Sunday, 6 February 2011

Distorted trading

I hear and I forget. I see and I remember. I do and I understand.

Chinese Proverb

Hi everyone. This blog will not be about me teaching you but me teaching myself. As for the time being, I was trading inside myself, subjective to emotions and without anyone know what I think, feel and do. After reading all possible literature, I've found myself doing the same mistakes all over again. So I figured out I'm going to open a blog with main intention to keep my thoughts, emotions and trades open to public. I'll run my personal open trading diary which can be then subjective to critics.

There is one interesting story I've read, and I’d like to share it with you. It's from one of Trevor Neill's conference talk.

It has been proved, that if you put a frog in boiling water, it will jump out right away. But, if you put it in like warm water, and heat it slowly, you can cook a frog alive. It won't go out of the water.

This story hit me so strong, because I’ve realized that I've experienced it in many ways in my life.

When you have a position in equity, if it suddenly drops 10 %, you're going to jump out immediately. It will be a shock and natural defensive mechanism. But if it's been slowly falling, day after day with -0,2 % daily, you're be always thinking, it’s not a big deal, it will come back eventually. But most likely you will end up loosing a great portion of your capital. To rephrase it, like a frog, you will be cooked alive.

I have been cooked alive too many times in the markets, and also haven’t been disciplined in following my trading strategy but rather jumping from one to another every couple days. This inconsistency also cost me money, time, knowledge and confidence.

I wasn’t treated trading as a business, but likely as a game. Another mistake is that I was always trying to be trend predictive, happy when I succeed and frustrated when I don’t.

This I can compare with my school days. For a long period of time, I’ve rejected to practice math in order to learn and get best grade. I really haven’t done it at all. Learning for me was that you pick up out what you can by listening on the class and that’s it. I even refused to write on the class in the notebook. After that no work has been done, except 1 day before an exam I would just flip around through the book, see if there is some formulas I need to know and that would be it.

Then when I come to an exam, see some math problem for the first time in my life and get right on solving it. If I succeed in solving it and get a decent grade (not the worse one, not the best but somewhere in the middle), which was always the case, I felt like being on top of the world, because I’ve done something not by learning from others but from my own intelligence abilities.

It was better then practicing all possible math problems, known every type of task that can arrive and then finish the test blindfolds and be happy because you think you outsmarted others or even outsmarted yourself. You didn’t.

I’ve respected but haven’t really cared about the folks who got the best grades, because I knew they were going through the book and learned it from there. There was no creativity in this. No mental challenge.

In the same manner I’m behaving in my trading. Rather then learning and practicing and writing out all the things I can about the market, I’ve been doing the same thing… I have some basic knowledge, and day after day I’m writing an exam, in front of the screen, trying to figure out where the market goes. If I succeed, I’m a genius, if not then a whole bunch of negative emotions arrive in my consciousness. It is something beyond my abilities, of course. I’ve overestimated myself.

Another thing is that I guess I enjoy the rush of excitement in the markets, rather then subject myself to strict rules, and make a trading just like any other boring business. This is not a good approach folks.

For now, it got me nowhere. So from now on, I’m going to write down my trades, thoughts and reasons behind them and try to learn something from it, by reading it from time to time.

For you who decide to track me, hope you'll learn from my mistakes, and find something useful on my blog.



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