Friday, February 29, 2008

A Bit of Trading Perspective at the End of the Week

* Hard Jobs - I want to thank readers for their comments on the recent post concerning trading as one of the most difficult occupations. Reader Bryan, however, offers a worthwhile perspective. As difficult as trading might be, surely it is more challenging to be an educator or health care worker in an impoverished environment. And surely it is more difficult to live in a society that does not allow private property and where no one is free to voice their views on politics, economics, and world trends: where the entire concept of owning and trading assets is foreign. We are challenged as traders, but make no mistake about it: we are blessed to live in a time when a greater percentage of the world than ever is free to own, trade, and succeed financially.

* Very Promising Tool - The Newsflashr site is an excellent way to track and pull out news headlines. You see the hottest headlines on the home page, and a link cloud displays the most popular news topics. A bar at the top of the page enables searches for specific news, such as business, politics, and sports. Sweet.

* Frustration - I concur with the frustration voiced by Trader Mike in his recent post: the choppiness of trade both day to day and intraday has been wreaking havoc with many traders. I talked with a very good trader yesterday who has experienced considerable challenges trading patterns that aren't following through. I'm finding reversal trades to be the most successful, fading rallies that cannot lift the majority of stocks to new highs and vice versa. A good example occurred yesterday when we were able to get marginal highs in NQ during the AM but not elsewhere. (See Brian's worthwhile observation on QQQQ, focusing not so much on breakout as followthrough; excellent post.) I'm also seeing where trading small and holding through the chop for larger moves is working well, per my recent post.

* Learning From Example - I see Chris Perruna has linked an interview with the Trader Interviews service. I like the interview concept as a way of learning from example; Market Wizards was certainly formative in my own development. Here are interviews conducted by Dave of StockTickr.

* Good Reading - More fine links from Abnormal Returns, including a look at how analyst support is a contrary indicator and the message housing is providing re: recession. See also views from Bill Gross, Jim Rogers, and much more in Kirk's recent links. Excellent post here from The Big Picture questioning earnings forecasts.


John Forman said...

Brett - I couldn't help but chuckle at the Frustration part of your post. :-)

Sorry. It's just that I've had a fantastic run through all of this choppiness - so long as I've bitten the bullet and put on the trades that seemed like sure losers as per my earlier comment about trading scared, that is.

I think the potentialy more frustrating thing for many traders is the fake break which seems to have happened. The COT data shows an awful lot of small speculators long the mini S&Ps and the NASDAQ.

Ziad said...

Regarding the DIFFICULTY of trading , I think it was a great comment by Bryan. And I'd also like to add that as difficult as trading may be, in some respects it is not only easier to perform at high levels in trading than a host of things such as Bryan mentioned, but also easier than several professional sports and other performance activities.

The reason I say this is that while the rules of the game are constantly changing in trading, trading offers the BIG ADVANTAGE of a long series of "relatively" low stress trials. Think how different this is from what a lot of athletes experience.

For instance, think about the stress the Olympic athlete must feel knowing that he must train for 4 years just for one competition! there's no room for errors during the actual competition.

Think also about aspiring dancers, artists, and musicians. They might have only one opportunity to make it big in their life times. Take for example the American Idol contestants. One wrong song choice, or one screw up and it's all over no matter how good they are or the potential they have. Now that is huge mental pressure that could buckle anyone, and it takes an *extremely* strong mind to perform in such conditions.

Contrast all of this with trading. While there is high stress and pressure, you can make mistake after mistake with only minor repercussions if you have great risk control and understand position sizing well. Moreover, your overall performance is measured as the total of many small performances, and not a once in a life time event or rare major competition.

Finally, assuming someone has the rare potential (and willingness to work very hard) to truly be a great trader, chances are that they can reach this goal if they commit to it and do things right. But how many aspiring artists and musicians have immense potential and passion but never get the break they need, or get it but fail to capitalize because they buckle under the immense pressure of the do-or-die situation?

As incredibly hard as it may be, I thank God everyday that my dream of becoming a great trader has certain characteristics which make it easier than the things that other people have to deal with to realize their dreams. And that, is a source of comfort and hope I take with me each and every day to the markets.