Weekend Perspective

Been a great and relaxing weekend thus far - made better by Scott's new mp3.

I have to admit, I was familiar with some of Scott's earlier affirmation/zen mp3's but I never got around to listening to them. I downloaded one several months back, but didn't listen to the entire thing. Personally, I thought it might work for some people, but for me it was mostly mombo jumbo. And it had something to do with my approach to trading at the time: more about technical analysis... and hope... and fear. Good grief I am glad I am out of the swing trade/overnight nightmare routine.

I have changed my approach to the markets and trading over the last three months, thanks in large part to what I have come across in the blog-sphere (and which I started acknowledging somewhere around here). This has been and is significant in a lot of ways.

Over the years I have tried several different approaches to trading. For years I was convinced that the only way thru the mess was fundamental analysis though the required work never appealed to me. When I took up trading again last spring, my approach was about being clever - about using my background in engineering and optimization to analyze price activity and find the 'secret' recipe. My training was my edge and I tried very hard, very, very hard, to pin this thing down. After numerous approaches, a lot of energy, and 'educational investment' (i.e. loss of trading capital), my trading was best characterized as gut wrenching hope and fear based nail biting 'is-it-going-to-work-this-time' sessions. Somewhere along the line I started recognizing that understanding the technical analysis was a very small part of the equation; what was going on inside my head over the course of the trade was far more important.

Occasionally I ran across another kind of trade: different, out of method entries on moving stocks and exited promptly for nice profits. These just felt right, I recognized that the trades were more about movement and less about finding the right technical indicator (not that I didn't still try to find something special that would do the trick), but I didn't really understand what was going on. Until I re-visited FNG during some down time. I started reading and couldn't stop. The more I read, the more I identified with what Scott was writing about, the good , the bad, and the ugly.

Since then the trading education journey has been about getting away from what I have been trained as an engineer to do: simulate, analyze, predict, and then build/act accordingly. In many respects the journey has been about getting away from the need to control. I am not sure that I can adequately explain how big of a step this is.

I have been trained to look at data and find patterns. This works very well for certain types of data, even a lot random types of data: name the distribution and you can quantify the probability. The lure of prediction is control, and control is power, especially as it pertains to the financial markets.

Pfft...

I have had to learn that the markets are absolutely beyond control: absolutely anything can happen at absolutely any time. As concrete and explicit as price activity and data are, stock market science is more a social discipline than a physical discipline. About human nature rather than some rational causality. I wasn't using the right tools for the job. No mathematical model can predict what I am going to be thinking or how I am going to respond to what is happening around me; much less predict how a few million other people will try to outsmart each other. It is one thing to acknowledge market randomness, and another to understand the degree of randomness inherent in the markets.

The interface is simple: a price and number of shares trading at that price over time (no manner of measuring, transforming, tweaking, complicating or awe-inspiring labeling can change this). But the interaction - millions of people trying to negotiate a fair price for the commodity - is incredibly dynamic and complex.

The best tool for the job is me: my knowledge of myself, my familiarity with human nature, my gut reaction to the moment. No amount of processing power can even come close to the amount of information that I can receive and react to. My job is to train myself to respond correctly to the moment.

How can I explain this? This is my edge: the ability to respond to what the market is doing in the moment.This can only come from intense concentration and focus and confidence. I sound like I am just re-iterating what FNG say's, but I am not. Again - it is one thing to read this stuff - I read it for the first time months ago - and it is entirely another to stake ownership and say what I personally believe to be true. It is like a light coming on - 'Oh yeah, that is what that meant'. Wisdom may preclude the hard lessons, but I am not so wise; my lessons tend to be long drawn out and difficult affairs. More like a branding iron than an intellectual exercise.

That is where I am at right now in my trading experience. I need to work on my ability to focus and respond with confidence. And I think Scott's meditation tool is incredibly effective, at least in the confidence department (which I think is key to the trading, but next week will tell). If you haven't tried it out, I say give it a go. If it doesn't click for you now, keep it handy for sometime in the future. Amazing the resource Scott's blogs are.

So - next week.

I feel like I am constantly tweaking my approach, but it is what it is.

The goal this week is to trade well: keep focused on the market and to trade confidently.

Thinking some more about last week (and weeks prior for that matter), I have a tendency to try and finish the day strong, especially if the day's performance has not been that great. I think this is part of what was contributing to TNA's EOD trades on Friday. I am not going to say that I can't trade the last 15 minutes of the day, but I want to avoid just trying to get lucky. Part of this may stem from glancing at the day's PnL and thus setting up the performance standard, which paper trading hasn't been that good for. So no more PnL, even while paper trading.

I am going to kick the trade lots up to 500 shares. And - I am going to remove the trailing stop. I feel like I need to develop my concentration and market reading skills, and I think that depending on the trailing stop will offer an excuse to lose focus (i.e., be lazy).

But - NT has a pretty cool 'shadow' strategy feature that I can use to track performance differences. So I will set the shadow strategy up with trailing stops and see how everything comes out by week's end.

And I will be paper trading for a bit yet. Not sure about the time line, but I want to get some 'in the zone' consistency before returning to live trading.

Trade well.