Faceless Trader · Tales of how a faceless trader sought to become an elite trader, and the journey it entailed
I’m not a fund manager like Peter Lynch of Fidelity Fund management who people would want to read about because people would want to know how he was able to generate his astounding returns and what people could learn from him. Neither am I someone like Barton Biggs who has tons of experience and knows a lot about the hedge fund industry that it is apt to listen to him in whatever he speaks about concerning finance. Since I’m not an authority in the subject, you might now ask yourself why I’m writing this book? Unlike other personal finance books which aims to teach people what it takes for them to earn financial freedom or trading books which helps people on the methods of profitable systems, this is neither of them.
This is a narrative of my life in trying to pursue a career in trading and serves more like a diary for anyone who wants to find out if it’s something worth going into. I’ll save you eight or ten years of your life and maybe you’ll realize something, that a career in trading may not be the most edifying place to be in. However, if you do choose to pursue this track, I’ll let you see the tradeoffs and opportunities that you’ll encounter for choosing this path. Some say friends don’t let friends into finance because it’s the wrong path to be in. Perhaps, maybe more than once, I’ve deliberated and second guessed myself whether this career is a place I wanted to be in. Perhaps, I was far too deep in this arena to also think of jumping ship. You know the feeling where it’s too late to cut loss and you’ll just find a place for reversal even if you think it’s a long term downtrend? Dead cat bounces that never really come? If there’s one thing I can be relied upon, my tale will blur the lines of fiction and non-fiction. You won’t know which is true and which is false but as Albert Camus once said, fiction is the lie we use through which we tell the truth.
***** Unlike most people who know me now, I believe only a handful would have remembered who I was prior to dimsumtrader and facelesstrader. I was this lone voice who started to trade in the markets during July of 2007.
Most people do not know or cannot picture that this same person I’ll describe in the next few paragraphs is me.
I had lost over half of my capital. I owed at some point in my life a million dollars before I’m 25 and I cannot repay that debt. I was fired. I have been called a wild horse who had the equivalent risk appetite of ten men in the room. In the Van Tharp test, I’m labeled a spontaneous trader akin to Jesse Livermore, but if you truly understood the meaning of that trader psychology test, that would mean that I’m the most prone to suicide as well. Just like Jesse Livermore, I had that tendency to blow things up so my most dangerous weakness is position sizes during conviction trades. He wouldn’t be called Boy Plunger for nothing. Note too that many fund managers and stock market participants have actually undergone thoughts of suicide and some who really committed it.
Below is a digitized version of a diary I had written during year 2008. Remember June 27, 2008.
There are many dates that are unforgettable.
January 25, 1998 was an unforgettable date for me.
Another date for the history books is June 27,2008.
What transpired 10 years after. I don’t know if it’s coincidence.
But this day will forever be mired in my memory.
Aftermath of a Downfall
2 am and a day has passed since my catastrophic destruction.
Up until today, I still don’t know how I can escape from the hole I dug so deep in. Never had I been scared so much in my life that after effects still scare me. I don’t know how to face people, much less face a person I’ve pushed away for my irresponsibility. With kindness, I have returned abuse. I have even blamed the person for being too good to me when I only learn my faults through whips, through harsh methods, through shouting and scolding.
I have not yet grown up.
Its really sad now that I reflect upon my life because trading has only been a reflection of a deep seated problem inside of me. It would have turned out sooner, I suppose, but I would have probably delayed my self-destruct button in just a matter of a few more trades, unless I just get lucky but I’ll still end up in the same conclusion.
I am far more vicious than a monster trapped in a bottle because my monster can go far and disguise itself as just a chameleon that can quickly change gears. I can be a demon and an angel at the same time and that has been such a difficulty that I’ve never recovered from.
I only become a good kid whenever I am scolded, whenever I am scared.
I have never, I suppose, really understood what unconditional love is.
I’ve never grown up with such a thing for the past 20 years.
The people who love me, I even push away through my words and actions.
I have lived in a world where I might be a Christian, I might have loved God, sang praises to God in church, helped children who have not gone to school but when there’s something wrong at me, I never correct them unless I am freaking scared.
And freaking scared is not even perhaps the right word to describe my state right now.
I suppose there are secrets that we have in this life that , sooner or later, will come out and they will be things that we think we can never live as normally as we would have, had they not been left a secret.
My problem is that when I do a person wrong, I have always gotten away with it mainly because people normally can take just so much “wrongs” in life.
People could not withstand tremendous amounts of wrongs, that’s why, I was able to overcome them. The problems seemed small compared to my abilities.
However, when kindness meets me, I’ve often done stupid things. I mean it.
The people who had loved me the most are also the people I’ve hurt the most.
I couldn’t live knowing so much hurt and pain that I’ve caused that I only try to do things more.
If I flunked a test, I would have simply studied more.
Back then, If I had gotten a D in accounting, I just had to study for the next exam. My parents, my family would have known how sad I was with my failure but failing, to them, is something that is common to everyone. Also, in our values system, a test is a test. There will be other tests. As long as one would study harder, the next exam will at least be higher.
Fortunately or unfortunately, I’ve always passed my next series of exams. I have usually learned from one mistake. I have never repeated them quite again. When I reflect upon my life, I don’t think there was any endeavor where I committed the same mistake twice or even thrice. I always had gotten away, learned my lesson, and moved on.
Not in this case, and this time…a lot of people are already mad.
It pains me to know that I don’t think I can ever smile again.
The last time I told myself “I think I can never smile again.” was when I loved, I suppose I thought I loved, a person so deeply, that I couldn’t understand how it seemed easy to dismiss things as a non-event.
I think it took me at least 2 years to recover from whatever experience that was. It influences me up until this day. So now you know why I can be sordid at times. My family most especially would often tell me that I am the most stubborn person in the world and that all I ever cared for was myself. It had always been me, trying to be independent, knowing everything, fixing my own problems. I had to cope up. I had to find myself and solve my needy side. I had to move on.
Anyway, things today have crept inside the veins of my brain cells. I’ve tried everything I could to escape the heavy feeling in my heart of the nightmare that came alive in my world. I am like the princess in the Rumpelstiltskin fairy tale..where the king locked me in a room with a pile of straw, who had to turn them all into gold the following day. Or so I had pressured myself to be, which had led me to my ultimate downfall.
Because I have no rumpelstiltskin. I have no genie who would give me my happily ever after. I only have myself. And I couldn’t get up to the plate during the pressure.
The problem was…I locked myself in the addiction of pressuring myself to the highest limits.
No one was expecting anything. It was my brain that was trying to find a way out when the more I try to do so, the more I end up losing myself, my sanity, and more and more into the quicksand. I’ve pushed the people who have cared for me. That was the mistake I’ve made.
Watch this video: https://www.youtube.com/watch?v=i3O-kYwM8qY
Had I not felt any pressure to make money, to recoup anything, I figure none of this would have happened. I would not have had the eagerness to think all sorts of theories, all sorts of strategies just to fix the problem.
The difference between trading and other things in life, is that the markets are impersonal. The markets dont care. The markets are simply psychological patterns of supplies and demands. The more pressure we have, the more we will not perform.
I dont know if in basketball or in Math or in studies if the same things apply. I think that sometimes it does not because when I pressured myself to perform in school and I studied hard, i had direct results. The markets are independent of how many hours you diligently worked yourself off. The only thing that is constant with the market, is that there is always the risk. Trying to figure what the market will do is a sure no-no, whether it be technicals or fundamentals.
Risk management has always been the key.
Because in the markets, when you humbly approach that your cup is empty, that you know nothing, you would never ever go into a trade without a plan.
Trading with a plan, to me…and following that plan…no matter how simple those words are, and no matter how often repeated they are, are the only reasons why successful traders are alive today. They never knew what the markets were going to do. They just managed the risks. They always predefined how much they were going to lose in any trade.
So what had I learned?
Well I’ve learned a couple of points…
1.) Don’t pressure yourself
2.) Always learn
3.) Empty your cup.
Thats all. really. I can go on and specify the exact trading losses but it all boiled down to the psychological error of trying to pressure myself to earn.
That was the ultimate downfall.
Next Chapter: We Blow Things Up
If there’s one thing you’d be surprised in knowing, I can be very good at blowing things up and losing money. So if you’re looking for a book that tells you what not to do in order to secure a better financial future, as if you never knew how to smoke your money by yourself, this book with my own experiences can likely help you if you choose to believe the statements written. As I said, to keep myself sane, I have to blur some lines of fiction and non-fiction.
