Nov. 24, 2011 – Practical Stuff I’ve Learned After Trading Over the Years

What I’ve Learned After Trading The Last 4 Years…

The last couple of days, I’ve gone through some coaching/counseling lessons with psychologists, a lifecoach, a professor, a couple of ex bosses, mentors and friends to do some “soul-searching”.  I still continue to trade, the only reason why I haven’t been updating my blog for any market related updates for a couple of weeks now, was I had been reflecting a lot about trading, and more specifically myself.

Just as every writer has their own journey, so does every trader.  Whether any of my story forms connections with my readers or not, I let the joy of writing and the lessons in trading I’ve learned seep through any voyager in this same path.

Most Significant Personal Lessons:

1.) Be joyful when cutting losses.  Acknowledge Imperfections.

Perhaps one of the most significant lessons I’ve learned, which may be obvious to some, but needed a lot of reflections on my part was why I had a huge inability to cut my losses over the years of trading equities and currencies.  I went through my childhood after a talk with a psychologist, and from there I’ve at least realized that the root cause of my inability to cut stemmed as early when I was in grade 3.  During my elementary days, I’ve been traumatized so much with my failure to multiply simple two digit numbers with decimal points, that it had somehow scarred me to being a perfectionist.  I have avoided failure all my life by studying hard, preparing for my exams, even acing the subject of Mathematics all throughout my elementary and high school years.  This perfectionist mentality, which when brought aware, had made me diagnose my problem much better in trading.

Once I’ve realized that I had a tendency to associate every trading loss with a personal flaw, instead of being unemotional about trading losses, I had become able to control my losses, and in fact, happy to cut losses and stick to a system.  Instead of treating each trade as a failure, I had treated each trade as a decision, and that even if that decision’s outcome results into possibly having lesser losses tomorrow or the next day, I was happier and able to concentrate on the positive outcomes of the joy of cutting losses, as part of a disciplined trading system.

Once the admission of not being perfect, and sticking to an imperfect but consistently profitable system had been made, I had become flexible and traded better as a result.  In recent trading memory, this has allowed me to buy back my LC shares albeit at a higher price of 1.33-1.34, and subsequently selling it at 1.50-1. despite having bought it at 1.2670, cutting it at 1.26/1.25 a couple of weeks back.  Also, I was happy , in fact even joyful, in cutting my losses in AT (buying at 18.30 average and selling when it broke 18 at 17.82-17.86), MBT (bought at 70, sold at 68-67) because I didn’t have to explain anything to anyone, except to simply follow a trading plan.  The recognition of having a system, and not having to be “right” or perfect, helped me combat my previous trading mistakes of buying more (i.e. averaging down) just in order to “get even”.  The ability to just look for the only setup that I can understand such as PGOLD when it broke the 15.00 level has made me trade it profitably all the way to 17 (My average was sold at 16.44-16.48).  When I became comfortable, that it wasn’t possible to sell at the highest part of the move, nor buy at the lowest, I learned being joyful on being wrong.  This is a very significant lesson to me.  Knowing that at root, I’m a stubborn perfectionist, has made me alter my trading methods to look positively, and in fact, congratulate myself whenever I’m able to cut losses according to plan.

2.) “Life is a series of failures punctuated by brief successes. That’s honesty. Failure is not necessarily bad. It’s reality.” – James Altucher

I read a few articles last Nov. 22, and below are some excerpts in the headlines:

Shrinking industry hits young bankers especially hard (E financial Careers)

Wall St. Layoffs take heavy tolls on younger workers ( New York Times)

Wall Street Unoccupied with 200,000 job cuts (Bloomberg)

Here are some of the more memorable lines:

The shrinking financial sector is leading to panic attacks, binge drinking and chest pains.

For many of the high-achieving, type-A young professionals who end up on Wall Street, being tossed around by an industry in tumult can amount to the first real failure of their lives. Even if the industry recovers, some may not stick around long enough to see their fortunes improve.

In interviews, a dozen people who have lost jobs at firms including Societe Generale SA, Royal Bank of Scotland Group Plc (RBS) andJefferies Group Inc. (JEF) described a grim banking landscape that also includes Occupy Wall Street protests against unemployment stuck above 9 percent and income inequality.

These are by far my darkest days,” said Scott Schubert, 49, who was dismissed in late 2008 as a mergers-and-acquisitions banker at Jefferies, a New York-based securities firm, and has been unemployed since. “It’s harder and harder to look for a job and feel that there’s nothing there.”

