Year-End Post - My Greatest Lesson of the 2000s

With all of the "Best of the Decade" lists being published this week, and as I make some decisions as to where to take this blog in the future, I thought I'd join the parade and provide my top personal trading lesson of the decade as we get ready to welcome in 2010.

While I could write a blog on the hundreds of lessons I learn every day (wait, I guess I've already done that), if I had to choose one lesson that's had the most dramatic impact on my trading career -- and ultimately the P&L -- discovering the magic of outliers would likely be the greatest take-away of the last decade.

For such reflects an often-illusive concept that the vast majority (who still don't "get it") fail to grasp. And by "discovering", I mean learning when they occur, stalking them, and ultimately taking action on them.

To illustrate, let's work through four scenarios, using two from the poker table and one from the trading "table":

Scenario "A" (Cash Game Poker):

Player 1: You're a cash game player, great at post-flop play, and choose to play almost every hand to the river Gus Hansen or Michael Mizrachi style, grinding out a consistent income over time by outplaying the other guy from start to finish enough times such that the net result provides a decent living.

Player 2: You're also a cash game player, watch all of the same hands as Player 1 does, yet instead wait patiently in the wings over a long period of time for a premium hand where you also know the "other guy" is trapped, and one time finish the hand with a straight flush when the other guy is holding quads (4 of a kind), and pretty much has to call anything you bet. And then a similar scenario happens on the very next two hands where it's clear you have the "nuts" and the other guy is -- well, screwed.

Scenario "B" (Tournament Poker):

Player 1: You're a strong tournament player, and employ a style that places you "in the money" enough times to grind out a living, as you play conservatively on occasion to ensure yourself of a paycheck.

Player 2: You find yourself at the World Series of Poker or one of the stops on the World Poker Tour, and sense that (a) your "game" is on, (b) you have an evolving clear advantage over the remaining field, and (c) the flops are incredibly conducive to your strength and hole cards. You thus "go for the throat" and win one or two tourneys, spending other time pursuing other interests.

And finally, scenario "C":

Trader 1: You're a short-term intraday trader -- say this "young" guy in the pic to the left without any grays -- and after making it through the steep learning curve and joining the small minority of traders who consistently profit, you earn a fairly consistent $200K+ annually by essentially trading the same way day-in and day-out, grinding out your daily keep by spotting intraday market inefficiencies (the topic of my upcoming NY speech). Not a bad sum, especially in the current economy and in line with many middle- to upper-end salaries working for an "employer", and you're able to support a family of four on one income. In five years, you would have of course earned $1 Million, and in ten, $2M.

Trader 2: You're also an intraday trader, and after making it through the same learning curve, you sense the combination of your trading skill reaching a peak, a market that is conducive to your strength, and the rare opportunity for a windfall profit where you can earn a decade worth of income in a tiny fraction of the time. The rest of the time, you're simply grinding it out, stalking a repeat opportunity, or pursuing other interests.

Now for the question: Who's the "better" poker player or trader in each of the scenarios??

It's of course really somewhat of a trick question, and there may be a few flaws in the details of each scenario (yes, tourney players have to play a lot of tourneys to stumble across those sweet spots and also have to be aggressive at times). Yet the point is that there is really no right answer. For in the long run, Trader/Player 1 and Trader/Player 2 both adeptly perform a unique skillset, and both conceptually earn as much as their counterpart.

Yet I believe that while good players/traders tend to specialize in one style, those that can "morph" into the other style at appropriate times have a chance to capture that element of "freedom" that first enticed many of us to pursue this crazy business in the first place.

At my end, I tend to be the grinder, which I was almost exclusively for much of the first part of the 2000s (the young guy in the Scenario "C" pic). Yet as time went on, I learned how to morph into Player/Trader 2, especially during the last few years. For history shows that when the time was right and market emotion was as rampant as it ever was, I gunned it for all it was worth before finding, and then applying, the brakes and going back to "grind" mode -- a mode which I'm currently in.