The trader that I am 8 years ago and the trader that is me today is not far off. Perhaps, the only difference between the two of them is that time heals or makes one forget one’s mistakes. That’s a problem. When we forget our mistakes, we are condemned to repeat them one way or another and I’ve seen my weakness resurface itself in different varieties of the same proposition. My main waterloo up until this date is how to behave small against the market. That means respecting the market and being humbled that one couldn’t possibly know more or be better than the market. One has to respect time, price and more importantly cut losses and learn proper position sizes to grind one’s way out from a hole. The problem is that most people, who are achievers and brought up in the same manner as I was, tend to be called “people who have little appreciation of capital.” That in itself is a problem. I tend to be proud which will lead me to my own demise. That often leads me to problems and it escalates into larger symptoms when left unchecked.
It would be an exaggeration, however, to say that I’m uniquely special in blowing things up. Like most real-world traders, I believe I belong to the 90-92% of all traders who aren’t part of the 8-10% elite traders. What I mean to say is that Philippines needs stories of average traders developing skills to make super traders of themselves in the markets without resorting to manipulating the market. It’s not fantasies. I’m talking about real losses, real money and real lives wasting a number of years for the golden glory of elite traders’ status. How many traders have gone this path? Surely there have been thousands that have failed for every one or two that have succeeded.
I speak for the passionate, transparent group of traders or “market addicts” devoted to sharing our knowledge (how little or how much it may be) about Philippine equity markets. I speak for the multitudes of traders who wish to address fears about getting into the stock market. I want to dispel myths and misconceptions about traders and trading. I want to open the Filipino public to a wider plethora of investments available for them. Why stop at the Philippine stock market? Why did Filipinos never entertain the HK markets or the US markets? At the end of the day, I want to develop myself as a competent and successful trader to show that the development of a successful trader can be emulated to the development of other successful professions. It takes hard work and discipline but I wish to show that it is possible.
Why read this book?
If you care for your financial future, then you are the right market.
You may think you have to be a trader with some experience at the least, in order to understand how this book may be useful to you. No. That’s not a requirement. The reason is simple. Taking responsibility to your financial freedom is necessary to every living being. If you want to live a comfortable life, face it. You need to understand how money works. You may be a marketing professional working your way up to the corporate ladder or a gym trainer or a runner, a salesman, a graphic designer, an English teacher or a priest, but what we have to talk about will really be useful to you. In fact, many OFWs who have no idea about the currencies have just woken up five years afterwards realizing that their wages and savings when converted to pesos have dropped by 50% had they simply left their savings of Euros in the bank.
Most people think that finance is only for the math geeks or the businessmen or the rich. That’s a myth.
Most people think that making money via stocks is hard. That is not a myth.
However, making money with simple strategies in stocks is possible. Compounding your returns over time with a consistent rate of 15% a year will allow you to double your money in 5 years. That’s respectable but not spectacular right?
Look at the variety of traders with different time horizons. Some are happy with 15% a year, other’s aren’t satisfied with 15% a month! Some make it, some don’t. I don’t promise to make money for you over the long run. This book was not made in order to help direct you to buy this, sell that etc. I’m here to show my story, about how I trade and how I developed the skills that successful traders handling millions have done. Naturally, I’ll tell you my failures because I have more of it than success.
Read this only because you know that trading is a serious profession.
Read this only because you know that the skills successful traders have can be reciprocated in other areas of life.
Read this only because you care for your future finances.
Read this because your life depends on it.
Managing your finances is a responsibility.
Whether you admit it or not.
Who am I ?
I’m just one of the millions of nameless, faceless traders. The market doesn’t know who I am, nor does it care who I am. I do not have an apparent or obviously special gift for trading the markets. In many respects, I’m indistinguishable from other guys.
What I do have is a huge interest in learning as much as possible about the skill of making money consistently through the financial markets. After years of trading the markets, I have no ego left to boast. I know how much I’ve failed as a trader, and this a story of a failure who is determined to rise from the ashes.
I have tried several methods. I’ve tried to spend my time as near the screens as possible, trading every tick from the 1 minute to the 5 minute to the 15 minute of the chart. I’ve read myriads of books I can get my hands upon, as I deemed my lack of knowledge to be the primary culprit of my initial trading losses. I speak no lies when I tell you how many nights I’ve lost sleep, nor lost my eating habits thinking about my positions in the markets. Looking back, perhaps this speaks much to my amateur mistakes, which I’m still paying very dearly until today.
I’m not a market veteran. I’m not a huge professional money manager. I do believe I have a story, equally interesting to share, and perhaps more relevant to most people.
Perhaps, it is because it’s authentic, and speaks to 90% of all beginning traders. I speak as the faceless trader, but perhaps you can also call me the failed trader.
Sometimes, when I think about the years I’ve spent trading the markets, I think about how much time I’ve wasted, and never seemed to have moved at all. Gone are my dreams, my youth and more importantly huge sums of financial capital. I begin to give up and cry silently. It’s embarrassing, but that’s perhaps the thing about the markets. You’re not the only one who fails. You think you’re the only one going through it all, but you’re not. I realized there’s 90% of us who fail at this game.
When things don’t quite work out, we force ourselves into a tough and painful acknowledgment that we may not be in the right career after all. Tough times force many people into necessary reevaluations that lead in the long term to more fulfilling lives. Whether I turn out to be a good money manager someday, I do not know. I do know that while my failures have made me weak inside, they also forced me to think about formidable, actionable measurement plans and goals to make things better.
I swallowed my pride. I acknowledged my mistakes, and perhaps it’s through this acknowledgment that I’ve increased my trader IQ points one notch, and began to see the light of day, at least gradually. I’ve started to overcome the game’s mental aspect. Yes. I’ve realized that trading is not a game of financial prowess. Your degrees, designations etc are not going to be a sufficient trading advantage over the rest of the market participants. It’s all in the mind. I may sound like a voodoo specialist or some psychological whacko, but I’ve learned that more than studying the charts, or the company’s fundamental positions, the more important thing that trading entails is the aspect of knowing yourself, and complementing that personality to the unique trading system that you’ll eventually use to enable yourself to be a better and consistent trader. Only by then, can one be considered part of that 10% elite team of super traders, where performance and results are the only keys to financial success and more importantly, self-gratification for achieving a worthy goal for oneself.
How I wish that I can one day write in this book how my success story played out. For now, the journey is still well in the beginning, despite eight years. Thank you and I wish for a same fruitful journey with all my fellow travelers in this path.
As Minimalist Trader once wrote, “Trading is a path to build wealth, a road to ruin, unending entertainment when you’re clueless, crushingly boring when done right, enlightening window to the world and a glimpse of humans at their worst.”
Only traders can identify with me. I’ve seen my evil, and it’s not a beautiful sight. Cheers and let’s travel together in this path.
Take this empty cup and fill it with some innocence,
The Faceless Trader
Question: Who would you turn for investment advice?
- Someone who lost millions making dumb and reckless moves in the market early on in his career, wiping out most of the clients’ capital?
- Someone who never lost a significant amount in his life?
Answer: Simple. You learn more from one’s losses than one’s successes.
Most real-world traders will show their personal track records spanning at least 10 year horizons. They’ll show how they managed to turn their $10,000 investments into millions. What I can tell you is not all of them are fakes. It is real and true that there are risk managers out there who have done that. Jack Schwager interviewed these market wizards and updated it with his latest book “Hedge Fund Market Wizards”. The entire series is a must read. They are incredible stories verified with ledgers and you can go ahead to get your copies in learning from them. Kathy Lien and Boris Schlossberg both co-wrote how average people managed to make millions and decent sums trading the currency markets. Michael Covel wrote the legend of the Turtle Traders. Timothy Sykes wrote his own book. Nicholas Darvas. Jesse Livermore. Warren Buffett. These are just a few.
The reason I’m still here today is a function of two important people.
One, I’ve a boss, a trading mentor and a friend, who’s been patient enough to guide me throughout my own trading hell and has been willing to stake out not only his own money but his own time, in allowing me to reap trading gains for him in the future. He, it turns out, is not merely good in making money, but also in empowering people’s potentials and tapping them for God’s glory. Traders help each other. Note though that I’ve failed him numerous times. I still believe I’ve failed him. That’s a tough burden to carry.
