It’s not only private traders like myself, either; this desire to create certainty extends to money managers and other well-reputed people who really should know better.

Check out this graph, presented by Bespoke Premium on their website.  I don’t know if they put this together for a bit of a lark, personally I’m going to be generous and give them the benefit of the doubt*.

Apparently, the largest decline on the S&P 500 for the year (35 trading days) has been a measly -69% fall, on the 10th February. (Which is also my birthday – make of that what you will.)

So the Bespoke crew have spent a chunk of their time going through the last 50 years to check the yearly returns of the biggest one-day falls during the first 35 days of trading, to compare them to what’s happened this year.

As you can see at the top of the graph, it’s looking pretty good.  Over the last 50 years, every year that has started out as well as we have this year has not only ended in the black, they’ve also returned a decent wad of cash.

Woohoo!  We’re home freeeeeeeeee!!

Or are we?

If you take a sneaky peak down to the bottom, you’ll find that the best yearly percentage change occurred after the second biggest one day drop (-5.28) in the first 35 days of trading.  So maybe we should be disappointed, because clearly we won’t be getting a 50% change.

Hmph.

Really, this kind of caper is totally pointless.  And here is why – every moment in the market is totally unique.

At any given moment, absolutely anything can happen.  No outcome is guaranteed, nothing is certain, and no result can be predicted because the market is a faithless beast with no regard for what is ‘supposed’ to happen.

Really the only way you can create a sense of certainty is to expect everything.  Expect a 50% rise, and prepare for it.  Expect a 50% drop, and prepare for it.  Expect nothing, and prepare for it.

Don’t close your eyes to any possibility, or you’ll be blind to the real opportunities that are actually happening, right now.

*with all respect to Bespoke, I don’t believe they are using this research to formulate investment strategies

There are moments then that I find myself doing virtual bog laps like an online teenage bogan, cruising from my email to Twitter to Facebook to forums to my blog hoping to catch someones attention as I pass by.  Desperate for some kind of entertainment, action, or even better interaction; or, if the day would be so kind, a dose of inspiration.

It’s in those moments of shameful boredom that, failing to connect with people, I find myself turning to the markets.

Here’s a tip -  in those sad, sad moments when you have no friends on facebook, the market will not be your friend either.

Oh, it might do a good job entertaining you while it numbs your brain with its flashing lights and entices you to enter numerous boredom-fuelled trades.  But it won’t be your friend.

The disappointing thing is that before you know it you’ve blown a wad of cash, are feeling slightly queasy from way too much inertia and can’t wholly remember how things managed to deteriorate so quickly.

Go DO Something!

Usually when I find myself spending more than 1 minute on Facebook, I mentally slap myself and go do something productive.  To me, anymore than 60 seconds worth of friend-stalking is wasted time where I could actually be doing something that makes a difference.  (I’m not even talking about a world-changing difference here – taking a shower counts, too.)

And the same thing goes for market-stalking.  It’s important to stop killing time stalking those charts you don’t trade.  Stop checking the 5 minute price chart of your long-term investments.  And most of all, stop looking for that sure-fire-off-the-cuff trade that will ruin your discipline and savage your account balance.

Can you imagine what you might achieve if you added up all the wasted stalking time you do, and actually did something instead?  It’s possible that your life could end up totally unrecognisable.  At a bare minimum at least you’d be cleaner.

Have a Go.

So here’s a challenge for you.

Go and pick something you’d like to do better, or start learning, or create, or achieve.  Then, everytime you find yourself cruising the markets (or Facebook for that matter) for entertainment, mentally kick yourself and immediately do something to take you a step closer to your ‘thing’.  Even something tiny like writing down an idea, or reading a ‘thing’-related blog counts.

Go do it.  I bet those baby-steps won’t look so baby-like after 10 years.

“The only thing standing between you and your goal

is the bullsh*t story you keep telling yourself

as to why you can’t achieve it.”

*

Read it again.  Go on.  It’s important enough to be read twice, at least.  Every day.