The key in my view is to first determine your greatest strength of style and/or market condition, which will take time and vary from trader to trader. For example, on a scale of 1-10, I tend to trade volatile, emotional markets and days after trend days very, very well ... say a 9+, while I trade quieter or "drifty" markets OK, but not as well ... say a 6 or 7. On the other hand, others may excel in those "drifty" markets, as would be the case for swing traders.

The second step is then to know when such conditions exist, and the final step being simply acting on your conviction.

A small minority still refer to my last few years as "luck" (with a career 2.4-1 win/loss dollar ratio over the last decade ... go figure), which is only unfortunate because it reveals that they're missing perhaps the key ingredient in all of trading: The concept of stalking the outlier.

Many of the Jellies discovered this after weeks of pounding it into their brains, as I summarized in the September "Keys to the Castle" post ... which to no surprise is one of the most accessed posts of this year. And the outlier doesn't need to be a single trade. It can be those 1-2 trades a week, those 1-2 months a year, or those 1-2 years over a career where conditions exist where you can supplement the rest of the grind, or simply pursue other endeavors.

Or said another way, outliers provide you with pre-paid life options.

I don't know where this blog will go in the future.

Yet if for some reason these end up being my final written words, they'd all be bolded in red and I'd be screaming them from the rooftop.

For in the 90s and early 00s, I learned how to trade.

But in the late 00s, I learned how to TRADE.

May you exceed all of your trading and life goals in 2010 and beyond, and may God bless you and your families beyond your wildest dreams.

For these are my final words **.

** At least of this decade :-).

Special Post - ADA Tally Update

As we close the books on 2009, I'm pleased to report that we've now raised $14,292 for the the American Diabetes Association as a result of the 15% Q3 "jump start" Jellie Video campaign and 5% Q4 effort.

A reminder that 5% of all ongoing net proceeds from the Jellie educational videos will continue to go to the ADA in 2010.

My continued thanks to all who have been involved in this worthwhile effort.

Tuesday Notes - A Different Kind of Tank

Call it a temporary "isolation" tank as I try to combine some R&R and secluded focus heading into the new year. I expect normal posts will resume shortly.

Monday Notes - Blog Decisions

Like many traders, this week will be a light trading week for me.

In the meantime, tonight I spend some time thinking out loud as to the evolution and future of the blog.

The Weekend Trader - Striking a Balance

Teaching vs. Trading.

It's been a long-standing industry debate for decades, and an internal debate at my end since I was first asked to help train traders in the late 1990s ... especially as I find myself faced with continued inquiries from traders and brokers to help train.

At the industry level, the debate has long focused on the fact that most successful traders don't want to have anything to do with teaching for three reasons: (1) A perceived loss of edge, which to me is a cop out beyond proportions -- but that's a topic for another day ... a long day, (2) a true loss of income, as good traders will indeed earn less from teaching than maximizing trading, and (3) the most effective training takes a great deal of time during live markets in all conditions ... which of course brings us back to #2.

At my end, the internal debate has focused around two other areas. First, I find myself at the end of a long line of generations of teachers. Great-grandparents, grandparents, both parents, my lone sibling ... they all taught and sacrificed financial gain and other pursuits for the benefit of others. I, on the other hand, chose early in my life to pursue entrepreneurial efforts, from climbing the corporate ladder on a fast-track executive development program where I found myself running companies in my mid-30s, to eventually finding my way to trading ... which as I described in a 2004 Stocks & Commodities interview, is what I continue to call the "Ultimate Entrepreneurial Experience".

The second internal debate at my end is my long-standing belief that the best trainers are usually those who continue to prove their merit on the battle field -- and in current markets. I say "usually" because there are rare exceptions, including in my opinion the good Dr. Brett who again recently indicated that the daytrading grind wasn't for him, yet who has made strong contributions to trader education over the years, including "The Psychology of Trading" which I believe is a classic. On the other side of the spectrum, there unfortunately have been -- and continue to be -- outright frauds in this biz, which too many of us have witnessed firsthand.

So all for these reasons, it's usually difficult -- if not impossible -- to balance both. And perhaps such is why I too have struggled with the internal debate at my end as how and whether to balance both. For am I a trader or an educator?