Two, I’ve been blessed to work with a man unparalleled for his market success and who’s largely been considered the Godfather if you will of the Philippine markets. Many billions run through these two men in my trading life but none would ever say that money and success had ever changed them. They are both highly frugal and practical. I may not have worked for Warren Buffett or any prominent market wizards in my life but these two men were simply not written in both books but astounding in their own rights. It’s a pity merely that nobody had ever written trading biographies of both men. They’ve built the Philippine capital markets themselves and nothing could have explained the success of both men except through their own hard work. Both men exemplified the love of the game and the respect needed in the markets. Both men excelled with their own methods. They were both pillars in the industry. I could never quite understand how an average person, let alone a woman and not even a man, will defy the market gods and goddesses of luck for my extreme fat tail of being able to have a glimpse working with two men in my first eight years of trading. I have nothing to offer and most everything to gain. How I was able to muster the ability to work in what I deem to be the ultimate Goldman Sachs of the Philippines, I still do not know at times.
Both of them have considerably become my second fathers. They have extended unsurmountable dedication in helping me achieve what I’ve wanted to become and I do not think I’ve really reached an inch of their successes. They were also brokers like me when they started out. I never have achieved the kind of successes they’ve had during their lifetime. This is a tale of how a faceless trader sought to be an elite trader and the journey it entailed.
I am here today because of these two men. I am here today because I love what I do and it makes me grow as a person. I wake up thinking that I want to beat the market and make money every day (even if I know that it isn’t possible.) The process of beating the market has become a lifelong commitment. Not only do I find it stressful and challenging, it also relives in me the dream that by making it, I do not merely have the money in the bank but the satisfaction that I did it through skill and we never forget luck. Luck plays its role.
Successful trading encompasses not merely how you handle the area of quotes moving on your computer screens but also flows throughout other areas of your life – sports, relationships with family, loved ones and friends.
“We trade in the day, but we invest in our lives.” – Trader Planet
I have learned that while trading is an individual pursuit to find edges in the markets and making the most buck for the portfolio, money is never the end. Making money is an effect of doing the right things (managing your risk, proper entry and exits, selecting high probability charts, doing your homework, reading etc.) The development of a successful trader starts with discipline and a mindset to win. It is not a lucky stock that will give the jackpot at the end of the rainbow. Rather, it is always the consistent singles and not the home runs that will deliver the smooth returns in the long run.
Next Chapter: Why I Chose Trading Full Time As A Career
I can’t remember making any conscious decision. It was a gradual process. Trading literally took over my life.
HOW I STARTED
“Wall Street seemed very much like the place to be at the time. The world didn’t need another lawyer. I hadn’t the ability to become a doctor, and my idea for starting a business making little satchels to hang off the rear ends of dogs to prevent them from crapping on the streets of Manhattan never found funding. Probably, the real truth of the matter was that I was frightened to miss the express bus on which everyone I knew seemed to have a reserved seat, for fear that there would be no other.
I certainly had no fixed idea of what to do when I graduated from college, and Wall Street paid the most for what I could do, which was nothing.” – Michael Lewis, Liar’s Poker
Why I Chose Trading Full Time As A Career
Trend follower and Bestsellers
I’m not sure if I represent most people or only a minority of fresh graduates. Here’s the truth, despite countless years of formal education, I never really had that epiphany moment when I made a concrete decision as to what I wanted to do in my life. Most of my choices were made primarily by following the conventional wisdom. I just followed the “herd”, the “experts”, my predecessors and friends. In short, I was just a trend follower.
For example, the decision to take
M or even entering in A was made without even blinking my eyes (Thanks Malcolm Gladwell for pointing this out ). I simply knew I could never draw or sing for a living. I couldn’t see myself programming computer softwares because I didn’t want to be an owl nor did I want to learn another language. I was not beautiful enough for people to just watch me on screen, nor did I have any skill when it comes to dramatic arts. I just probably know how to rant, cry and memorize lines like a robot. Who’d pay to watch me do dumb things? Maybe I could muster a handful of 10 to view me on Youtube? Still won’t be enough even for my food. I couldn’t play a sport so well for people to watch me. I’m no Kobe. I’m no coach like Phil. My friends told me I could calculate numbers pretty fast, like some machine so they suggested I take something with lots of Math. Really weird, if you can multiply 189 and 19 and come up with an answer in less than 1 minute, you can do math? In hindsight, I guess most people just didn’t know what the hell to do , so any advice was still advice, whether stupid or not.
So here goes, “Indecisive Me“ simply checked where my friends were going, what they ticked as their course option and I took the same path. I was not thinking whether I would like the curriculum or the professors. I was in the illusion or presumption that since everyone I deemed “wise” chose this course to be their first choice, and then maybe that’s one of the best places to be. I was just like a child entering a restaurant not really knowing what to order, so I just chose what everyone ordered. What’s your best seller? Mildly spicy is fine. Something sweet and bitter can be added into the mix.
My pattern of making decisions was mostly simple. I don’t really analyze my choices (Even if my friends would say that I’m one of the most serious analytical people they’ve ever met). Am I left-brain or right brain? Words or Numbers? Black or White? Coffee or Tea? English or Math? Jock or Nerd?
Even if my college boasted of philosophy and theology to help directionless students like me to be more aware of ourselves to aid us in finding our careers, I just remember myself blurting out common passages professors wanted to hear. I want to be the best I can be. I want to find my limitless possibilities. I want to be a “man for others”. I want to be a social entrepreneur. Yada yada yada. Lots of big words, but ambiguous and never really anything much except an idea from the clouds. Of course I’d insert some concrete lies, but I never really followed through with pretty much most of them. If you ask me what I said I’d do after college then, and what I really did, they’d probably be like the North and South Poles. A good friend of mine simply summarized me as someone unpredictable. He couldn’t tell if I would eventually be an actuarial scientist, a doctor, an entrepreneur or a trader. My strength and probably my weakness as well was that I was fine with everything. I was like a “jack of all trades”. I would never excel at something, but I would be above average with most things. I guess being unpredictable is really a euphemism to say that I am going nowhere. I have no plans where exactly I want to be or who I wanted to become. I just knew I didn’t want to be stuck with my family’s business. I wanted to make it on my own. I also wanted to be rich. Who wouldn’t? I told you I am just your normal kid.
Internships and Job Fairs
You can just imagine me during internships and job fairs. I was just aloof with the whole world. The whole world was changing right in front of me and you could see all my peers frantically preparing, submitting all their neat application forms in scented envelopes as if they had conceived this ever since they set foot in college. If for one second, you could treat the job market as much as the financial markets, I simply found myself chasing after the same jobs most people wanted. Since I knew pretty next to nothing about which jobs to take, I just followed everyone. Just as stocks (read as job) could be worth nothing much than people perceive, probably overvalued the job’s good qualities, none of us really knew what we were doing (unless we did NPV analyses, but would you believe in fundamental valuation? How do you value intangibles like personal growth development?). Everyone was listening to the same salesperson (read as sell-side analyst) campaign why working for Company X has helped his growth advancement as a person etc. The more of my classmates passing forms to this company, the more the worth of that job seemed to be. Price action is far more important than whatever those speeches had to tell us. Tell me how many from your batch worked for NGOs or social civic work? I’m not really sure why most of my batchmates wanted a career in finance or marketing. Prestige? Compensation? Growth?
With all my indecisiveness, you guessed it. I simply passed all my forms to these sectors. It was simply like a lottery as to which company will have the decency/unluckiness to call me to work for them.
I took an internship doing supply chain marketing with a cosmetics company (even if I knew next to nothing about make up) because they were the first one to call me and hire me. Just as I told you, I don’t think much about jobs. People treat their internships as something super important for their eventual jobs and resumes, while I just batted my eyelashes and crammed it like most of my projects in the process.
In any case, I found myself in a place where I didn’t want. It’s a good thing internships only lasted for 2-3 months. It was simply not a fit for me. I have no problems at all with the people, or the management. I just found myself wanting to do something else.
So how did I end up being a trader today? What a long introduction right?
My First Encounters with the Stock Market
I’m not like most of the people who went to work in and for Wall Street. Most people in this industry have watched Oliver Stone’s “Wall Street”, “Boiler Room” and other popular movies in relation to finance several times. Others have been trading early on in their lives or have heard about stocks while they were still 12 or 13. They probably have a father or an uncle who would talk about the markets during lunches. How I wish I knew earlier that there was such a thing as the stock market, then I would have at least rode some part of the bull market with all the irrational masses from 2003-2007. I probably would have ended up studying economics and psychology if I had to re-visit college. That’s the closest thing to behavioral finance, at least here in the Philippines.
