2020: Looking back, looking ahead

2020: Looking back, looking ahead

What a long, strange year 2020 has been. It’s too early to write any kind of meaningful retrospective, but I think it’s fair to say this has been a challenging year for everyone—and it’s not over yet.

This has not been a productive year, for most

When quarantine started, most people seemed to have plans: what a great time to learn to paint or to learn a new language! So much time and so many things to be done… well, it has turned out for many of us (myself absolutely included) that this has not been such a fruitful time. With all the psychological stresses and unknowns, it’s been surprisingly hard to put all that “extra time” to good use. So, I guess my message is that if you’ve been struggling and feeling you wasted opportunity, maybe don’t be so hard on yourself.

My wife and I both have parents that are in the high-risk category, so we haven’t traveled to see them in nearly a year. So many of the things that have happened this year would have been unthinkable a year ago. We had a death in the family relatively early in the year, and also did not travel for a funeral. Who would have thought this was possible? I also had several close friends contract COVID-19, with a wide range of outcomes, exact as you heard in the media. For some, it was “just a cold”, and not even a bad one. For others, it resulted in several weeks of severe fatigue and inability to do anything.

And, many of you reading this will know that the trading community lost Gilberto Mendez, my friend, GMAN from SMB Capital, to COVID in late 2020. Here, words fail me, and we simply join his family in remembrance and the pain of loss.

Some lessons in thinking from 2020

Aside from the personal impact, this has been a tough year for the USA (and the world) politically. Division seemed to be growing deeper at every turn, more and more attention focused on the extremes on both sides, and rational discourse around common ground and compromise has been rare.

For those of us who participate in financial markets, I see at least three clear lessons on the weaknesses of human thinking. First, I’ve always tried to steer a wide berth around political discussions and thinking. For one thing, my views are fairly moderate and just not that interesting! But I also knew that political discussions tended to center around tribal thinking (i.e., belonging to a group), and that this tends to suppress rational analysis while amplifying emotion. If you are a trader or investor, that’s a dangerous combination.

The second lesson is that we would all be better served if we could add another understanding to our beliefs and opinions: how sure are we of this thing we believe? As a long-time trader, this thinking is natural to me—I assume I never really know anything for sure, and even things I’m very confident about are subject to immediate revision. But it’s been very clear, in discussions in which I’ve participated or only watched, that most people do not do this. Even more perniciously, people tend to conflate their emotional conviction with certainty. This is especially dangerous since emotional thinking is often at odds with rational analysis.

The third lesson is just how stunningly counterintuitive statical thinking is, and how easily it is molded to fit our preexisting views and opinions. That, of course, is a recurring theme in all our interactions with the market, but I’ve had several conversations over the past weeks that highlighted how many holes naturally pop up in our thinking around statistics and what numbers say about the real world. Again, for traders and investors, these are holes in our own thinking that we must be aware of.

Looking ahead

Despite the challenges of this year, there have been some very rewarding aspects, and I’ll have some exciting things to share with you in the future.

First, I am working on a new book, on the subject of trading psychology. I was hesitant to write this book, partially because the market is already flooded, but I think, given my life experience as a trader, as an artist, having coached hundreds of traders at all levels, and several decades of honest inquiry into understanding how humans make decisions—I think I have something significant to add to the discussion. I’ve thought about what is missing from the existing literature, and I will have something very interesting to share with the world when the book is done.

There’s so much more to be said on this, but 2020 has provided an ideal setting for me to reconnect with my practice of meditation. I don’t think meditation is quite the cure-all that some people think it is, but it certainly is a powerful tool to shape some aspects of our mental space. I’ve also devised a number of exercises that will help traders find issues with their thinking about risk and probability—imagine that?! Actual, concrete things you can do to fill some of those holes in our thinking! I’ll be working very hard on the book in early 2021, and already have a small group of traders ready to test the protocols and exercises I have created. I’m excited about what this book may mean for the community of traders.

Second, we are going to be making some significant changes to Talon Advisors, our institutional advisory service. There is a good chance that you will be able to access this material for much of 2021 at no cost, so stay tuned for updates there. (Focus will be on longer-term investing and directional trading on longer timeframes.)

Third, I have returned to composing music in a serious way in 2020. I used a big part of this year to go deeply into rebuilding and connecting with some skills I hadn’t used in well over a decade, but I was also surprised to find how much of my musical brain was fully engage and just waiting to be used. Perhaps dealing with the patterns, variations, and proportions of financial markets day in and day out kept that part of my brain in good shape, and maybe there’s more overlap there than we are aware of.

Last, for all of us who might be struggling in this year, a word of encouragement. There will be positive aspects to this 2020 experience. It will not go on forever, though it may extend into at least a decent chunk of 2021. Strength is forged in adversity. Perhaps we can come out of this with a renewed appreciation for community, for the value of other people and other viewpoints, and a drive to be the best we can be.

AdamHGrimes

Adam Grimes has over two decades of experience in the industry as a trader, analyst and system developer. The author of a best-selling trading book, he has traded for his own account, for a top prop firm, and spent several years at the New York Mercantile Exchange. He focuses on the intersection of quantitative analysis and discretionary trading, and has a talent for teaching and helping traders find their own way in the market.