Sunday, January 14, 2018

One Easy Way to Enhance Your Market Vision

I've spent some time this morning reviewing websites and Twitter feeds that are market related.  There are some really good things out there, and there are some really bad ones.

The broadest generalization I can make is that the awful sites are ego based.  They focus on the calls made by the guru, the services offered by the expert, etc.  Generally there are one or two pet ideas that are offered as the solution to trading and, of course, the writer just happens to be the go-to person for those key skills.

The valuable sites are truly idea based.  They don't just make market calls; they illustrate reasoning that goes behind the views.  A good word for these sites is that they are evidence-based.  They educate and illuminate.  They are not primarily pitching the writer.

Consider the Market Anthropology site.  You don't have to go too far into your reading to find interesting perspectives on interest rates and the big moves in a few asset classes.

Or how about Jeff Miller's Dash of Insight site, with well-documented perspectives on market sentiment and changes in economic conditions?

Take a look at Chris Ciovacco's site and its insights on market valuation and taking an evidence-based approach to charts and market views.

Note that these are not the most trafficked Twitter feeds and trading sites.  The most trafficked restaurants are fast-food joints, not gourmet eateries; shopping mall retailers, not designer boutiques.  Those who seek quality are generally not part of the traffic jams.

Which sets up a great way to enhance your market vision!

Find Market Anthropology, Jeff Miller, and Chris Ciovacco (or your favorite source of ideas) on Twitter or StockTwits and then look up their followers.  See who follows quality people who are relevant to your trading--and you're likely to discover quality people relevant to your trading!  The chances are good that, in tapping into the networks of people you respect and admire, you'll discover others who are worthy--and who can feel your head.

Imagine adding just two fresh sources a week from the networks of people you respect.  Over the course of a year, you will have greatly enhanced your vision.  Building the right network online is a great way of cultivating a rich cognitive network--and that's a great way of finding the creative ideas that go beyond consensus views.


Friday, January 12, 2018

When Your Passion Becomes Your Poison

A while back, I asked the question:  Does your trading psychology have a dark side?

It's an important question.  So many times, it's not our weaknesses that trip us up, but the misdirection of our strengths.

Consider the motivated, eager, passionate trader.  He becomes so pumped up that he pounces on the first "setup" or idea to come his way, only to lose meaningful money minutes and hinder his subsequent efforts.  That very passion has become his poison.  Enthusiasm, taken to an extreme and not directed, breeds impulsivity and overtrading.

The risk prudent trader can become risk averse.

The active trader can become overactive and distracted.

The competitive trader can become frustrated and unfocused.

The creative trader can flit from one idea to another, one system to another, never developing expertise.

The disciplined trader can become rigid and unable to adapt to a change in the market.

In all these cases, strengths can become vulnerabilities.

This helps explain why so many common approaches to trading psychology don't work.  When we try to reduce or eliminate our problems, we find it difficult to stick to those efforts because those problems spring from our strengths!  We naturally gravitate toward what we do well and what speaks to us, so it's not surprising that we find ourselves repeating problems despite advice to the contrary.

So how do we use our strengths and ensure we don't abuse them?  The key principle to keep in mind is that we best channel our strengths by cultivating their opposing, balancing qualities--and then integrating the two.  The more we draw upon a single strength, the more we need to develop a balancing strength.  A good example would be the aggressive trader.  He or she reaches a new level of development by blending patience with aggression.  The blending of the balancing strength--patience--with the original strength creates a new, higher-level capacity.  The potentially crazed warrior becomes a self-controlled, lethal sniper.

Yet another example of using a balancing quality to channel a strength would be for the introverted, analytical researcher to develop a social network and identify when positioning runs counter to tested models.  The blending of the research focus and the ability to read sentiment creates an entirely new opportunity set, where it becomes possible to take advantage of situations where the crowd leans the wrong way.

Notice in these examples, by cultivating a balancing strength and integrating it with a strength and passion we already possess, we create something new.  We create opportunity.  Strengths only have a dark side when they are overutilized and unbalanced.  Cultivating balancing strengths can literally take our game--personally and professionally--to new levels.