*****

What I gather from all of these is that a lifetime of energy spent thinking about stocks and equities as a job in itself, is never going to be as secure as all the aspiring stockbrokers, wanna-be future hedge fund managers will often perceive it to be.  Prior to the financial meltdown and the bailouts, more and more people in the finance field are learning that it is not simply a trade that needs some time to develop in order to create profits that’s essential, but also the ability to have yourself situated in a flexible environment where one can consistently make money whether the markets go haywire or not.  This leads me to the third lesson which is very important.

3.) Trading is Probability More Than Anything Else.  Make Sure You Have A Solid, Profitable Process.

In a WSJ article, “Hedge Funds Kiss their Alphas Goodbye“, any excess alpha from hedgefunds has diminished for the past couple of years.  More and more people have to adjust their expectations, especially for the newbies who have never seen the light of day, or are just starting to enter this industry.

What I essentially am trying to explain here, is that trading involves mental toughness, and isn’t an easy walk in the park.  A certain element in trading, I have to admit involves luck, skill and the drive to succeed.  Read the following link by Abnormal Returns on how these elements (Luck, Skill and Drive to Succeed) play a role in trading.

There’s a big difference between saying investing is all luck and saying it has a lot of luck. But as an investor it is important to acknowledge that, on the continuum, investing is closer to the luck side. That doesn’t mean that investors aren’t skillful — it is rather a reflection of the paradox of skill. (Columbia Business School)

So what constitutes skill in a field where probability dominates? The key is to have a good process. In all probabilistic fields, the best performers dwell on process. This is true for great value investors, great poker players, or great sports team managers. It’s all process stuff. It’s hard to do psychologically, emotionally, organizationally, but that is how you get paid.

*****

At the end of it all, I had been doing my soul searching and what I want to essentially point out in the end is just simple:

Honesty is about the scars. it’s about the blemishes.  But it’s more than just bragging about failure, which could be a form of ego. It’s about truly helping people.

With honesty, you do set yourself free.

– Faceless Trader is also known as N.Y. by initials, has encountered in one’s experience plenty of setbacks, but has managed and is still managing to go off the lows.  A-list financial blogging at least in Philippine Markets’ scope is something I’d love to do, and is part of my life.  I’ll keep all my readers updated as regular as I can, whether equities in our shores, or offshore.  Thanks and have a great day.  Of course, I’m still trading.

(For any performance reports or personal trading related inquiries, send an email to facelesstrader@gmail.com, I’d be happy to respond.)

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17 Responses to Nov. 24, 2011 – Practical Stuff I’ve Learned After Trading Over the Years

  1. angelo says:

    Because of pride,I refused to buy back shares at a higher price. Your article is an eye opener for me…

    Thanks and keep it up

    Like

  2. FRED says:

    “Successful investing is more of a trait of the character rather than of the intellect.” – Benjamin Graham.

    After reading your blog today, it made me realize that lessons can be learned from external sources (gurus, gossips, etc,) However, the system that will carry on will always be OURSELVES!

    Congratulations FT for discovering thyself anew and sharing your honesty. 🙂

    Like

    • Thanks, yeah. It’s really a personal process. I suppose other people have no problem with cutting losses, but I have always had a difficulty with it, and the realization that it even stems as far back to my elementary traumas is a big awareness indeed.

      Like

      • FRED says:

        Recognizing our weaknesses at this stage makes us understand why we act or react in certain situation. It really takes time to undo what had been ingrained. Don’t be too hard on yourself. Just take it easy and go one step at a time. Am pretty sure you would find your niche soon enough. 🙂 Good Luck!!! 🙂

        Like

      • Thanks uncle, if I may call you that :d

        Like

  3. Paul says:

    Nice article, sir Faceless Trader. I also share the same sentiments with #1.

    Like

  4. Ben says:

    Thanks for the article FT aka N.Y. 🙂

    Like

    • sandra says:

      i have learned that for every failure there is success behind. i learned it last Friday. stock trading entails discipline, must not be emotional, must not be based on heresay and emotion but some facts… Glad i came out from it victorious with God’s intervention

      Like

  5. vester says:

    whenever I’m down or not motivated.. i review the video you shared by Teresa Lo..
    FT, you are revealing your initials.. hehehe.. does it mean you will reveal your real name soon? :p

    Goodluck!! keep writing.. musta na pala ung magazine?? nakalimutan ko na ung link..

    Like

  6. Rich says:

    Read this book “Trading in the Zone” by Mark Douglas. It will help you understand everything about your self and its relationship to your trading skills.

    Good luck!

    Like

  7. carl says:

    LC….just like me! but i still have to get over the fear of buying stocks which I just sold at cut loss a few days ago, the fear counters my discipline to follow my system. Still have my newbie mentality.

    Like

  8. sandygilles says:

    yes, it does require a healthy dose of humility to accept a mistake, and to cut-loss, on a position. It’s one of the hardest things to do, i agree.

    Like

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