Tuesday, June 30, 2009

Tuesday Notes - The Future is Bright

4:00pm And so we finally lower the curtain on June and Q2 and get on to, well, getting on. And while I managed to steady the ship enough to eke out a small monthly gain (which was looking doubtful last week) with a third straight modest day of tight, conservative play, it's essentially an irrelevant scratch month as I look to the future.

And since the only thing trading income or losses ever provide is a purchase or use of time, it's essentially as if June never happened. And given the events of the past month, I can more than live with that. Now can we somehow undo that knock on the head??

I've certainly beat the topic of my personal Q2 to death over recent weeks, and so I won't dwell on it further except to reinforce that it was NOT simply a matter of declining volatility and change in market pace. For If I had to apportion the cause for the Q2 blip, I'd allocate 50% to indifference/burnout/sloppiness, 30% to health & scheduling conflicts with one of the most expensive tooth fillings one has probably ever had, and only 20% to reduced volatility. As I've long said, good traders make money in all markets ... they just happen to make more in those which favor their pace. The first one is 100% my fault, which will be remedied, and I'm diligently working on the second one.

Which brings us full circle to last week's video on "outliers". Naysayers will continue to shout that Q408 per the attached chart (click to enlarge) was an "outlier" and Q209 is "realism". On the other end of the spectrum, eternal optimists will say Q209 was an outlier. The truth, of course, is they're both outliers. Ummm ... that's why Olympic judges often throw out the high and low scores.

And isn't it interesting that the average of the two outliers (green line) comes oh so close to the average of the last six quarters (red line), which makes complete sense when looking at the "non-market" attributes of both quarters: Q408 intense focus, committed, zoned in, healthy vs. Q209 often indifferent, lazy, sloppy, mega-schedule conflicts, etc.

Note I didn't mention market factors at all in the above paragraph. Again, decent traders make money in all markets, while poor traders blame changes in the market for changes in their performance. In my view, the primary separating line between the two is commitment and focus.

I of course know with 100% certainly that Q209 is no more indicative of sustainable performance than Q408 was. For they both are what they are, composite sample reflections of life and choices ... with some market seasoning sprinkled in.

And now we look ahead. Tomorrow morning, I visit Boston's Beth Israel Spine Center to give another expert team a crack (pun intended) at solving my nagging back problem. After that, it will be back to work to focus on solving my nagging trading indifference problem.

Both will be fully resolved. After all, I'm a trader ... I don't give up ... ever.

The calendar of course gives us a chance to memorialize the past, benchmark against ourselves and others, while turning the page for a fresh start.

Yet do we really need an arbitrary piece of paper to tell us it's OK to renew? Hell, we're traders and we profit taking the other side of popular opinion. We can turn the page any damn day or moment we please.

The past is history.

The current moment has already passed ... think about that one for a second.

The future is all that matters.

And the future is very, very bright.

This time, I think we'll need eye black.


Learnr said...

Hey Don,

As I read your entries I can't help but sympathize with your lower back pain. I went through something similar with a herniated disc myself and i will tell you it was nothing less than life altering. I basically couldn't function.

I hope you don't think this is kooky or anything but I strongly believe in a mind body connection. Through my own experience with backpain i noticed that there were certain aspects of my life at the time that were unresolved and i guess weighing on my mind and in my opinion my body (i.e. lowerback)

You might want to look into a doctor by the name of John Sarno. He has a book titled "Healing Back Pain". It's a shot in the dark. But what's the worst that could happen?....Oh well ..... just thought i'd share this info with you....

Good Luck my friend and please keep up this amazing diary.....It is truly something else.

Niraj Prasad said...

Hi Don,

A question of a different nature. The world thinks you are a good trader, I think you are a good trader and a good writer. Have you been always like this ( good at writing)? May be it is the prolific blogging which is letting you express yourself in ways you could never have imagined before. May be its your education, may be its your quality reading, may be all of the above. Can you throw some light, not that it impacts trading one way or another.

Or may be it does. This business is so much about being at peace with oneself, accepting human vulnerabilities, quantifying it, expressing it in words and hopefully overcoming it, one would think these writings help at some level.

I have subscribed to LBR groups services too, and consider Linda as one of the greatest trader of modern times. I have found her to be an avid reader and quite good with words too, is it just a coincidence?


Don Miller said...

Learnr - Thanks very much ... I'll check it out.

Niraj - Very interesting and deeply thought provoking discussion.

