More on the trading survey

Well... been awhile.

Dissertation is coming along - not as speedy as I would like, but progress is being made. Still shooting for next fall.

In the meantime, I have started a new business venture with a couple of friends. It has been crazy successful thus far - we are in line to hit $160k gross next month (and we started in January).

One of the cool things about the business (it is a basic internet traffic/ad revenue model) is the immediate correlation between spending and income, probably one of the closest analogies to trading that I can think of. After the system has been set up, we spend so much money for so much revenue (buying traffic, providing service, then selling traffic). We can increase or decrease spending immediately with an almost immediate response on the revenue side. Say we spend $1k/day, and assume this translates into $1.5k/day revenue. This took some getting used to (the immediacy of the spend/receive cycle) - but I am thinking this could be very helpful when I eventually return to trading. Spending $1k/day (i.e., losing $1k/day) to generate $1.5k/day ($500 net/day) works in any business model. Adopting this attitude sounds very healthy trading wise.

And along those lines, I thought I would share a little about the survey I posted on my last entry. When it comes down to it, it is nothing new, but it does come from a fresh perspective. I recommend giving it a listen.

Suffice to say that the traders interviewed were like me - in that 90% of them think that trading is a skill that can be learned, and 85% believed that they had what it takes to be profitable.

Surprisingly - length of time spent trading seems to have no bearing on whether or not traders consistently reach targets - the exact opposite of what I have been expecting! Not that time spent trading can have no impact on consistency, but this suggests that consistency is something that can be learned outside of actual time spent trading.

The authors of the survey were able to differentiate 'mistakes' (what the interviewed traders considered to be the cause of their losses) between three categories:

More importantly, they couldn't make the same link between the inverse of the categories to profits... what they did find was a link between stress and trading profits: high stress correlates with large losses, low stress correlates with consistently meeting targets. Leading to the conclusion: 'The harder we try and make money... the more stressed we get... the further we get from the money tree...'

The more important we make the outcome of our trading, the more likely we are to get stressed when trades go against us, and the more likely we are to continue in that vein.

Simply said, that pattern is recognized in me. I am inclined to say that continuing to trade (inside of the vicious stress cycle) was more harmful than beneficial - without breaking out of the high pressure to succeed at trading/high stress cycle, I was on a steep downward spiral. There was/is a lot hinging on my ability succeed at trading - and I am guessing it is that way for a lot of semi-experienced traders.

My first experience with trading would seem to lend proof of this concept: I withdrew $2500 from my savings (an amount I was very comfortable with losing), and decided to play around with it on the stock market. I approached the market with a sense of nonchalance, used a default chart (believe it or not it was a 5-minute candle, I knew next to nothing about indicators or how to read them) and proceeded to triple my stake within 2 weeks - winning and losing some. Then I got serious and decided I could begin to make some money (turn up the stress): by the end of the following week I had lost 1/2 of my earnings. 

So what is the solution? I am not really sure; this blog has been more about thinking out loud than providing answers. One thing is clear however; consistent trading requires that trading itself not be stressful, i.e., that my success/failure not be 'too important'. I can only think of a few things that can counter stress in trading, and they are the same things I keep coming back to: either not being financially dependent upon my trading skills; or an over-arching confidence in my trading abilities (i.e., immediate trading performance has no bearing my overall ability to make money). I have little control over the first (my financial situation is what it is and I want to eventually be financially dependent upon trading), so the second is where I need to focus:

• A clearly defined edge - and an unwavering belief that I can execute on that edge
• The ability to accept immediate losses as the cost of doing business
• The ability to accept immediate profits as nothing more than the result of the unwavering execution of my edge

Nothing new. I keep running into the same thing from different approaches. Bound to sink in eventually. Maybe for the first time I am seeing how distinct this learning process is from actual screen time... failing to get all of this in place before spending time in front of a screen seems to contribute to nothing more than feeding the vicious downward stress-filled spiral. (Credit to whom credit is due - this is Scott's mantra.)

Anyhoo - stuff to think about.

Trade well!