The thing is, as a breed we are wonderful at keeping a lid on success.  In Australia there’s a name for it, we call it Tall Poppy Syndrome, and it’s usually aimed at tearing down other people to our own miserable level.

For example, take Jennifer Hawkins.  She’s stunning.  She’s Aussie.  She’s Miss Universe.  (Or was.  To us, she will be until another Aussie wins it ) But she’s definitely got no brains.  Dumb as a post.  Because it wouldn’t be right to be that beautiful and smart, in fact it’s quite simply un-Australian.

Poor Jennifer. So very, very stupid.

So we tell ourselves that she’s not that good because we aren’t that good.

And the sad truth is we are equally proficient at “Tall Poppy-ing” ourselves.  If you ever take the time to stop and listen to the incessant chatter in your head, it will blow your mind just how demeaning and discouraging it can be.

We say things to ourselves, about ourselves, that we would never dream of saying aloud to anyone else for fear that we’d hurt their feelings.  But we say them to ourselves with absolutely no thought for our own feelings.  And because we are talking to ourselves, we give absolutely no thought as to the truthfulness of the statements, either.

But the really sad thing is that we are so used to listening that we don’t stop to question the ideas and thoughts we send our way.  So these nasty thoughts just get absorbed into our psyche and are allowed to linger there forever.  And the longer they linger, the more comfortable they get.

If we actually want to achieve our goals, we need to get out of our own way and start censoring our thoughts and verbal dialogue.  Don’t make the mistake of believing your own stories  because quite often they are totally unhelpful.  We need to pick out the fibs that we are so used to accepting, and actively start denying them.

So what are your goals?  And what are you telling yourself to make sure that nothing ever comes of them?

What are you telling yourself that’s stopping you becoming the kind of trader you want to be?

Occasionally I think that perhaps I’ll never be able to pull a really incredible wage from this.  That I’m just fooling myself that I’ll ever be that good.

But – why wouldn’t I be able to?  Other people do, so why not me?  There is absolutely nothing about me that will prevent me from becoming that good, other than an insidious belief that I won’t.

And there is another ray of hope – I’m not as beautiful as Jennifer, so maybe, just maybe, I’ve got brains.

*Just to note, after a couple of narky “how do you know Jennifer isn’t smart” type emails it’s an example of typical tall-poppy syndrome and not my personal opinion.

]]> http://roguetraderette.com/2012/02/15/why-beautiful-people-cant-trade/feed/ 7 jesspeletier jennifer hawkins http://roguetraderette.com/2012/02/14/fame/ http://roguetraderette.com/2012/02/14/fame/#comments Tue, 14 Feb 2012 05:47:19 +0000 Rogue Traderette http://roguetraderette.com/?p=632 ]]> I was recently interviewed by Hugh Kimura of TradingHeroes.com, as a part of his “The Trader Lifestyle” series.  It was loads of fun and his blog is well worth a read.  He’s actually published the interview as a podcast, so grab a cuppa and check it out!

I don’t like being wrong.

I especially don’t like being wrong when it involves money. When I see a sea of red on my screen, it makes me just the teensiest bit tetchy.  I’ve gotten a whole lot better – it used to make me nauseous.

And when I’m wrong, I beat myself up. Horrible, bitchy alter-ego Jessica starts taunting me – “These positions are all gonna hit their stops at once. Your equity level is going to suck.” And, “Typical. As soon as you enter, everything goes to shite.”

The funny thing is, I can’t stand people like that.  You know the type – the “Poor me, nothing ever goes my way” characters.  They whinge and whine and would rather complain than fix their problem, simply because their problems get them sympathy and attention.  They always have problems, and they worry and fret and complain to anyone who will listen.  And they never change anything.

So, in the interests of not becoming a total loser with no friends, I’ve decided to grow up.  Again.  It seems to be a decision that needs making quite regularly.

…And Takes Responsibility.

