Wednesday, January 28, 2009

Wednesday Notes - The Little Things

4:46pm I'll be the first to admit that my January has been less than spectacular, which we'll review for the first time on Friday. When we do, I expect the results will reflect a combination of a mental break from the '08 non-stop race and a desire to simply try to establish some new momentum for the new year. Essentially, I'll likely classify the month as reflecting a lot of "little wins", including today where I traded lightly (normal for me on FOMC days), stayed out of trouble, and booked another small win.

Yet sometimes, it's the little things that add up. Take the attached "micro" chart which in itself looks fairly meaningless in terms of a one-minute chart and two very small moves. Yet stopping on the long attempt and reversing on the short attempt with larger size (see notes in box ... click chart to enlarge) allowed me to avoid a loss and do better than breakeven with the adjustment in size upon seeing more market data.

It doesn't look like much, and clearly wouldn't make any headlines. Yet these are the "little" wins that no one likes to talk about [not worthy of guru chest-pumping I suppose] that can add up over time in terms of avoided losses and small scores.

There will be occasional triples and home runs in 2009, as well as strikeouts and hit by pitches. That much is certain. Yet in the meantime, I'll have to accept the 20th consecutive small daily chip gain as I continue to wait for that pitch over the plate at a time when focus and execution match opportunity.

As the countdown ticker to the left suggests, we're barely into the '09 journey.

337 days is a long way to go, and the only score that matters is -- as you should all know by now -- that on 12/31/09.

The game is still young.

Feeling like doing a video tonight ... stay tuned.


Severino said...

Hello Don,
Congratulations on your horrible start to 2009. Just kidding of course,now get it together…

I have a couple of questions if you don’t mind.

Could you elaborate a little on how you perform best when approaching the market from a drawdown state of mind yet you always give yourself top grades for emotional control? I understand that some people run harder if they are coming from behind. (Even though you are the only one in the race). Having read enough on why this works best for you, do you approach it with positive affirmations?

I know that you do not use a set stop and also think of it as one of the mistakes of new traders. At what point did you come to the conclusion that your were wrong in today’s trade? Was it the lost of momentum, a drop in the tick, a close under a previous bar, a feeling?

Do you really think a new trader has the mental capacity to do this when they are starting out, knowing that ego and the need to be right is one of their biggest detriments, along with a number of other vises?

Thanks for having the wisdom to know that giving will get you more then anything else. You are a gem.


Don Miller said...

Hi Severino.

Good comments & questions and I'll do my best to respond.

In my view, I think there's a key difference between emotional control and what I would call an "intensely focused state". So when I'm coming back from a draw -- especially a sloppy one that I let get away from me -- it's the mental sharpness that ramps up instead of an emotional undoing.

You're astute in noting the several green scores in that category, yet I'd look more at the focus section near the top to better gauge whether I'm in that "helpful" drawdown state of mind. Perhaps it's like a closing relief pitcher that does better when he comes in with the bases loaded vs. starting an inning or coming in during a blowout.

With respect to the stop, it's not that I think it's a mistake ... I just usually manage risk more with size. Yet when the premise for the trade no longer exists, as was the case when the market traded back below its prior breakout level this afternoon, I surely pulled the plug. My view is if the reason one got in the trade in the first place is no longer valid, you have to get off the bus.

In my case, it's just that if I'm halfway on my game, stops are fairly unusual as the entry points are usually around pretty decent wholesale levels.

In terms of newer traders, I think being overly tight may actually be helpful early on as one learns to discipline oneself while learning where the true wholesale entries are.

In a way, I can relate very clearly once again to newer traders as I continue to try to grow my poker skills. For example early on, I should definitely have thrown more cards away pre-flop or have gotten away from hands when I knew I was beat, but ego and the belief I had "capital invested" both hurt me ... just as it does for many new to trading.

The more I understand what poker betting position means, what strong starting hands are, and how to see cheap flops with subtle starting cards, the less likely I'm going to need to "take a stop" later in the hand.

Likewise, the more traders focus on learning where the wholesale entry points are, the less likely they'll need stops over time. We'll still have to take them of course, but hopefully, it will be a lot less often as time goes on.

I hope that helps and thanks for the comments.

One person's opinion as always.


Severino said...

Thank you.

The relief picture was a great analogy and really brought it home for me and will help a lot. I just printed a picture of a pitcher (that sounds funny) to remind me to stay focused. Not only on the mechanics, but especially on the game. There is a big difference in aiming for a corner instead of just throwing the ball because I have one. (That also sounds funny)

The answer on the stops is a great reminder to having a “why” you get in a trade in the first place.

For some reason I always thought that wholesale price was just applicable to you, but it is something that we should all strive for. Maybe it was the CME thing.

I am glad that you said that you think newer traders may want to use stops at first. Truth be told I was a little concerned that newer traders would rationalize to themselves that, Don doesn’t so I shouldn’t. Not until they can at least state why they are getting in the trade in the first place.

I have a funny feeling that there will be a lot of future poker players that may leave with less then they came with having sat across from you.

Thanks again,