In any case, whether you believe it or not, I only knew much about the existence of the markets and the accomplishments of the market wizards pretty much during the latter half of 2006? This was my 3rd year already in college. I’ve always heard about Mr. Warren Buffett, the great sage of Omaha, being the 2nd richest guy before Bill Gates but my knowledge of the stock market was zero. To be fair, I was studying accounting and finance classes, and we’ll talk about the markets lengthily, but I never had any experience of trading it at all. My definition of the stock market would be what my textbooks would say. That pretty much sums it all. Rote memory + numbers + concepts. Formulas, NPVS, WACC, ROIC, income statements, earnings growth etc. If I don’t apply it, I’ll quickly forget it after a while. That’s what happened to my Calculus, Physics and Chemistry classes.
I guess a lot of it changed when I got hold of Jack Schwager’s Market Wizards Series, Phil Town’s “Rule # 1”, Benjamin Graham’s “Intelligent Investor” and Edwin Lefevre’s “Reminiscences of a Stock Operator”. Those books as well as Ayn Rand’s “Atlas Shrugged” have somehow opened up to me the possibility that even without much capital, I could earn my own millions. Self-made. Perhaps that’s the best sales pitch anyone’s ever made to me. Of course Robert Kiyosaki’s popularity with his Rich Dad Poor Dad series somehow made an impact for me to be more non-conformist and try new things. Be contrarian, as he would say. Although in a way, he betrayed me by becoming mainstream with all these cashflow games and redundant books spreading all over the world, I heard him once and that is enough. Writing 6 or 9 books more on the same topic was just milking money from all his followers.
In any case, I wasn’t ever going to be a good real estate agent so I told myself I’d get my hands dirty with a career in finance. Whether it’s investment banking, quantitative modeling, proprietary trading, research writing, I wasn’t sure. I just wanted to be in finance, even if I had to start making someone else’s coffee just to be there.
Decisions with no known outcomes
I worked in this private bank for six months before I started proprietary trading. The firm was touted as one of the best “go-to” places by my batch, so I joined them. I wasn’t really thinking about the salary even if I heard their bonuses were good. In fact, I even told them during the interview, I’d work for them even if they don’t pay me a single cent, because I wanted to learn everything I could from them. I was honest. I wasn’t making some bullsh*t press that I’d work without pay. It was real. Most of the traders I read in Market Wizards talked about working in finance as one of the most fulfilling jobs, they’d work even if they were only paid a dollar a year. I believed them. I simply wanted a mentor. They were the most profitable department in Asia for what they were doing. I felt as if I was doing the right thing, being in the right hands, so I joined them immediately. That May of 2007, I was working as a marketing assistant for this private bank.
During those first months, I saw myself watching the movements of Philippine stocks rather than attending to my work. I was more intrigued with the reports sent by my peers re equities and derivatives than anything else sent in my email. It was during this time, when I was exposed to interest rate swaps, bonds, forwards and foreign currencies that I reaffirmed with myself that I did want to be in finance, but not in private banking. No disrespect to my peers and mentors, I simply found myself looking for the kind of “excitement” and thrill felt by fund managers and proprietary traders who would risk their money (or their company’s) with their conviction ideas. Before I could help and advise clients in private banking, I would first have to equip myself. I found myself reading about blogs on macro topics, and reading research reports. I envied the analysts who would have coverage of certain companies, look for value plays and write about them. I told myself, I wanted to do something like that.
After 6 months prior to the regularization interview, I gave my resignation letter. I told them that I wanted to work in the equities department, learning fundamental analysis. My hero at that time was still Warren Buffett’s teacher Mr. Benjamin Graham. I knew about technical analysis, but my heart was more bent on learning how to value stocks.
The Right Job
I knew exactly where I wanted to work in right after my stint in the private bank. I wanted to work in brokerage firms. I want every morning to wake up to Bloomberg and breathe stocks in my life. I wanted to be as great as Jesse Livermore and Warren Buffett so I applied for any job that they would offer me. Local equity brokerage firms were vastly different from where I used to work. I could talk immediately to my research head and my bosses. The organizational structure was very flat and the atmosphere was very casual. They still meant business, but it was just more laid-back than where I was used to. The feeling is much like being back in the neighborhood, after spending some time abroad. It felt more homey. January of 2008 was my first day researching for stocks.
Pretty soon, another 6 months would pass by and I would be asked if I wanted to transfer and work instead with the proprietary traders full time. Instead of researching and writing reports for companies, I found myself watching a quote screen and working like all the guys out there. We were all eager to make money and our first million for that year. There were rumors that there was a trader making a million every month. So if he could do it, why couldn’t we? It’s just a matter of experience and skill right? It can be learned right? I transferred just 3 floors above where I used to work that June of 2008. Finally in the right job, I say to myself.
I remember waking up every single day thanking God because I’m on my quest to be a super trader. To make things worse, my overconfidence was fed with a nice compensation check because I’ve made quite a sum for my first two months. I thought at that time 15% for the month was just ordinary. I’m really stupid and a new trader, wasn’t I?
2 and a Half Years Later
I guess I should be thankful because my career started in the most historic of times. I lived a once-in-a lifetime event: The Crash of 2008 and the Violent Rally of 2009. If I had not made any money on the way down and on the way up, I could still say I had market experience.
If you asked me why I wanted to become a trader then, I would have given you the classic off-the-mill answers of most wannabe traders out there. I came here to make money. I was passionate and willing to commit the time and effort to learn whatever I needed to do in order to gain market experience, light years ahead of my age. The dreams and the fantasies of a self-made millionaire, then possibly work as a hedge fund manager or pay for my further studies (ala- 21-esque) using my winnings from trading seemed like a nice thing to put on my future resume. Things seemed easy. I guess I was really stupid to think of things that way but the fact that most successful traders came from meager backgrounds provided me enough evidence to take that long Hail Mary shot. Idealistic as I was, I believed that I’ll be one of those top 8% of traders who become super traders handling millions of dollars for their clients’ and personal accounts.
You only know what you’ve got until it’s gone.
Realization that Trading was Never a Themepark
I only knew I wanted to become a good trader when I already lost most of my dreams and fantasies that initially tempted me to become a trader. Ironic or cliché as it may seem, you only know the things that you want to do, or love to do when someone takes out all the perks from you and yet you still continue to do it anyway. If you’re constantly losing in your trading, and yet you still find yourself charting stocks, reading news reports and watching Bloomberg during your free hours, you are one of two types. You are either a passionate trader who wants to improve his/her game by being up to date, or a chronic gambler who’s on the verge of lunacy partly due to the staggering amounts of money lost and the inability to get out from one’s hole.
I’m not sure what type I am. I probably am both. Still though, despite all the challenges I encounter from trading, I really can’t see myself veering away from it. I believe trading has that certain hold on people. Once you pop, you can’t stop. This book is certainly one part of me, trying to put a structure to my passion/addiction with the markets. I want to chronicle my education of becoming a super trader. Welcome to my world. It’s hell and heaven at the same time.
Trading for a living is different from trading. Anyone can trade. You just simply open an account, buy and sell a stock or any financial instrument, and you can call yourself a trader. Becoming a trader for a living is an entirely different field. Becoming a trader for a living means that you are looking for consistency in your life. Just as most businesses have a stable cashflow, that is the goal of the trader. You want to trade well and have stability in your account. You want growth minus the wild volatility. For a newbie to realize the difference between a senior trader and an amateur, one only needs to see how they both look at the market. One sees it as a business, while the other sees it as a gold mine or a theme park.
(Insert a Drawing: Trading is not a themepark)
I’m not a hypocrite. I came to the trading floor because I wanted to handle huge amounts of money, getting myself and my clients as rich as possible, as consistently as possible, and as early as possible. Timothy Sykes, George Soros, Nicholas Darvas, Jim Simmons, John Paulson, David Einhorn – they were all poster boys of non conformists and I wanted to be included in their pack. The ability to help people is within their reach because they have the guns, the girls and the gold. You need to have the gold. I wanted the gold.
But of course, a few beatings from the market taught me that only those with the proper psychology, mindset and willingness to work hard could have the gold. Trading, like every other business in the world, is a place to develop your self. Trading is a means of self development. You will begin to know your deep seated egos, and know who you really are, your strengths and your weaknesses, by the way you manage your trades.