Trading is for adults.  There is no room for childish tantrums when things don’t pan out, because every interaction we have with the markets originates with ourselves and no-one else.   Even if we follow someone elses idea or recommendation, it is our decision to do so.

You’ve only got yourself to blame.

Julie's just noticed her trades aren't going her way.

To Achieve Peace and Flow in Trading, You Need to Worry.

I’m reading a very cool book at the moment that was recommended to me by a friend on Twitter.  It’s called “The New Psycho-Cybernetics”, and while the title seems quite intimidating it’s actually quite an easy (and very interesting) read.

This passage in particular stood out to me earlier this week. It’s talking about roulette, but is just as applicable to trading.

“Do your worrying before you place your bet, not after the wheel starts turning.”

This is the key to slaying the evil alter-ego once and for all.

If we can do all our worrying before-hand, once the trade is placed we can sit back, relax and let it happen because we know it will be okay.

Worrying first means that all our contingencies will be accounted for.  Our best and worst case scenarios will be planned for and because we have done our worrying before placing our trades, there can be no surprises.  Suddenly, because there is nothing to fret about anymore, we can trade in a state of peace and flow that we possibly never quite mastered before.

Some things to worry about before you trade -

• Worry about how much you’ll lose if your trade goes pear-shaped.
• Worry how much you’ll lose if ALL your trades go pear-shaped at once.  It happens – be prepared like a good boy scout.
• Worry about what your partner will say if it all goes pear-shaped at once.
• Worry about how you’ll react if your trade works.
• Worry about what will happen if you take profits but trade motors along without you.
• Worry about what will happen if your provider runs for the hills with all your money.
• Worry about how you’re going to sleep with that much risk on the table.
• Worry about if there might be something you’ve missed in your analysis.
• Worry about what you’ll do if Europe goes belly up.

And then – once you’ve thought of everything that can possibly happen and have put your worries to bed – don’t worry!!

You can make your decision (and that decision includes not taking the trade at all, incidentally), kick back and just let it all happen.

Trading a small account can suck.

As you’ll already know if you’re a regular reader of my blog, I spent a good amount of time last year ‘testing’ a system I devised, and as luck would have it, it performed brilliantly.  In percentage terms, it was pretty incredible.  Unfortunately in real dollars-in-my-account terms it was, well, less than impressive.

And therein lies the problem with trading small accounts – even if it returns 100%, it’s still only made you 100% of nothing.

Having said that, small accounts do have a lot going for them.  You can only lose a pittance, for one thing.  It’ll never send you to the poor-house, but it will never make your dreams come true, either.

There comes a time in a traders life when push comes to shove and you realise it’s time to take off the training wheels. It’s time to ditch the security blanket and do things for real.

It’s time to play for meaningful stakes.

The Zurich Axioms

I finished reading “The Zurich Axioms” by Max Gunther last week, and it’s a good read.  But the part that stood out to me the most was in the first few pages where it basically tells you – risk wise – to go hard or go home.

It’s important to understand this doesn’t mean that you should risk your whole account on one idea – that’s just stupid.  But it does mean that you shouldn’t be shy.  You need to risk as much as you can within the confines of sleeping well and proper risk management.

Now, it’s all very well to read something like that and get all excited about hitting the big league, but in reality it’s hard.  It’s much easier to feel comfortable with the safety of a small loss, and accept the fact that you’ll never win big.  You feel happy trading small because your losses don’t hurt.

Making Larger Losses Painless.  Well, Almost.

You need to fall in love.

I realise this isn’t exactly standard trading advice but bear with me.

Without a passionate reason to up the ante and increase your risk, you won’t be able to do it because it won’t feel ‘right’.  The risk has to be worth it and the only way it will be worth it is to attach it to an outcome you feel totally in love with.

For example, I want a home.  We’ve been renting for 10 years while we live in the outback, and I’m hanging out to put down some roots and have my own home.  Now, we own a house that we can live in, and that’s a blessing.  It looks like this.

But I want a house that looks like this.

Possibly less blue, and with a beach in front of it, but you get the picture.

