Zen and the Art of Trading

I am a trader.

I have a plan.

I follow it.

Trading is boring.

Perhaps Zen is boring.

Perhaps boring is good.

MUTs are exciting.

Perhaps exciting is bad.

Yes.

Let me first state that anything I say has worked, or not worked, for my trading, and my trading only.

It may have absolutely nothing to do with your trading and any implementation of my thoughts toward your trading may make it worse.

I have learned that I will not get all the moves in the market place. I have always theoretically known this but have not been able to implement it. In other words I kept chasing the "missed" trades.

Curve fitting a system to take yesterdays missed trades is idiotic.

Have I mentioned humans are stupid?

Dr. Brett Steenbarger states one of the keys to trading success is recognizing when market conditions change and then adapting your trading technique to the new conditions.

I disagree.

I can't do that, I wind up chasing last weeks market conditions in this weeks market.

What I have to do is use a plan that has minimum and maximum conditions in it. Before my plan always had minimum conditions to be met in order to trigger trades, it now (last 5 months or so) has maximum conditions as well. I could call my system the Goldilocks trade. I only want the porridge luke warm.

So there are more days now when I just sit here.

I sit here and do nothing.

The results have been nice, higher win rate, higher RR, less trades, less comm, and a sense that I have a niche in the market, a niche that works, I just have to sit here and wait for it.

“I've wondered why it took us so long to catch on. We saw it, and yet we didn't see it. Or rather we were trained not to see it. Conned perhaps into thinking that the real action was metropolitan and all this was just boring hinterland. It was a puzzling thing. The truth knocks on the door and you say, "Go away. I'm looking for the truth." And so it goes away. Puzzling.”

Robert M. Pirsig

Remember this the next time you are thinking about taking a MUT.

I'M WATCHING YOU. (go full screen)

I'm Exhausted

After all this work I better lay on the couch and watch a movie.



On another note (get it, oh never mind) it's nice to see fiat money will be good for something.

I Just Sit Here

I do nothing.

With my new mut free lifesyle even my finger does next to nothing.


I think I'll go for a walk.

A Fine Line

Once again the 10,000+ hours to become an expert thesis is displayed. In this case going way over the 10,000 hours may become detrimental to your health.

A fascinating and sad movie.

Boone

Thanks for the kind words Boone, although our Premier's name is Alison Redford and our Prime Ministers's name is Stephen Harper.

Also Trans Canada is not going to build the pipeline to Kitimat, Enbridge is going to build the pipeline to Kitimat.

But anyway, he makes the rational points.

My New Hero

Where has this man been my whole life?

Have I been living under a rock?

Maybe he's just been hidden by the liberal media. :)

The book can't get here fast enough.



I need a trade, cause I'm buying these books as well.







I wonder if he will adopt me?

The good news, for a certain fellow who shall remain nameless, is I only have room for one hero picture in my office so Margaret Thatcher has to come down.

What's that I hear....police arrest independent trader in Britain due to a drunken rampage culminating in his running naked through the neighbourhood screaming she's gone, she's gone!

Mind Under Money

The whole premise of "rational economics" falls apart when they show the young man walking along the street as the narrator states he is "rationally" looking for ways to increase his wealth.

That idea ended as the age of consumerism started in the 1950s. The 1950s gave us television, credit cards, and the marketing that evolved with them.

People today do not walk along the street looking for ways to increase their wealth. They walk along the street looking for things to buy, looking to consume, looking to acquire things that give them the premise of wealth.

All of these things are ultimately worthless in a matter of years and only decrease their wealth over time. What makes this even worse is the fact that these things are not "consumed" with cash, they are consumed with credit.

Of course the wonderful economic mathematical models that predict our rational behaviour all failed miserably in 2008 when many banks found out that they and the consumers they serve were willing to do some very irrational things.

The Solfest economic model would be based on the premise that humans are stupid and therefore any bank should have risk management systems in place that assume this, and most definitely not assume any rationality in humans.

If humans were rational would we not then learn from our mistakes?





We don't learn.

Why?

Recency bias.

Prices went up last year, and the year before, and they're going up this year. Everyone is making money, I must get in, I must not be left out. (maybe the most potent emotion) We start to hear terms like "it's different this time" and the "new economy".

Then the collapse.

When you read, watch, and think about all the factors that are at play in our minds when it comes to money it's no wonder we struggle to trade the markets successfully.

The evidence suggests we are battling our very DNA as we trade.

We all need to ask the question, is this a battle we can win?

The answer for most is no.

The problem is that 80% of us think we are of above average intelligence. In case your math skills are as bad as mine let me remind you that the average in this case is 50%.

Get it?



We are not rational, we suffer from recency bias, we are over confident in our own abilities, we are led by the media bias, and I'm sure the list does not end there.

Good luck. :)

Does this mean......

Does this mean 2012 isn't going to have a 100% win rate?

Yes.

There's no exit marked as the "exit" happened on the entry bar.

Meaning....you know.

Romancing the Chart

The EIT was mocking me today, as he does most days, mocking me with that whimsical Irish lilt. Yes that's the part that hurts.

Mocking my system and my muts. (hey it's 2012 make that mut as in singular)

When he starts to sing Irish drinking songs in his whimsical lilt while counting his profits I go off the deep end and fall to the floor screaming why me, why me!

