Friday, December 28, 2018

Investing In Your Trading

Margie and I have adopted another rescue cat, so now we're back to four after Mali passed away last year at the ripe old age of 17.  Bringing in a new one requires considerable time and patience.  We start off with the new cat in his own bedroom, with the two of us taking turns sleeping with him, playing with him, feeding him, etc.  Eventually he learns to feel safe and comfortable with us and we start the bonding process.  Gradually we introduce the new one to the other cats and monitor their interactions closely.  By playing with all of them in an open area, we create a non-threatening environment.  As the cats bond, it becomes possible to play with them together.  Just last night, the new boy, Aries, slept in the crook of my arm while Mia slept on top of me.  To put it mildly, I got little sleep!  But there was a lot of purring and it was a big step forward in the bonding of those cats.

The big takeaway is that relationships succeed when we approach them as investments, not as trades.  It is when we focus on short term returns that we fail to put in the time to cultivate depth and cement a future.  As a psychologist, I've spoken with more unhappy couples than I care to count.  The common feature is that each member of the couple is focused on what they are not getting out of the relationship.  No one is losing any sleep building long-term bonds.

So it is with trading.  If we approach our trading as a trade, then it's all about the next trade and the most recent P/L.  Yes, we might keep a perfunctory journal regarding the day's activities, but is that really investing in the future of our trading?  As I'm writing, we've been seeing VIX levels in the stock market in the 30 area, much higher than we saw months ago.  To illustrate the difference, consider that for the month of August, we saw roughly 1000 bars of price action in the ES futures, where each bar represents 500 price changes.  In December thus far, we've had almost 3000 bars.  Each bar averaged a range of .11% in August and almost twice that in December.  In short, we're seeing much more activity, much more volatility:  markets doing a lot more per unit of time.  That takes every bit as much adaptation as bringing a new animal into the home!

Some traders I know step back and make those adaptations.  They are investing in their trading future by learning how to trade different market conditions.  Other traders forge ahead, doing the same things as they've always done, gunning for short-term returns.  They may make money, they may lose money, but they surely don't grow their business.

As we come to the close of the calendar year, it's a good time to reflect on the investments you're making--and need to make--in your trading.  How is December going to make you a better trader in 2019?

Further Reading: