apps/harvardbusiness?sid=H872858fb0d41a02e83610726b3b02b31

I have copied the first two paragraphs below, so just click on the link for the rest:

By Rosabeth Moss Kanter

There are three little words that extraordinary leaders know how to say, and I'm not thinking of "I love you" (but those are pretty good). The magic words are "I was wrong." Husbands and wives know that saying those words to each other can be even more endearing than endearments. When leaders say them to their teams in a timely fashion, they build confidence and can move on to a better path.

The simple sentence "I was wrong" is the hardest for leaders to utter and the most necessary for them to learn.

sg said...

Don,

Your blog is very helpful. I have a question if you don't mind. How do you determine "wholesale" price area?

Sam

TheRumpledOne said...

"I DON'T KNOW" has to be a close second."

Many people are afraid to say "I don't know" because they don't want to look ignorant.

I say "I don't know" almost daily. Ask me about futures and I will respond "I don't know" because I don't trade futures and don't know about them.

Ask me about a broker or platform that I don't use and I will say "I don't know" because I don't.

Don, I don't like to use "right/wrong" or "good/bad" in trading. I prefer to say "profitable/unprofitable". One reason is because you can have the exact same chart setup or pattern but have a profitable outcome one time and an unprofitable one the next.

By the way, did you post your Weekly Performance chart somewhere for us to download?

Keep up the good work, Don.

Don Miller said...

Good stuff all.

Rumple - Been trying to figure a way to post the Excel file for download, but haven't figured it out yet. Any suggestions welcome.

Absent that, it's a pretty simple Excel spreadsheet and would take about 5 minutes to input.

Sam - I'd tell you, but then I'd have to kill you. (Kidding of course.) It's probably sprinkled throughout the blog posts, but it's pretty basic technical analysis stuff in terms of the market's ebb and flow.

Don

austinp said...

After a poor round Tiger will say I did not play well and go to the practice range and work on the problem.The average golfer after a poor round will go to the pro shop and look for a new putter or driver to fix the problem.I imagine Tiger has upgrade replaced some clubs here & there thru his career. Would you agree? By their very own admission, many traders out there are still trying to make due with hickory shafted, persimmon-faced drivers.

Regardless, no one here is anywhere close to the Tiger Woods of trading. We all have our struggles, be that interpreting charts or interpreting ourselves. LW words still ring true: you can make a lot of money as a trader, but you can never be right. You'll always have too few contracts on for the winners, too many on for the losers, exits are never perfect, etc.

Even those of us with flaws can duff our way to success on the CME course :)

Don Miller said...

Speaking for several onlookers, most of whom don't post and prefer to remain anonymous and silent, I wouldn't bank the "No one here is anywhere close to the Tiger Woods of Trading" comment considering several consistent million dollar + Merc traders at the top of their game are following along, some of whom are beating the published industry leaders.

At a minimum, I know firsthand that we have several Vijays and Phils lurking quietly in the fairway :-).

pkmaui said...

Another "CLASSIC" Don !! - So well crafted by u too !

And the most diificult for me to master completly-knowing im going to be wrong many times EVERYDAY I wake up to play.

Gut-wrenching to the core!

austinp said...

"At a minimum, I know firsthand that we have several Vijays and Phils lurking quietly in the fairway :-)"I tried to say that the world's best ES trader, whomever that top earner is by random chance alone is probably not part of this specific conversation exchange. If he/she is here and I'm wrong about that, I am wrong about many other things every day as well.

Main point being, he/she as the world's top ES trader is often wrong too. That's all was meant to be said. A very good ES trader has said several times before, "Stop trying to be so darn perfect" or something close to that paraphrase. The absolute top-grossing ES trader out there is probably more aware of that fact than anyone else... important food for thought.

Heck, even Greg Norman made a mistake or two in his career. It all turned out ok for him in the end :)

Trader Kevin said...

"There are three little words that continue to be sorely lacking in this world, words that I've never been able to understand why some refuse to utter them. I see it in all walks of life, in my past corporate life and current non-trading business, and especially in the trading industry. And the words are, 'I was wrong.'"

It really is incredible how rare this is. As traders we don't have the luxury of pretending the markets are something other than what they are. You got long, they keep going down and you either admit you're wrong and take your first/best loss or you bleed money (or worse, cannonball) while insisting you're right and it's the market which is wrong.

And the market may, in fact, be wrong. But in the immortal words of John Meynard Keynes, "The market can stay irrational longer than you can stay solvent."

I've found it a great stress relief to admit I'm wrong. Admit you're wrong, move onto life's next challenge.

p.s. Don, I met an IT guy from your clearing firm while hiking with my dogs this afternoon. I didn't think it was professional to mention your name, so it didn't come up.