Knowing we have enough money set aside to renovate our current house means that in our worst case scenario, we don’t really achieve much over the next couple of years, and we don’t get “ahead”.

But our best-case scenario is that we can achieve so much that it will allow us to have the life we dream of.

It’s worth the risk.

There has to be a meaningful prize to make risking a meaningful stake worth it.  And your prize doesn’t have to be material – it could be that you’d like to give more to charity, or send your kids to a better school – it doesn’t matter.

You just need something that makes your heart sing, so when the inevitable drawdowns occur there is less chance that it will break.

One of my recent followers on Twitter has a neat little trading strategy up his sleeve.  To quote him - “I’m dedicated to sharing the technique of selling puts for income in the stock market. It’s fast, easy, and profitable!”

Hey, fabulous!  Let’s do it!  I might get my grandparents in on this fast, easy and profitable action and we will all get rich together!

Understanding the Reality About Trading Strategy.

The problem here is that trading is not fast, it’s not easy and until you understand those two things it’s highly unlikely that it will be profitable.

Trading as a whole involves so much more than knowing a strategy – in fact the strategy is only the starting point, and quite possibly the least important part of the trading equation.

So what else is there to trading?  Surely all you need is a profitable strategy?

A profitable strategy is certainly a great starting point, but it’s the foundation that the strategy sits on that will determine how successful the process is going to be.

Building a Firm Foundation

* You have to understand that trading is a big picture venture.  Focussing on strategy alone is incredibly one-dimensional.

By thinking it’s all about strategy, a trader can get way to involved with each individual trades outcome, whereas in reality the success of the strategy relies on the edge provided over a large number of trades.  This is the precise reason why no strategy is ‘fast’. The whole process takes time – time for trades to develop, time for accounts to grow, and time to allow the strategy’s edge to work.

The whole process is long, and at times very slow.

* Adequate capital.  You gotta have money.

I know it sounds obvious, but most people have wildly unrealistic ideas about how much capital is required to make a living from trading.

I had a guy email me once, telling me he only had a couple of grand and was hoping to build that up to $25k so he could trade full-time.  I suggested that while he could certainly trade full-time with $25k, he might need to move in with his mother.

Think of this – the best fund managers in the world average about 30 – 40% a year.   Even if you were an actual market wizard, could you live comfortably off $10k a year?

* Trading mindset – This area is way too huge for a bullet point, but involves things like embracing losers, not getting obsessed with the markets, and being able to cut losses and let profits run which seems easy but in reality is completely the opposite of what we’re wired to do.

Establishing a healthy trading mindset also involves huge amounts of time spend on self-evaluation and reflection – which is primarily what you’ll find when you explore my blog.

* You need a healthy understanding risk.  If you don’t know how much you stand to lose, how much you stand to gain, and the probability of either of those things happening, you’d be better off with your money in the bank.

* Get pessimistic.  I’m not talking about turning yourself into a negative, sad little person here – I’m talking about fostering the ability to see the worst in every strategy/trade/idea you come across that involves putting your money on the line.

So often traders focus on the best and happily ignore the worst which is entirely to their detriment as it inevitably results in disaster.  So if you can pick holes in everything, you will avoid nasty surprises and be sure that it’s worth risking the worst case scenario to achieve the best case scenario.

So, back to my frightening discovery.  Not only is this guy totally strategy-focussed, his strategy sucks.  Selling puts for income is the worst strategy ever – you get a pittance every month, and take massive risk to do so.  Added to that, the only way to effectively manage that risk is to spend some of that pittance on protection which makes it a reward of maybe 10 cents to every dollar risked.  Awesome.

( It was this darling strategy that first seduced me into the markets. I know – I was an idiot and a floozy.  I value myself much more highly these days )

I’m not going to beat around the bush. I’m just going to come out with it.  

I AM A LIAR.

Sorry about that.

Just a couple of days ago, I was telling you how I’m all good.  I let you believe that things are cruising and that I really don’t need a break because I’m awesome.

