Tag: Subjectivity

Consistent Market

Posted on by Anatoliy Schneider

The work you invest into the Market must be consistent, day in day out. Each time you allow yourself a day off or a week of half-hearted effort, you are making a big step back. Until the state of consistency is firmly established in a trader’s mind, he is not a trader.

Being a trader means willingly, gladly, gratefully investing personal time into studying the Market. All the required work must become effortless, if one is to be called a trader.

To trade with conviction you have to first establish a conviction in your daily trading habits. You cannot afford losing momentum even for a day. You cannot afford failing to appreciate the valuable lessons the Market offers each and every day.

To profit consistently, you must work consistently. The Market is consistent – consistently uncertain, complex, yet open for everyone to learn. The Market is an open book – trading profitably is simply a matter of learning the language in which it’s written.

“I cannot accept uncertainty”

Posted on by Anatoliy Schneider

I cannot accept uncertainty

Imagine how difficult it must be trading with such belief. In our daily lives we constantly strive for certainty, we want the outcome to always be expected, and yet there is just too much we can’t account for.

How do you behave and feel when you try trading with this belief?

  1. Afraid – The Market can take my money at any given moment!
  2. Helpless – Anything can happen and I have no control!
  3. Restless – How can I be at peace when I have no control over my trading even a minute from now?
  4. Frustrated – All my work is for nothing, because no matter what I do, I am not certain of any single trade!
  5. Miserable – I try so hard, but all I get is more frustration each day!
  6. Lost – There are no trading opportunities I can see! Any trade I consider might lose!
  7. Panicking – I just placed a trade and the Market already behaves not the way I expected!
  8. Embarrassed – All I do is making a fool of myself, I always buy at tops and sell at bottoms!
  9. Withdrawn/Apathetic – I don’t even want to look at the Market, there is no doubt it will just go against me yet again…
  10. Tired – The more I analyze, the worse results I get, my efforts – all for nothing…

Well, I don’t want to go to “Suicidal”, but it is true that our beliefs can push us into dark corners of our minds indeed.

Why are we doing this to ourselves? Why do we need to be certain of the future, when we know for a fact that it’s impossible? If you need to be certain, be certain of this:

I have no idea how the Market will look a second, a minute, an hour, a day or a year from now!

So how do you trade, when nothing is certain? Just like Bruce Kovner said in “Market Wizards”:

…making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.

Let’s see if your thinking changes when you consider just the opposite of the belief we started with:

I completely accept uncertainty on the market. I have no idea where the price will go.

How do you feel now?

  1. Liberated – How great it is not having to know!
  2. Concentrated – Now that I know what I don’t know, I can concentrate on my analysis better, without having to be right.
  3. Confident – Actually, now I know exactly what the outcome of my trade will be – uncertain!
  4. Relaxed – My job is to explore the opportunities, Market’s job is to show me if they work or not. I simply concentrate on my business and let the Market do its own.
  5. Amused – Each single step the Market makes is always a pleasant surprise for me – it simply teaches me and shows me where it goes.
  6. Fascinated – It is amazing how balanced, harmonious the Market is, if I but let it go!

You can have the best trading system in the world, only to be ruined by your own thinking.

True, you might not become profitable even when your beliefs are in harmony with the nature of the Market, but you will become the greatest learner, watching and following the greatest teacher there is in trading.

 

Subjective vs Objective

Posted on by Anatoliy Schneider

Despite of all the common advice in trading psychology books I’ve been reading I was never quite able to develop an extremely rigid trading rules in my system. Mark Douglas suggests to “have rigid rules and flexible expectations”. However, due to my belief of how the Market works, I find it difficult to explain my analysis or trading patterns in simple “if… then” terms. If I would ever teach anyone to trade, the best instructions I could offer would be something like:

  1. Make absolutely sure your Money Management will never allow you to lose
  2. Learn trading psychology (accept the risks and responsibility)
  3. Watch the Market daily
  4. Build an opinion
  5. Embrace uncertainty and test your opinion with your money
  6. Learn from the feedback Market is providing to you

In my mind, most of the trading setups have always been relatively subjective. The Market would just “look like” going down. At some point I just “feel like” getting out. However, the more I trade the more I recognize that there is certainly a place for fair amount of objectivity in trading as well. I just do not believe that objective concepts can be applied just about anywhere in my trading.

Cutting right to the chase, here is where I would try to define my trading objectively:

  1. Money Management rules
  2. Business organization (trading diary, trade analysis routines, preparation for trading routines, etc.)
  3. When NOT to trade
  4. When I pay myself – take my first profit and put the remainder of the trade in BE (e.g. close 30% at clear Reward:Risk target like 3:1)
  5. Checking minimum conditions any trading setup must have

And here is where I would trust my feelings and intuition (apply subjectivity) in my trading:

  1. Most of my market analysis, i.e. building an opinion or a bias for certain trading instrument
  2. Final decision whether to take an entry

Basically, what I am doing, is building a strict, rigid framework that protects me from making big mistakes and provides some structure for my trading. Next, I allow myself certain amount of freedom inside of that framework where I can trust my intuition (experience) about the Market.

For example, I am making sure that no matter what happens, any trading day, week or even month CANNOT result in a significant loss (1).  I also know what kind of work I must do every single day in order to manage my trading properly (2). I am making sure that under certain conditions (Market environment, life situation, etc) I am not going to trade because I do not believe that my intuition/emotions will provide appropriate judgement under such conditions (3). Next, I am making sure that I pay myself automatically, without even evaluating the current situation on the Market, as soon as certain amount of profit is reached (4). Additionally, before executing any trade I will make sure that it has some necessary parameters that I have defined – this gives me confidence to pull the trigger without hesitation (5).

However, I have to leave most of the Market analysis up to my intuition. Even though I have certain rules and checklists for Market analysis, in the end they only help me to clarify how I am feeling about the current Market situation (1). Additionally, even when I have a bullish bias on a certain currency and all minimum conditions are met to establish a position in that direction, I will still choose to miss that opportunity if I do not feel good about it (2).

The implementation of subjectivity in our trading is extremely difficult unless we are self-aware of what is going inside. It is still important to analyze our emotions and opinions, making sure that they are not caused by anxiety or some psychological issue that we were not able to resolve completely. Obviously, I am nowhere near perfection reading myself or the Market. However, I find it impossible to trade unless I listen to my intuition. I cannot build strict logical boundaries around my life and so I do not expect to put any part of my life (e.g. my trading) in a box either.

 

Recommended reading: Intuitive Investor by Jason Apollo Voss