Saturday, January 06, 2018

How to Get the Most From Your Trading Practice

An excellent post from NewTraderU and written by Colibri Trader explains how 10,000 hours of practice typically goes into the creation of expertise.  As the post makes clear, there is a world of difference between repeated experience and practice.  Practice, in the sense of deliberate practice, means that we actively reflect on our experience, examine where we've fallen short, and then institute efforts at improvement.  The trader who trades for a month and merely jots notes in a journal is repeating one day of trading 22 times over.  The trader who makes daily efforts at improvement, using trading results as feedback to guide future efforts, compounds learning 22 times over.

This is how expertise is created.  We learn with each practice session, feed that information to the next practice session, and continually make incremental improvements.  If we simply target our one biggest mistake each day and figure out why it occurred and how we can prevent the occurrence going forward, we turn trading into a series of performance drills.  Practice can make perfect when we perfect the process of practicing.

One of the reasons the report card has become a major tool in trader development is that it anchors the process of deliberate practice.  When we grade ourselves on aspects of trading that matter, we create a framework for reflecting on performance and systematically pursuing improvement.  When we share the report card within a community of traders, the practice of others provides lessons for us.

In the spirit of my recent New Year's goal of using the blog to highlight the good work being done in the trading community, allow me to add one thought to the post from Steve and Colibri.

The worst, as well as the best, trading is the result of practice.

When we trade poorly and then go over and over and over our mistakes, blame ourselves for them, become frustrated with them, talk incessantly about them, and vent about them in our journals, we are engaging in a kind of reverse deliberate practice.  Just as reviewing our trading constructively can aid our development, reviewing our trading destructively actively builds and reinforces our worst habits.  

This reverse practice effect explains many downward trading spirals.  We ultimately live out the image of ourselves that is reinforced in our thoughts, feelings, and actions.  Everything we do--from how we talk to ourselves to what we read to who we associate with--is a mirror, reflecting an image of ourselves.  Successful people create positive, constructive mirrors and thereby internalize that positivity and constructive attitude.  Unsuccessful people often practice just as hard as the successful ones, but with all the wrong mirrors.  

Take a look at your trading practice.  Reflect on how you end up feeling after a day or week of trading.  You're most likely practicing something.  Are you practicing the right things, and is your practice the kind of practice that will make perfect?


Monday, January 01, 2018

How You Make a Change is as Important as the Change You Make

One of my 2018 initiatives is to find good trading websites, blog posts, podcasts, etc.; highlight those as resources for readers; and hopefully add a few nuggets of wisdom and experience along the way.

So let's start with SMB's training blog, which captures many of the lessons that prop firm has learned in the course of growing successful traders.  This one is easy for me to highlight, because I've been working with many of those traders and have witnessed their development first hand.

In his recent post, Mike Bellafiore explains that the greatest spark for trader development in 2017 has been keeping report cards of performance.  The report card has been a daily routine that has anchored review of performance, goal setting, and efforts at improvement.  It's been a great way for traders to become more accountable to themselves.

Interestingly, Nate Michaud from the Investors Underground training network also cites the report card as a major contributor to performance in 2017.  My own observation is that it's not just the report card that furthers learning, but sharing the report cards within teams or trading communities.  This is a very important idea.  When everyone shares their grades, lessons learned, goals, and plans, each trader's learning expands exponentially.  This is called social learning.  We develop, in part, by learning from the experience of others.  This gives us multiple role models.

In one case, it has been particularly effective when the team leader has shared his report cards with all team members.  That way, the feedback that Mike and I provide goes out to the team, not just the trader.  Before long, all the team members began sharing their report cards in this fashion.  The static report card now became dynamic dialogues about improvement--every single day.

At Investors Underground and especially at their Traders4ACause conferences, shared report cards can anchor group-wide education.  It's nice to give back each year, but when traders share their learning each day and fuel each other's development, they are giving back every single day.  Before long, that giving reinforces traders' experiences of themselves:  they see themselves as possessing true value to give, not merely as empty vessels to be filled.

The big idea here is that how you implement a change in your trading is every bit as important as the change you're making.  A report card is great, but it's how you put it into practice--creating dynamic, social learning--that makes it a true difference maker in your trading.