“If I were a beginning trader and knew what I know now, I’d realize that trading is no less of a business than opening a store or a doctor’s office. It requires talents, developed skills, and a clear plan for success. It requires adequate capitalization, and it requires a firm ability to limit overhead during the early, lean years. Fantasies are exciting, but there is so much more to performance success in any discipline.” -Brett Steenbarger
If you are past your fantasy stage and seriously looking to be a full-time trader or learn trading the right way (even as a passive trader), follow me in my own journey and let’s share our own stories.
Next Chapter: 2008 – 2011- Lessons, Scribbles
He had that effect on people. Here we are, talking about it nearly ten years later. It was a fear that I had pushed the envelope too far, to a risk level that was unacceptable.
I ended up blowing out the entire account in a few days.
I became more risk-control oriented afterwards. I was never particularly risk-averse.
I’ve cut back trading size after the losing streaks.
You’ve got to figure out how to make money by being right only 20-30% of the time.
I had to get a copy of Ed Seykota’s Traders’ Window. I had to empty my cup and I had to re-read the story of the Jade Master.
I must not trade what I can’t afford to lose.
Failure is an event, never a person.
I found myself trading once again, despite a desire not to do so.
JULY 25, 2011- TRADING ABYSSES, HITTING ROCK BOTTOMS AND THE POWER OF VULNERABILITY
You’re probably not stressed with the markets if you’re fairly new who never suffered a handful of losses. However, if you’re not new, you may have thought about boxing to take away the stress inherent in trading. You exercise, so as to keep your mind off of the markets. I always remember Sean Mclaughlin’s thoughts when he once said that trading is not fun for most professionals. He even went so far as to say that trading needs to be boring and systematic enough to be mechanical, especially for traders who orient their systems with technical tools alone. It’s easier to cut losses, when you’re numb with the figures, and just see the loss as part of the game. It’s the amateurs who normally see the markets as such an exciting whiff every single day, which complicates trading in the first place.
At least for me, charting dulls the senses, if you do it the whole day, every single trading day for years, it also numbs the mind. This is probably the reason why writing, reading different news,emails,tweets and links from a community of fellow market junkies generally fills my day with delight. My day doesn’t seem to be complete without scribbling notes, here and there. Not only have I been more informed and able to trade better, I’ve gained some friends too in the process.
Every once in a while, I encounter a few trading books and articles to which I can relate to. Let me share to you Stuart Walton’s story.
In Jack Schwagers’ Interviews with Top Traders, he dished out the following:
Stuart Walton’s career as a trader is marked by a string of contradictions and paradoxes. He wanted to be an artist or a writer; he became a trader. Though he valued academics and disdained the financial world, the markets became his profession. He once hated trading so much that he awoke feeling that he couldn’t do it for another day and quit his job that morning; several years later, the markets were his endeavor and passion. His initial forays into stock trading were marked by such ineptitude that he nearly went bankrupt,yet he subsequently became so skilled that he more than doubled his money annually. Walton was relaxed and outgoing. We talked for five hours straight without interruption. The time passed quickly.
For a full writeup of Jack Schwager’s interview with Stuart Walton- Please read it here.
When I was fairly new at trading, I literally thanked the Lord whenever the US market indices were up, and as absurd as this may now sound, I used to believe in making money every single day.
When a stock moved significantly that day, I thought I could have rode that %gain, had I only read the news article that mentioned about what was happening to that company (whether it was an earnings driven event, or something news related.), or did my charting homework yada yada yada.
If Stuart Walton was initially bankrupt in his first few years, I went into the same black place myself. Am I a failed trader? Yes. Initially, I failed tremendously at it. Have I recovered? Well, I’m off my lows- if that’s good enough.
Of course you won’t believe me when I quote the favorite excuse of most failures in the world. “The addict needs to hit the rock bottom before he can heal.” I know myself. I lived the idealism of my previous academic life. While it’s exciting (and perhaps the only “exciting”) thing to have the responsibility of trading much money, especially if you’re a young guy, just barely out of your twenties hunting for your prey (both the female species and other endeavors in life). At some level, instant gratification, excitement, sizzle and the comfort of knowing that lots of other guys have milked millions from this business are enough reasons why your net worth will go up in no time. “If they can do it, surely I can”, so you say to yourself. Don’t make me a fool, because at some level, I have that gambling urge and I satisfy my speculative trades as well.
My black abyss episode just taught me that salesmen could always make any story sound great. Your guru is most often the best salesman because you trust him too much. Beware. The thought that because of some “gambling”,all-in shot I’m making, that I could lose everything that I had built up in savings for years really straightened me up for good. Only it was too late, when I realized this. I lost countless millions from either being too late in cutting my losses, too eager to take my profits, betting the ranch on an idea, getting whipsawed in my executions etc.
From that point on, I traded much better and just started to chip away at my losses. I never went all in like a poker game with my portfolio. I leave the all-in bets inside the poker tables and the casinos. I never do it in my trading.
I woke up one day and told myself I didn’t want to worry about interest rates, Obama, Aquino, Wen, Cameron, Sarkozy etc. I don’t want to worry about them for the rest of my life. Eventually, after watching the markets for a long time, I looked hard on one of life’s crossroads and gave myself a measuring stick. I gave myself X # of years, Y # of milestones to achieve and Z # of measures to prove or disprove whether I’m moving forward, or backward. Portfolio value is merely one metric. Performance is related to management of risk, taking appropriate risk levels (there is such a thing as too little), and providing the suitable trading style to each client.
I like the comforts of life, and for me, this business still seems one of the best ways to acquire that “good life”, despite the fact that I still wonder about my purpose . I however, had to satisfy my creative side, and sought the combination of a financial job with my artistic interests through writing, re-learning digital arts, and pursuing my random interests such as algorithms and statistics. Do not be surprised if I’m off doing some financial cartoons, as I’ve always wanted to do it anyway.
In a way, reading Stuart Walton’s philosophy reads very much like mine especially when he said “My philosophy is to float like a jellyfish and let the market push me to where it wants to go. I don’t draw a line in the sand and say “this is my strategy and I’m going to wait for the market to come to me”. I try to figure out what strategies are working in the market. One year- it’s momentum. Another year, it’s value.”
I guess I’d like to end this post with Brene Brown’s video “The Power of Vulnerability”
Here, she said that when people are asked about love, belonging and connections, people normally talk about breakups, exclusion and disconnections. Shame is the fear of disconnection. “I’m not good enough, I’m not smart enough, I’m not enough.” However, if you totally deconstruct shame, in order for a connection to happen, you need to be seen, really seen for who you are (flaws and imperfections). The fear that we are not worthy of connection, is the only variable that is setting us aback from all the rest. It is that belief that we are unworthy.
Courage comes from the root word cor- which means heart. Hence coronary diseases, corazon aquino, cory etc. The courage to embrace your vulnerability is opening yourself up with your imperfect stories. What makes each person beautiful is our vulnerability. When we are willingly able to say I love you first, with no guarantees, with possible rejections, and when we are willing to invest in a relationship whether it will or won’t work out, when we breakdown which is just another word for a spiritual awakening, when we struggle, this is where the birthplace of belonging and of love exists.
We need to be open to the ideas of our failures. It’s only when we know that we’ve failed as traders, that we’ll learn how to even begin. Our greatest teachers, I often believe, are our greatest failures. We are receptive and are in a tabula rasa state (blankspace), when we fail.
“When you enter the stock market, you are going into a competitive field in which your evaluations and opinions will be matched against some of the sharpest and toughest minds in the business. You are in a highly specialized industry in which there are many different sectors, all of which are under intense study by men whose economic survival depends upon their best judgment. You will certainly be exposed to advice, suggestions, offers of help from all sides. Unless you are able to develop some market philosophy of your own, you will not be able to tell the good from the bad, the sound from the unsound.” – Edwards and Magee
“The fresher and more original the ideas you bring to the table, the more interesting you become both as an individual and as a storyteller.” – Vincent Sandoval, Filipino filmmaker-actor (He recently got his film in Locarno fest)
Despite the markets being competitive, at the end of the day, each one will have their own interesting stories to tell, I’d love to hear those stories.
Next Chapter/ Chosen Post:
WHY MOST TRADERS FAIL
Reality Bites: 90% of Traders Fail. Do you want to know why?
There is always a price to pay for education. For some it may be losing several accounts, for others it may be hiring a good mentor to teach them; for others it’s the school of hard knocks and even living at the border of impoverished conditions in order to study the market, back testing and forward testing several trading strategies until finally developing their own trading methodology.
It took me many years and thousands of hours of market watching to develop my own trading methodology. I’m still refining it and I don’t know if I can ever just have one system in trading consistently. The baggage from my old “learnings” was so heavy that I was unable to trade successfully until I got rid of it.
I would estimate that, 80-90% of traders I’ve known are not consistently successful in the trading business. Think about what that means in terms of lost money, accumulated debt, dashed dreams, and disappointed family members. Why do no trading coaches talk about these personal tragedies and losses? Why don’t the stories of the vast majority of traders ever grace the pages of trading magazines and trading books?
I do not know why. Perhaps because they won’t sell well. Perhaps.
What I do know are the reasons why most traders fail, and if I can spare you of the common pitfalls, perhaps, you can start assessing and making proactive steps into becoming better than all the rest of us.
1.) Most traders never took the time to decide how they should trade
Most traders I know skipped the parts on learning about their own temperaments, their discipline issues, their execution performance levels and just went straight to learning about charts and fundamental research reports, without realizing they skipped the most important part- their own ability to psychologically execute the right market timing, and the discipline to cut when they’re proven wrong by the market, no matter the fundamental value of the company they’re trading upon.
While it may seem trivial to answer psychological questions to yourself, the reason why I find this most important is because knowing yourself determines your ability to follow your own system.
All traders echo that successful traders need to have a system, but how can you create a system for yourself that you can follow, no questions asked, without understanding your own personal capacity to follow rules? As a child, did you normally try to constantly challenge the status quo? How can you accept trading rules, when you’re told to follow only the price, and nothing more? How can one trade a system meant for day traders, when one’s inclinations are more rooted to analysis of companies, where position trading is more apt? How can you integrate your personal strengths and weaknesses in order to create a system which is successful, with a trading edge that can combat the markets, whether bull or bear?
Jeff Cooper once wrote this trading reality: “Hundreds if not thousands of books have been written about trade entry, but the important thing to understand is the personal psychology required to honor a protective stop and the discipline required to get out. “
In truth, traders never really can skip this lesson. Whenever one trades without any system, and not according to the right precepts of good market timing suited to one’s temperament and ability to execute that system, one has to pay for the education.
2.) Most traders fail because money as a motivation isn’t enough
Be honest with yourself and think about whether you are intrinsically motivated, or whether you are really only in it for the money.
Money is and remains a so-called extrinsic motivation, the level of which – in contrast to a person’s inner drive, their intrinsic motivation, cannot just continue to rise.
Implementing your strategies requires character traits such as iron discipline, indomitable will power and the patience of a saint.
It’s easy to think and say that you love trading and believe in your trading skills in order to achieve that great success, but making this vision a reality is a long and uphill struggle, as many of you well know.
Everyday you have to fight against being your own worst enemy. Everyday you put your wallet on the table and need to be mentally able to deal with the changes to its weight. You will experience a roller coaster ride of emotions ranging from shouting in triumph at having achieved extraordinary profits to the feeling of being sunk in despair during severe drawdowns and long series of consecutive losses. The one thing you can depend on is that your love of trading will be severely tested by the markets. If money is the only reason why you’re in the markets, consider a different business. If you think it’s not a business, you’ll be closing your shop soon anyway.
3.) Most traders fail because of the lack of patience
Every time you have the urge to make an aggressive trade, especially out of emotion, take a step back and reevaluate. The moment you get impatient, bad things tend to follow. In tough markets, stay patient and let others beat themselves in order to be ready and fully prepared to pick up the low lying fruit from the sheer destruction and capitulation from others.
The willingness to wait for the right pitch will make all the difference between a successful trader and a trader wannabe. If you are patient, the market has a way of painting its picture for you. The essence of a good trader is to wait for your pitch, your ball.
4.) Most traders fail to keep and study their journals
You can tell me that trading is a numbers game, but lip service is never going to be enough in the markets. Your journals and your trades are the only basis to see whether you have understood the concepts right. If you don’t even keep a journal, that’s even worse, because you cannot measure how you’re doing in your trading. That’s similar to opening a business, without even reporting how much sales and operating expenses went throughout the day.
If you think this is minor, so be it. The devil is always in the small details. Simple advice: Have a journal, study your hit ratios, your profits and your losses. Bottom line is, if you can’t study your mistakes, you will never see yourself,and will have a false sense of trading “eminence” which will be quickly disproved by your account performance. Don’t be surprised if perception is not the same as reality. You’ve been warned.
5.) Most traders fail because they still blame the markets
You may think I’m exaggerating but I’ve heard a lot of traders crucify the Dow for being down again for the eight or ninth week. Failing traders blame their losses for most anyone except themselves. Traders who never look at themselves are a hopeless basket case.
6.) Most traders fail because they believe the market is rigged and that they need inside information to benefit from it
I believe in saying that these are the same types of people who blame the world why their marriages have failed, why the prices of goods keep on rising, why everything else is moving out, except themselves. These people aren’t going to get any better. If you’re one of these kinds of people, consider assessing why you complain so much about the world, but not do anything as simple as looking at your own self.
7.) Most traders fail because of their inability to understand the true concept of taking risks
There’s a difference as big as day and night between trading and gambling, but then again, even long time traders can’t distinguish both things. You’d understand what I mean, whenever I see a trader take a risk, whenever the reward’s measly. Whenever a trader chases a price point, and gets rewarded, one believes that one has made a good trade. The truth is, profits alone do not guarantee trading success for consistently long periods of time. Process trumps everything else in the long run.
Also, risk management isn’t just about keeping losses down; it also means taking maximum prudent advantage of opportunities that present themselves. Many traders fail because they can’t limit their risk. Many others fall short because they lack the courage of their convictions. Somewhere between confidence and overconfidence lies the sweet spot for successful traders.
8.) Traders fail because they confuse their cojones into their trading
In the business of trading, you’ve got to decide if you want to make money or if you want to be right. To trade what is and not what we think should be, requires us to experience the market as it really is. Successful traders know when to cut losses if necessary. Don’t let your own desire to succeed be the enemy of good judgment.
There is no harm in guessing wrong, the sin is in staying wrong.
9.) Traders fail when they think they need to be right all the time
As a trader, you can make a great living if only half of the setups you take are winners, sometimes even less than half. Dr Van Tharp once wrote that most of us grow up in an educational system that brainwashes us to think we have to get 94-100% correct to be excellent. If you can’t get at least 70% correct, you’re a failure. Mistakes are punished in school by ridicule and poor grades, yet its only through mistakes that we learn.
Indeed in the everyday real world, people have made millions on trading systems each with a reliability of only around 30-40%. This means that great traders have the resilience needed, and emotional maturity to weather the draw downs, and tough times when their systems yield consecutive cut losses. I’m sure you’ve heard this before but I’ll repeat the trader cliches. Yes. Trading truly is a numbers game.
10.) Traders fail when they forget there’s plenty of opportunities other than trading
Perhaps this is ironic, but I’m sure you’ve heard the trading mantras “Scared money never wins”. Every bet a trader does, once confused with many things such as tying up one’s own confidence capital, cojones other than the money involved normally loses. When you trade thinking that trading is the only avenue for your income, that’s when you will normally fail. Successful traders approach the markets without much emotional capital in every trade. Sometimes, successful traders do not even watch the screens. Less is more. You can just place your stops, put your position size and do anything you want such as exploring other markets (learning about private equity, venture capitalism, foreign markets, currencies, commodities or some other entrepreneurial endeavor that piques your interests). This may be counter intuitive, but trading while requiring hard work when it comes to preparation, is effortless when it comes to execution. Once you’ve entered the trade, the stops and the sizes, everything else is automated. You don’t have to worry about the intraday upticks and the downticks unless you are an intraday trader.
11.) Traders fail when they have a false recognition that trading is a walk in the park, and is static
The market is constantly evolving and you need to be able to change with it. A good student of the markets studies continuously. Nicholas Darvas read hundreds of books before finding the system that best fit him, and he still continues to read even after trading millions successfully. He traded his box theory during the momentum markets very well, and kept on dancing during the market cycles he didn’t have a trading edge upon.
Successful traders know that no strategy works forever. At least no static strategy. You need to adapt your approach as the market changes. Some people think they can learn a couple of easy patterns and just trade using them the rest of their lives and they’ll be fine. If those patterns are adaptive somehow, then maybe. If they can work in calm markets and choppy markets and trendy markets and panicky markets then great. Perhaps you can use them forever.
People are easily attracted to fantasies, instead of realities. But no evil would be justified on the ground of expediency. It takes years to become a successful trader. There’s not much shortcuts in most every field, and trading is the same.