If it makes you feel any better, I was not just lying to you.  I was also lying to myself.

Two days ago I had a truly delightful experience where my CFD provider scared the living crap out of me.  They’d moved my stop to allow for a dividend adjustment and long story short it looked for all intents and purposes as though I had screwed up.  Big time.

If you know my history you’ll be aware that I started off my trading career with a huge loss that left me quivering mess.  I had no idea that those old feelings of nausea, the shaking, the racing heart and the abject horror were still lurking so close to the surface.

I had no idea how quickly they could resurrect, and how physically they could still manifest themselves.  I could barely function until I’d figured out what went wrong.

The idea that, despite my very best efforts to manage my risk, I had still managed to make such a careless error that could result in a loss four times bigger than I am prepared to accept was physically sickening.

So you think you’re fine?  Think again.

Trading, no matter how good you are at it, is a high stress game.

Humans are not wired to trade successfully.

The wounds that are inflicted during a traders learning curve may not ever actually heal.  They may get much better and they may not cause constant pain but they will always be there, and its possible that they’ll always be a weak spot that flares up in times of stress.

However that is not to say that we can’t be scarily brilliant traders – we can.  It just means that we need to rest.  We need to let our normal human nature assert itself for a while because as hard as we try to be sub-human while we trade, it isn’t our natural state.

I know I can cope with losses.  That is a fact, not me trying to convince myself.  But I have to accept the time may come where I make a mistake that costs me a lot of money.  I’m human and I’m not infallible.

By constantly subjecting ourselves to the mental stresses involved in trading we are weakening ourselves simply due to the nature of being tired.  People make mistakes when their tired and in trading we can’t afford to be either physically or mentally tired.  For every trade we take while tired, we are one step closer to the Mistake.

You can’t beat nature indefinitely, and sooner or later those old wounds will start to flare up – possibly a little, then inevitably a lot.

My CFD provider gave me a timely warning.  The error wasn’t even mine, but the effect was the same – my old wounds sparked back to life.  My scars had been quietly aching, and due to my own self-delusion they were allowed to rip back open.

The point that I hadn’t, in fact, made a mistake here is irrelevant.

Traders need to constantly look at themselves.  We need to poke and prod and assess our trading fitness.

We can’t afford to allow our old trading scars become debilitating injuries, simply due to our own bald-faced lies.

Oh, and speaking of lies – there’s nothing in this post about sex.  Or video tapes.

When people first sign up for the whole trading gig, they usually front up with a wish list.   Like a kid coming to Santa, it is dotted with our most far-fetched, wildest dreams,  then padded out with a few smaller (but still important) stocking fillers.

Things on the list tend to be”goal items”, like a new Ferrari and a yacht moored in Mauritius.  And alongside those things you’ll find things like working boss-less, more free time, flexibility, luxurious holidays – and although we won’t say it out loud, there’s always the hope for a bit of  the “I’m so cool ‘cos I’m a trader” factor.  We want freedom, with attitude.

So we present our list, (after checking it twice) and get down to business.  We do our home work.  We socialise with other traders via various forums, read trading books, plough through 500 charts every night, watch 17 different business channels, and subscribe to 137 trading blogs that are religiously read before breakfast.

We work hard to make our list become a reality.

The funny thing is, we work so hard that we actually end up destroying many of the valuable things on our list.  We work so hard, and commit so much time that the very thing we want most disappears.  Freedom, and its mate flexibility.

I’ve spoken about my biggest wish list item previously – it’s holidays.  I want lots and lots and lots of them.  But I work so hard that I don’t take them.  I go away and take my laptop with me.  I travel to see friends and find myself squeezing in some charts before breakfast.

I’ve designed my trading life to be flexible, and it is.  But trading in a different location is not a holiday.  Trading, sitting under a palm tree with a cocktail next to you is not a holiday.  Yes, it’s nice – but it’s not a holiday.

This year, I’m taking a holiday.

Well, I Think I Am.

