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Mental and financial Aspects of Trading: A Story from a Bold Trader

A story from an old bold trader:

Hi Michael-I guess in this business there’s a story a day if you don’t live in a cave. Yesterday I had a visitor who wanted to come by and get my input on his trading. As you might imagine his trading has gone very poorly since his “advisors” have been quite negative on the US stock market and he continues to fight the existing trend which as of today at 2:00PM CST remains UP! He had heard through a mutual friend that I traded the S&P 500 Futures so perhaps I could give him some insight on what the market was GOING to do in the future. I quickly told him I had no clue whatsoever what the market was going to do and I learned long ago my opinions run from “wrong” to “really wrong”. I went on to tell him my trading decisions revolved around what the market is doing now as well as what it has been doing recently i.e. “what’s the trend?” Now I must confess as I have admitted to numerous times before I am not a long-term trend follower in the purest sense BUT I do trade with the trend be it up down or whatever. I have addressed that with you before. Anyway yesterday morning my plan for the day was to observe the S&P early in the day and watch for possible set-ups given my personal rules of engagement. Yes I approach trading on some level as a military exercise. I explained to my visitor that the S&P daily degree was still in an uptrend and my method always traded with the trend but I employ the shorter time frames to place my bets. This fits my personality as well as my tolerance for pain if you will. Sometimes I can tell you within 60 seconds if I have a good trade. Long Term Trend Followers can do the same thing but for them the confirmation of a good trade might take a few days but those who read this know what I mean. Sometimes you just know! On the alleged S&P mini crash of early yesterday-CNBC’s definition not mine a set up presented itself in the Hourly Time Frame that gave me a go. I went to my trading platform and left clicked twice and I was in. My visitor suddenly got that “deer in the headlight look” and asked me what I had just done. I said I just bought five contracts of the S&P 500. I then very quickly entered my protective stop and looked at my visitor and said, “Now where were we?” He kind of babbled something about DAY TRADING was a losing cause which I totally agree with for MOST traders but not ALL traders. I asked him if he had a written plan and if so was one of his goals to follow his plan in his trading. He told me he gave up on written rules because he had so many rules they were confusing him. I have been there and done that. I asked him how much he risked on each bet as a % of his trading equity as well as how much of his universe of investable assets he had committed to trading. This time his eyes began to glaze over and I feared he might faint. After maybe 45 minutes the market had spurted to the upside and I calmly and without saying a word sold my position with a decent profit of say a 2-1 risk vs. reward. The second reason I sold was the FED was meeting and my PLAN was to be out of the financial related markets prior to 1:00PM period no matter what I THOUGHT might happen. My new friend said, “How you do that?” I said I had a plan formulated that as luck would have it worked this time with a witness. They don’t all work that way but if 50% of ’em do I have a good life! He then asked me about my rules and my “system”. I told him I did not have time yesterday but if he would come over Saturday I would go through what I do. He seemed very excited but then I had to throw in the caveat to my offer. I explained to him the pain and suffering I had gone through both mentally and financially to get where I have been the last couple of years. Some call it “Up Down Up Down”. I told him what I did was ME and not HIM. I told him if he needed some help finding his ME I could refer him to some people who helped me three short years ago. This man has a law degree from Harvard along with a Masters degree in Tax Law. He is truly brilliant and he can’t trade a lick. You see intelligence has its downside in investing. The young student you quoted has a professor that emphasizes my point. Although politically incorrect I wish you a Very Merry Christmas and a Very Happy and Safe New Year! Semper FI!, XXX


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