I’m sure I can list many other reasons why so many traders fail, but I’d leave the readers to simply write their own reasons why. What’s most important is that one recognizes why one fails, and actively tries to address and fix the reasons, in order not to fall in the same debilitating failures every single time. 🙂
Hope the outline above helps,
The Faceless Trader
Inspirational References: Books and articles authored by Jeff Cooper (Hit and Run Trading, Chap. 17) , Brett Steenbarger (Trader Feed) & Charles Kirk (Kirk Report) , Mustapha Azeez (“Trading Facts Can Set You Free”.Trader Mag.June 2011)
FEB 27,2011- PROCESS TRUMPS OUTCOME OVER THE LONG-TERM.
I’ve a friend, who’s sad about his trading performance who told me something like this:
80-90% of traders fail. They are no longer in the trading business. Think about what that means in terms of lost money, accumulated debt, dashed dreams, and disappointed family members. Why do no trading coaches talk about those personal tragedies and losses? Why don’t the stories of the vast majority of traders ever grace the pages of trading magazines and trading books?
Permanent scars from pointless battles? Dashed dreams? Does this sound like your situation? I was here. I am still here. I am recovering from that stage.
Here’s what I think someone in this stage can do:
1.) You’ll have to start looking at yourself. Weekly, Monthly, Yearly – Trading results are the products of the traders themselves, not the markets.
2.) With the help of others, recognize and identify your weaknesses. Take action by using gradual steps in the right direction. Let’s say, you have a problem with money management. Keeping a journal makes you aware of the sizes you buy and sell. You’ll see your weaknesses thoroughly and you’ll be able to be more disciplined.
3.) Report trading results, weekly or monthly to someone. Provide a brief comment on how well or how poorly you’ve behaved in your trading/investing roadmap.
4.) Know that the world is a very big place. It is bigger than trading. Yes. Find a way to spend your life doing what you’re happy and passionate about. (Personally, I’m very tempted to go learn a few things myself. Life is not just about trading.)
5.) I recommend anyone who want to understand trading to read chapter 17, from Jeff Cooper’s book (Hit and Run Trading).
Personal Favorite Lines from Chapter 17: Mind Over Money, Hit And Run Trading. Jeff Cooper:
1.) Hundreds if not thousands of books have been written about trade entry, but the important thing to understand is the personal psychology required to honor a protective stop and the discipline required to get out.
2.) As a trader, you can make a great living if only half of the setups you take are winners… if you use proper risk control on the other half. You must accept that taking small losses is simply part of the game and part of one’s cost of doing business.
3.) Only the mastery of your own personal psychology, your own self-image and your own set of beliefs will determine whether you achieve the success you desire.
4.) Only the humble survive. – Jim Whitner
5.) Majority of those selling advice on Wall Street, most of who are trying to teach us how to trade, don’t actually suit up and trade for a living. But, they have no trouble selling us research and attempting to tell us what works. Historians are good ones to tell you what happened on the battlefield after the hostilities have ceased.
I’ve read Jeff Cooper’s book a lot of times. This Chapter 17 resounds to me every so often. All I can say is that, whether you are early in your trading, or experienced already, a good handle on your trading psychology is what takes a trader from volatility to consistency and possibly the ability to trade the markets successfully. I didn’t give psychology too much importance before, but now it’s the most important tool in my arsenal. Without understanding psychology, especially your own, I believe you cannot trade anything well with any chance of consistency.
The only opponent you have to beat is yourself – the way you used to be.
I’ll tell you that there were days when my trading life was always filled with disasters and stress, one way or another. I used to be sad and think about Katy Perry’s lyrics “Do you ever feel like a plastic bag, drifting through the wind, wanting to start again?” The account was retreating step by step. I found I didn’t enjoy trading as much as I used to. I felt I’d aged 10 years. There was a sense of disappointment, like all my hard work wasn’t paying off, that there was always something obstructing me. The more I tried, the more I lost- that sort of thing. I looked at a lot of Brett Steenbarger articles (Trading development blogs) to find answers to my own problems. You know what I realized?
Every trader goes through that phase. Pain is inevitable, suffering is optional.
To keep on going, you have to keep up the rhythm. This is the important thing for long-term projects. Once you set the pace, the rest will follow.
If you firmly believe that you want to succeed in trading, I tell you that your discipline and money management is the first thing that we should work upon. We should look at the process. We measure ourselves by the way we process our trades, how we execute them. The results do not determine the performance. The results only confirm whether or not we followed our processes or not.
The hurt part, the dire state, the losses- they are unavoidable realities, but whether or not you can stand any more is up to the trader himself. If anything, the survival rate of great traders is slim, but they’re always born in difficult markets, never the easy ones.
I’m not really in my abyss state. To me, my abyss state is when I’ve fully lost confidence with my system.
However, I felt a lot of articles currently are “somber” when it comes to relate to the Phil markets. I disagree. That’s all. In fairness, we’ll be getting good bounces on Monday, but aside from that, even if the markets slide to 3600,3500,3400 the next few months (IF EARNINGS DISAPPOINT, or some other external shocks), none of them really matters. Good traders manage risks and prepare for unexpected events (i.e. boy scouts everyday, always with money management and stop losses in place).
Boyscouts – Always Prepared mantra right?
Traders- Always Honor Stop Losses and Protect downside 😀
Process Process Process. Process always trumps outcome over the long term.
A candle loses nothing lighting another candle,
AUGUST 2, 2011 – FRIED BRAINS: GOING THROUGH A BURNOUT
All quotes below are courtesy of Mr. Brett Steenbarger. Every single time, I just feel like I need a trading counselor, I just google his name and read his articles, to make my day a little better. Let me share each one of them:
1.) “Many a trader fears boredom, more than loss, thereby experiencing the two in sequence.”
2.) “Either way, losing money has a purpose: to make us better. It does not have to be a threat to self-esteem: it can be an opportunity to expand oneself.”
Today, I mustered up the energy to ask myself “Am I tired?” , “Do I think I’ve had enough?” “Am I burned out on my job?” Whether you’re a trader or a non trader, let me start my post by asking 5 questions from a CareerBuilder site. Click the link for the entire article.
- Are you burned out or just exhausted?
“Take a real vacation to find out,” says Rena Lewis, senior vice president for Lee Hecht Harrison, a job search, consulting and career management firm.
Burnout: If you dread returning to work, you may be burned out.
Temporary Heat Wave: If you come back rested and recharged, you just needed a well-deserved break.
- Are you reacting to a passing moment or an entire movement?
Burnout: Your company recently underwent a major restructuring, doubling your responsibilities, and there’s no end in sight.
Temporary Heat Wave: You’re buried in work because it’s your ‘busy season.’ But you do see light at the end of the tunnel.
- Are the demands of your job weighing too heavily on you?
Burnout: Your supervisor is too demanding and you just can’t keep your head above water. You know you’ll never get her to change.
Temporary Heat Wave: You’re too demanding on yourself and it’s causing you undue stress, not only at work but most likely in other aspects of your life as well. Time to let a few things go, like the perfectly clean house or some volunteer responsibilities.
- Do you find it difficult to focus on your job?
Burnout: You face your projects with total apathy and feel you have nothing left to give.
Temporary Heat Wave: Your lack of focus is rooted in the nebulous mess you call a workspace. Get organized and get rejuvenated!
- Have you got the urge to find greener pastures?
Burnout: You’re feeling more and more detached at work and catch yourself fantasizing about walking out the door to find that ‘dream job’ and leaving these ‘little minds’ behind.
Temporary Heat Wave: You’re in a rut and ready to venture past the usual lunch crowd and meet some new peers.
I answered more burnouts rather than just a temporary heatwave. I probably even answered the burnout 5/5 in this set.
Most people are in a rut, doing what they’re expected to rather than what they want to do. I am like most of these people. I am in a rut. I am writing this post today, thinking whether what I’m feeling is just normal, or whether it’s just something that I have to put up with, as part of the daily grind.
Unlike others who feel that being out of work is a frightening emergency, rather than an opportunity to rethink life’s priorities, I’m at this stage in my life where I’m asking myself “What is important to me now, and do I want to stay on the same course?”
Just recently, I saw from HF Observer an advertisement, telling students to pursue their undergrad/graduate studies in the hedgefund feeder schools for generational wealth. All I can say is that students never truly understand what sort of pressure and stress a trading job is, or whether it even matters at all.