Ironically, the decision would actually be fairly simple if either was a bust (not the case), if I simply liked one more than the other (I enjoy both), if I had aspirations to be the world's best trader or educator (which I don't), or if financial gain was the sole motivator (which it isn't). Yet it's a debate that seems to only intensify as time goes on ... especially as what I had planned as merely an interim return to trader education over the summer with a single experiment with the Jellies evolved into a 2nd, then 3rd, and then an unpublicized and very quiet (intentionally) 4th effort at the request of both traders and brokers.

Over the last decade, I've balanced the two primarily by shifting emphasis back and forth.

One example is when I voluntarily stopped doing a popular daily column and other educational efforts several years ago for TradingMarkets (many past articles btw remain avalaible there) ... a difficult decision at the time given my respect for -- and association with -- Larry Connors. Yet the efforts were simply infringing too much on my trading focus at the time.

And then again in 2006, when I stopped all teaching and speaking efforts to focus my market energies 100% on taking my own trading to the next level ... which continued until the 2008 public diary launch and 2009 Jellie experiment.

And yet as I mentally cleanse the brain over the next week, I'm faced with strong momentum on both fronts: personal trading performance where I'm planning on climbing to the next plateau, and surging educational demand.

Some have suggested I consider getting some help (no, not that kind of help, although I'm sure some will think I've always needed it!) by building a staff to help on one or both fronts. Yes, this is all just me ... every letter, graphic, & silly analogy in the blog, every trade with my broker, every blog email response, and every dotted "i" and crossed "t" in the Jellie efforts. I may be one of the few speakers in NY without an entourage.

It's long been said that career choices and options are good things, and I admit I consider myself to be in an extremely fortunate position from that perspective. Yet choices can also result in incorrect decisions and priorities, not to mention sub-optimized focus if one tries to be a jack of all trades, but master of none.

And while time will provide the ultimate answers, my guess is that I'll continue to try to strike a meaningful balance between the two, perhaps taking a periodic break to work with people as I did at times this fall, while continuing to make the Jellie videos available as I spend most of my of my time actively trading the markets, aiming for even higher goals, and continuing the never-ending journey of self-discovery.

If I were to envision my year-end post for 2010 a year from now, I would hope it will mention that I continued to improve myself as a person and as a trader, while finding time to help others along the way.

For as was the case in Mr. Holland's Opus, I imagine the rest will take care of itself.

For the world needs both directors and players, even if choosing between them may be difficult at times.

Have a restful weekend.

Silent Night

Special Post - Another Night to Dance

Fahoo Fores! Dahoo Dores!
Welcome Christmas, Come this way!
Fahoo Fores! Dahoo Dores!
Welcome Christmas, Christmas Day.

Welcome, Welcome Fahoo Ramus
Welcome, Welcome Dahoo Damus
Christmas day is in our grasp
So long as we have hands to clasp

Fahoo Fores! Dahoo Dores!
Welcome, Christmas Bring your cheer
Fahoo fores! Dahoo Dores!

Welcome all Who's Far and near

Welcome Christmas, Fahoo Ramus

Welcome Christmas, Dahoo Damus
Christmas day will always be

Just so long as we have we

Fahoo Fores! Dahoo Dores!

Welcome Christmas, Bring your light.

Dear Diary.

Like most traders, my year for all intents and purposes is complete as we get ready to welcome in Christmas, then New Year's Eve, and finally 2010.

And like all traders and all years, 2009's journey brought its own bundle of challenges, new learnings, disappointments, and accomplishments at this end. btw, a heads-up for diary onlookers who don't care to rehash the past ... while this reflection is important to me and needs to find its place in my diary, you may want to skip this post.

As so as I take one final look back at the last 12 months, I'll summarize key trading events in various categories so as to again try to use past lessons to navigate the road ahead.