Move after move, no signals.

Mocking after mocking, no signals.

Then suddenly, it appeared, a vision of blueness, like a beautiful blue woman.

A what?

Ok I don't write romance novels.

But there it was, and it was good.

Commitment Device

To abstain from the enjoyment, which is in our power, or to seek distant rather than immediate results, are among the most painful exertions of the human will. N. W. Senior

It's physically possible to not take muts.

Yes it is, yet I take them. Not today, calm down.

So I think the idea of a commitment device is a good idea. We need the help, we need the commitment device. First I had the business and trading plan, and still do of course. But that didn't seem to stop the muts.

Maybe I need to re read Mark Douglas, be the casino not the drunk tourist from Hoboken I said.

I read it, I said it, I understood it, but still I take muts.

I tried the Pavlov method, follow the plan get some ice cream.

Still I take muts.

Maybe I don't believe in the plan, that's why I deviate from it?

Except I have stats, the stats don't lie.

I read the stats, still I take muts.

Now we have the very exciting (tongue in cheek) "Days Without a MUT Counter". This is public, public accountability, any failure here will bring public humiliation.

How long did the first string of days last?

Five.

Solfest hangs his head in shame.

Maybe I'm just stupid.

THAT'S IT!

I'm a human. (I forget this sometimes)

Humans are stupid.

Now what?

Goldstein talks about getting rid of commitment devices and being disciplined in what ever area we need to be. Learn the better behaviour.
That all sounds good but I think the commitment device is the way to learn the behaviour, change the habit, and if you need (ok make that if I need) any goofy kind of gimmick to do that, so be it.

Of course I could just lie and not change the counter back to zero if I take another mut.

Not sure how to get around that other than to say, who would that benefit.

I guess the answer is it would benefit my present self. However I think I have done enough work in the financial industry to understand that ignoring future self leads to ruin.

I have learned a few things over the years.

Plus if I do take a mut and tell everyone present self gets to write a blog making fun of himself.

Which is always fun.

There I think I'm set.

What You Don't Need

There are alot of books, blogs, and crooks that will tell you what you need to become a successful trader.

I'm going to tell you what you don't need.

You don't need many books, any blogs, or any crooks.

The only books you need are the ones that talk about the psychology of man and money. The books that tell you how to trade are useless, I know cause I read them all.

The only blog you need is of course this.......no I can't do it.

You don't need any. (sniff)

Now for the crooks, you would think this is rather self evident, apparently not.

Why is that?

We want someone to tell us what do, someone to tell us it can be done. We want to be part of a group, in fact we want to be part of a group so badly we will stay even if the entire group loses money.

We're just happy we are all losing together?

The most profitable part of this business is the business of telling others how to be profitable.

Unfortunately it is all a lie. You can spot the tell tale signs quite easily. First they start off with a free trading room / blog / seminar / web site. They spend this time slowly unveiling how successful they are, how much money they give to charities, how religious they are, how they struggled in the early years, and now they have the time to give back. Give back to all the little people who are struggling out there.

Then they institute a little fee, with most of the proceeds going to charity of course. Then the fee goes up, then they start to sell you trading systems, and then the mother of all mother lodes, they take your money and trade it for you. The really good ones don't even have to ask for your money. By this point you want to give it to them.

It is all a lie. A lie that feeds our little greed demon.

Run, don't walk, run.

The only way to have a chance at any success in this business is to do it all yourself.

Read a little, sim alot, track everything, set a limit for losses, and see if you can find your way.

If you can't that's ok.

Giving a dead horse mouth to mouth resuscitation is not going to work.

It's also disgusting.

It's like this you see....

Five whole days and off the wagon we go.

Oh the humanity.

All systems were blue, the 89 tick chart doesn't turn blue unless the others are. So I have my short order sitting at 101.70, the next bar fills and doesn't get hit.

Sooooooooo..... technically speaking (God forgive me) I should pull the order.

I did not.

Now, the justification, (God forgive me) I have done this before with success, I probably have done this before without success, except I don't remember those and I have no stats on it.

The computer would not have taken the trade based on the parameters I have programmed.

The human took the trade.

The trade (note singular) worked.

Does it have a statistical edge? I have no idea.

The human liked how the other charts had set up, the human said let it go one more bar and if it comes down to where you were going to enter anyway just take it.

Who's right, the computer or the human?

I'll have to think on that one, but I know if that one singular trade (God forgive me) had not worked today (humans can't remember anything else with accuracy) I would have smacked myself silly for breaking the rules.

Hmmmm, I may have thought enough already.

I guess we all know who was right.

Sigh.

The Solfest Resolution for 2012

It's a new year, a new start, at least for the tax man stats dept. We humans take this time to reflect on the past year, the future in front of us, the weight we will lose, the muts we will not take, and...... what?

Whats a mut?

Made Up Trade.

Can I go a whole year without taking a MUT?

Can you?

So, new for 2012 on the big Trading Crude Oil / Capital is Scarce / Prepare to be Wrong blog is the days without a mut counter.

Kind of like AA, I've been sober for 4 days now.

So were off, full of promise, and yes that exercise equipment in the basement should get the dust blown off.

Although I'm not putting a counter on that.