I find myself echoing New Yorker columnists and economists that the very embodiment of Wall Street, up until today, is the creation of vast amounts of wealth without producing anything tangible. Was it Michael Douglas who once said that he creates something out of nothing? I find myself like that at times, and I can’t help but wonder whether I should stay on course.
“If you are no longer enjoying your trading; if you respond to losses but get little enjoyment from gains; if you stop caring about your work; or if you are just too overloaded to get the work done, consider the possibility of burnout. Renewing yourself early in the process can save a career.” – B. Steenbarger
Overwhelmed by obstacles and challenges, traders shut down. They stop learning, and they stop taking the actions needed to move their progress forward.
I know that this profession is stressful. I know that making money is never easy, or else everyone would be a millionaire. What nerves me most in this job is the hours of wasted time. Trading is such a time-robbing junk for me, when I could be just working from home, doing freelance publishing, meeting with social entrepreneurs, studying a language, learning about making videos, interviewing people, while automating my transactions or having a broker or a popup alert to enable me to be mobile and track my trading positions without having to even check the market screens all the time. That’s what completely nerves me. I hate having to sit on a cubicle. My cubicle brain has been fried for so many years, I don’t know whether I want to trade my youth and my brains for money, which I can most probably earn through trading in a different setup + other perks such as studying or writing or travelling.
“I have seen skilled, successful traders go through lengthy losing periods,” says Steenbarger. If making money is the sole determining motivator behind why you trade, these normal and predictable drawdown periods will have a damaging effect on your sense of self-worth. In other words, you’ll start feeling like a loser, and that’s likely to turn mild setbacks into protracted trading slumps.
Burnout is not laziness, and it will not go away with willpower. Getting away from work stress and attending to good sleeping and eating patterns can help provide the energy for a comeback.
A common denominator in much burnout is a perceived loss of control over one’s situation. Setting reasonable work goals, managing time effectively and reasonably, and finding elements in the situation that can be controlled all can be very helpful. By keeping goals modest and building small success experiences, traders can regain optimism and energy.
5 Signs of Psychological Burnouts (c/o Brett Steenbarger):
1.) Loss of Motivation – This is experienced as just not caring as much as they used to. It’s also expressed as avoidance of work tasks.
2) Cynicism – The trader in burnout feels that nothing will work out right; the market is out to get him. There is a palpable sense of hopelessness in later stages.
3) Exhaustion – This is experienced both physically and emotionally. Traders know they should work on their situation, but just can’t muster the energy.
4) Sleep Disruptions – The trader who is burning out may oversleep or display insomnia and chronic tiredness.
5) Substance Abuse – Traders in early burnout stage may try to self-medicate to feel better and to escape their situations. Food may also serve as a refuge.
I have no qualms with the Philippine markets. As far as I’m concerned, Philippines is such an awfully strong market, and no matter how volatile the whipsaws in the US and Asian markets have been trading at, Philippines has just been an island of paradise, a safe haven for a traders’ psychological fuel tank that’s run empty. I may not be in a position to quit my job. I have a lot of unfinished business with them. Still though, the simple cure for my burnout may not just be a simple vacation. I don’t know. Is it the rain or am I just a gloomy person?
Please help, if you’ve ever felt this way, and how you’ve overcome it.
Other Recommended Links To Read Related to Burnouts:
– The Faceless Trader
SOLUTION FOCUSED TRADING
Recently, I listened to Geoffrey Colvin’s book “Talent is Overrated”. While the whole idea that “greatness is not born, but made” may seem quite common sense for most people, knowing and doing something about it seems to me to be quite an ordeal, and is the primary reason why there are approximately 10% who are elite traders in this field. For instance, in my own trading, I sense that the reason why I’m not an elite trader despite knowing so many chart patterns is primarily because I’m not doing what great traders are supposed to be doing – “deliberate practice”.
But what is exactly deliberate practice, when applied to the field of trading? I set out to answer this question and found useful tidbits from Dr. Brett Steenbargers’ works. Let me share and make a digestive summary of what I’ve learned.
Greatness is the outcome of a prolonged developmental process. – Brett Steenbarger
Brett wrote this fantastic article “Focusing On Trading Solutions”, and here he dissects that for chart pattern savants like me, the most likely solution to problems such as discipline, over trading, patience and risk management can be harnessed by asking the right questions and having a routine measure to check this out.
For instance, instead of asking “How can I trade with discipline?”, which is a vague question. The proper question to ask is “When have I been trading with good discipline? What do I do differently at those times?” He reasons that traders shouldn’t ask the problem focused questions but rather ask questions that address the problems (solution focused).
I tried to answer personal trading questions as I log and evaluate my trading journal for the month. For three straight months, I’ve had consecutive gains month on month, this month has been hard and I didn’t make net gains.
Looking past my journals, I realized there were three distinct problems in my trading, which if I could improve on, will have made this month possibly still a gainer, and me a better trader. My streak of monthly gains didn’t make it this month. While I can surely blame that the market had not been cooperative, an elite trader will owe up to one’s losses, and use those problems as opportunities to learn. More than that, an elite trader will look at one’s strengths, identifying trading setups that presented good risk-reward levels, and capturing those moments, and repeating it over and over for consistency.
In my quest for deliberate practice in trading greatness, I’ve been reminded by Brett to focus more on identifying my best practices, and to group them in categories, instead of always focusing on my problems. Here’s how I did mine:
My Worst Trading Behaviors & My Best Practices & Key Measures:
1.) I will average down on a stock -I’ve stopped the disastrous averaging down.
Key Measure: Cost Entries
2.) I will buy more than my allocated size – I am now able to put position sizing as a key discipline.
Key Measure: # of Purchased Shares
3.) I will buy a lot of setups leading to overtrading – I am now able to tone down, and make more concentrated, conscientious trades rather than blinking and triggering everything that “might” go up. I am less likely to overtrade. I am also able to manage my risks more.
Key Measure: # of Trading Setups Opened At a Time
4.) I will chase prices. – I still have yet to master patience in buying at the proper entry. What I sometimes do is to buy the setup, and just limit the size to a smaller amount for fear of missing out.
Key Measure: List down times I chased prices and the trading results. Learn that patience pays off, and gives better risk reward setups.
5.) I will not cut at the pricepoint I placed as my stoploss, adding hope into the equation – I am now able to detach myself from the trades I made, cutting when the price is against me.
Key Measure: # of Losses capped to a $ Amount, Position Sizing
6.) I will regret about selling too soon – I am now able to hold and lighten down on profits longer than usual.
Key Measure: Check journal on selling half principles, Evaluate # of Average Gains to Winners
7.) I will second guess/ hesitate executing a trading setup and miss out – I can see the market data and the underlying forces moving it. I can thus formulate good stock picks based on this idea. Once I identify these profitable setups, I look to find similar setups and repeat
Key Measure: Check the trades that were in my hit lists, but didn’t act upon. Analyze the emotional decisions why I hesitated on making the trade. Count the number of trades I hesitated, and look into improving this by taking the stigma of hesitation, and just concentrating on the setup.
8.) I have a tendency to square a position, despite being ahead- Once I am able to buy cheap, but have trouble maximizing the size. I need to maximize the “free trade” by just letting the trailing stop be a mechanized decision.
Key Measure: Execution of Trading Stops
The greatness that I aspire is within my reach. As Geoffrey Colvin reminds us, greatness isn’t reserved for a preordained few. It is available to you and to everyone, but you need to know what intersects your interests and skills and deliberately practice those skills.
Mastery of any field inevitably also brings self-mastery. – Brett Steenbarger
Mastery of your strengths will lead to a repetition of your best practices. Doing more of what works, will build them into habits. Keeping a journal, and making tabs on measuring how you’re doing on each aspect of trading is what differentiates the trader who aspires to be consistently successful, and the rest of the populace who just wants to be successful.
Merely putting in the years does not hold up to becoming a great performer. There are no shortcuts to success. If you want to be the best you can be, you’ll have to commit yourself to years of repeated practice. Recognize your consistency by evaluating your trading journals. Go to each task with a new goal, instead of trying to get it done, aim to get better at it. When you’re trying to stop yourself from chasing prices, do this by checking your trades whether you’re improving. Keep a tab at your trades. Have a template to follow, your hit list for the day, and how you’re doing with your entry and exit slippages. Make your learning structured.
What are your best practices for generating trading ideas? executing trading ideas? risk management? managing your positions and exiting positions? How do you plan on getting better at it, and more importantly, how are you measuring it?
-The Faceless Trader