Greatest Irony - As I stated at the end of 2008, I had planned on taking a long break in Q1 before ramping things back up. Instead, I couldn't ignore the continuing personal momentum and instead kept pressing the accelerator to the floor for another five months until the energy tank ran bone dry toward the end of Q2. Which reinforces the continuing adage that the market and your performance dictate breaks and respites in this performance-based business ... not your desired schedule. So what was initially planned as a Q1 mental break instead was postponed until Q3.

Most Memorable Moment - Yes, it's that infamous bump on the head and ride in the ambulance just before dozens of traders who I'd never met were to show up at my front door at the Boston Bamboo trader picnic.

Greatest Disappointment - "Landing on the Moon." For while I did initially want back to back 08-09 Million dollar years, I had to settle for it on an average vs. absolute basis as the result of overshooting the '08 target and undershooting '09. As I said a few weeks ago, last year I shot for the stars and found myself in a completely different galaxy, versus this year where I shot for the stars and instead hit the moon. For most, '09 would have been a Bamboo year. For me, it was simply "solid".

Then again, after looking around, I also learned that the moon is a pretty cool place.

Greatest Frustration - Not being able to restart my energy & motivational drive mid-year as quickly as I would have liked. And while I knew once I shut it down, it would take a while to restart, I underestimated its duration and was disappointed in my inability to quickly recapture the spirit and intent of the fictitious draw concept. Essentially, I found it very difficult to get "appropriately angry".

Greatest Trading Regret - Not trusting my gut and adjusting my personal scratch/re-entry risk management strategy at various times when volatility was low. Essentially, I sometimes didn't trust my reads as the market took its time to do what I expected it to do. Sort of like a golfer reading the green right, then backing away from the putt with some hesitation. It's frankly rare when I can't read a market, and I should have let time be a better partner.

Most Unexpected Event - This one's a tie: (1) Losing 25 pounds and getting back to my wedding weight from 1985; and (2) Deciding to finally shut up about simply moaning about the lack of quality trader education and using my Q3 "break" to launch a full-scale & multi-faceted live training program which became the Jellie effort ... which leads to ...

Greatest Satisfaction - Creating and now trading amidst a team of traders who I would trust with my life, and helping the American Diabetes Association in the process.

Stupidest Decision - Abandoning the personal scorecard after it contributed to a mind-boggling 58-3 record in Q1. A decision that may rival Bill Belichick's 4th and 2 decision in Indy.

"Coolest" Moment - Working closely and trading stories with a former NFL quarterback, who was part of the charter Jellie team and continues to trade alongside the team. He's a class act, too, and I've learned a great deal from him.

Hardest Lesson - Learning to apply the brakes. As I've often said, this Type A sucks at taking breaks and vacations, and was figuratively dragged away kicking and screaming toward the beginning of the summer. So this year, I discovered my car had a brake pedal ... although I was definitely using the Fred Flintstone "foot-dragging" approach for much of the time.

#####

And so another "day" comes to a close, and another "night" is upon us. If you're new to this trek, I view each year as a single "day" or "trade". And if you're wondering why I've entitled today's post, "Another Night to Dance", it's a follow-up to last year's year-end motivational post to remind me -- along with all onlookers - that each year -- no matter what the result -- is indeed a cause for celebration.

For me, 2009 was in some ways more gratifying than 2010, as I had to learn a new skill (brake pedal pushing per above), hone a long-abandoned skill (trader education after a multi-year hiatus), and somehow balanced continued capital growth with preservation ... the latter of which is becoming important for me as I rapidly approach the half-century mark.

And while I had my share of setbacks in 2009, today is a good time to remind ourselves that the "Grinch" we call the market, our pundits, or our inner doubts and fears, will never be able to take away our spirit and hope for the future.

Whether you had a Bamboo, moon landing, or more challenging year, I'll leave you with the same thought from last year, "If someone ever tells you "you can't", they're dead wrong. If you're breathing, you can and you will. Regardless of what the pundits say or how much the temporary pain may sting, don't ever let anyone take away your spirit and joy for life. Who knows, 2010 may very well be your personal Bamboo year."

For it is indeed another night for all of us to dance.

Fahoo Fores! Dahoo Dores!
Welcome Christmas, Bring your light.