I’m actually finding it incredibly difficult to commit to No Trading over the Christmas holiday.  Why is it so damn hard to physically remove ourselves from the market?  Why do we find ourselves so ensconced in our work that the very reasons we chose this career come a poor second to the work itself?

It’s stupid. And when I say “stupid”, I mean it.  Not taking holidays is dumb.

The market isn’t going away.  There will be new opportunities there the minute we turn our attention back to the market.  Don’t we deserve to have a break?

The trouble is, most traders love what they do.  They wouldn’t do it otherwise – it’s a self-selected, self-directed career.  It may be that we don’t feel like we need a break, and we enjoy our work so much that we don’t want to stop.

Seriously, we need to get a life.  Trading is not real.  Yes – it’s challenge.  Yes – it’s fun.  Yes, it’s stimulating.

But so is the World of Warcraft*.  Don’t be fooled – everyone knows that staying home playing computer games all day every day is a sad, sad thing to do, and trading is not that much different.

Real life happens outside, away from our screens.  We need to make the effort to have a life – to have real holidays, having fun with real people.  And who knows?  We might have such a lark that we come back complete with plans for the next one.

*I have never actually played the World of Warcraft.  I googled it – I promise.

I have to say that there is nothing that starts my day off better than finding out I’m more brilliant than I thought.

I received this graph by Jez Liberty via Chris Tate, and it really is very illuminating.   It seems the most prominent fund managers in the world are having a bit of a rough trot.

I’ve read countless times in blog-world that 2011 has been the trickiest year ever to trade, and this graph would suggest that those fund managers most likely agree.

So, back to my brilliance then.  I beat them all.   Yes, I really did.

But before you come banging on my door with all your millions of dollars, it must be noted that sticking your money in the bank for the last year would also have beaten this lot.

So, what happened?  Why did these guys do so badly the last year, when a normal un-fund-manager-trader-girl like myself managed to make more money than I ever have?

Now I might be wrong, but I reckon a large part would come down to one simple thing.

Investors.

They’d have to drive a girl nuts.

Let’s be honest, having a partner to consider in our trading can involve a world of hurt, simply because they don’t understand the mechanics of what we do.

I had a situation this week where I told my husband I was currently in a tiny drawdown (from equity peak) of about 2%.  I’d not mentioned it earlier, because there was nothing to mention – it’s nothing, totally normal.

Totally normal for me, that is.  Not totally normal for him.  He’s used to bank interest, and regular positive movement in the account.  What he’s not used to is ‘losing money’, lumpy returns and periods of drawdown.

I was lucky – all it took for me to put things right was a bottle of wine and a quick explanation of random individual outcomes and positive expectancy.  Easy, right?

But what if I had 100 people flipping about a 2% drawdown?  I don’t think a bottle of wine would do it.

People get very protective of their money.  They’ve worked hard for it, and they trust you.  They trust you to make money for them, but more than that they trust you not to lose it.  It’s hard – very hard -  for a non-trader to fully accept the fact that what we do entails risk, and the possibility of loss.

And while they say they understand, they usually don’t.  In theory they understand, but when they are actually faced with a real loss all that understanding disappears, overwhelmed by the reality of their shrinking wealth.

When you’re managing other people money, returns matter.  For me, they don’t.  Well, they do but not in the same way.

I have no definite timeframe that I need to turn a profit by.  I don’t have investors who want a quarterly report that shows capital appreciation.  I don’t have 100′s of people behind me who don’t understand the nature of investment.

As private, individual traders we are incredibly lucky.  There is no pressure for us to perform, so if we don’t like the market we can sit out and wait.  I don’t believe many fund managers have that luxury.  People don’t give their money to fund managers only to have them sit their funds in the bank – investors can do that themselves, after all.

And it’s precisely because of this flexibility that as private, individual traders we should be beating these guys.  We can do as we wish, as we see fit, without limitation.  Don’t forget that sitting out of a crappy market IS an option for us, and that we should use it whenever the occasion calls fo it.