I think it's a combination of a number of things. First, yes, I do enjoy writing ... and was told from an early age it seemed I'd been given somewhat of a "gift".

Second, while rambling via the personal diary on a daily basis began strictly as an experiment, I firmly believe channeling my thoughts in this manner -- as well as connecting with quality traders and human beings via the comments -- was an integral ingredient of the last few years of tremendous blessing.

Third, I've found that the diary allows me to productively vent my frustration not only with myself, but with pockets of this industry that only purposely choose to share 1/2 of the story. I try to be a full story kind of guy.

Lastly -- and perhaps most important -- the writings seem to flow very naturally and easily from deep within. And if #1 is indeed true in terms of being handed a gift with the virtual pen, then it makes sense to share with all who enter these virtual doors.

I also love parables, which you may notice is a very common theme in much of the writing. That one comes from the best Teacher of all.


FXpropTrader said...

Hey Don

Just wondering about something. Your stack has seen impressive growth and your total equity is substantially higher than beginning of Q1 08 (in itself already great).

Do you limit the size of your trading the same as then or are you increasing it?

Basically trying to find out whether you are getting this last 3-4 quarters return trading same sizes as always or whether instead of say 50 lots in Q1 08 you now use 100 lots when same "setup" occurs.

As with all systems that get large following or are traded in bigger and bigger sizes intraday the profits get smaller (I know it would be like that in single stocks anyway). If your system works just aswell with 1000 contracts as with 10 I'd be surprised. That's why if you always had say 5 guys piggybacking your ideas you'd impact the market potentially changing/taking away opportunities... (probably not a bad idea to use more than one broker if you ever do increase size substantially - it's a small world and success attracts imitators?)

Your thoughts?

Don Miller said...

FXProp -

Since I'm only after a set annual income $ figure ... and not return (see the "My Thoughts on ROR" post in the Key Link section in the lower left), I really, haven't adjusted size that much in recent years and pretty much like the business plan where I'm putting less of a % of my capital at risk as I approach the age of 50 and the stack grows to meet my needs for the next few decades.

[That's not to say I'm completely opposed to increasing sizes, it's just that it's not my primary focus.]

So doubling or tripling my current sizes -- either via me or others -- would likely have zero impact on the market, except during illiquid hours or in illiquid markets.


FXpropTrader said...

OK thanks. I remember reading that you weren't too keen on increasing risk somewhere (thanks for pointer to ROR post).

But that was kind of at odds in a way (in my mind) to your other philosophy/rule that you must push when things are going your way.

Then again I guess there are always small ambiguities and your system is working like a swiss clock over past 48 months, so it's all good :)

But I'll be very interested to see or read about what happens when and if you ever increase size (with or without others).

Don Miller said...

FXProp -

Oh I defintely push size and aggressiveness when market and personal conditions are right ... the comment on size was meant purely from an equity growth perspective.

What I do is also clearly not a system ... rather discretionary on-the-fly market feel decisions, largely aided by short-term tehnical analysis.


FXpropTrader said...

I guess it's semantics, but all your thousands of hours of observation and experience have probably led to your brain registering dozends if not hundreds of subsystems and hundreds of rules on how to act under different trading conditions or circumstances. Your brain/mind then being the shell for this "system" I was referencing in this case. Your brain = system as it's not random decisions based on no prior evidence... Anyway :D Thanks for your patience with my questions

Niraj Prasad said...

Thanks, Don! Your comments regarding writing skills were helpful, just confirmed some of my own thoughts! Great style of writing /communicating, keep it up!!


Anonymous said...

Hi Don,

concerning backpains.....maybe you should invest in a better chair .... and a weekly massage would prob. not hurt either

Kareem said...

Hi Don,
This might sound crazy but, George Soros (I believe to be one of the best traders of all times) had said in many occasions that there is a very strong relationship between his trading and the back pain he suffered. It was a trade (or a market position in his case) that started and kept the pain, not the other way around.
Below is a part of an article about George that was written by Alan Deutschman;

“Like other investors, Soros had colleagues gather information and perform analyses. But he also had an extraordinary gut. He said that he would have an instinctive physical reaction about when to buy or sell. Normally his composure was cool and emotionless, but when he suffered from a bad backache, he took it as an ominous warning about problems in the market. "I used the onset of acute pain as a signal that there was something wrong in my portfolio," he once explained. "I rely a great deal on animal instincts." “