An Unlikely Skill

[dc]I[/dc] have spent a lot of time recently thinking about how to develop and teach the skills of profitable trading. Of course, it’s always a bit humbling when you realize how difficult it is to compete successfully with any degree of consistency in the markets, and how much variation in the bottom line there can be with even a strong trading edge. So much of a discretionary trader’s performance depends on more or less subjective decisions, so we must approach the market with the right mindset and attitude. I’ve come to realize that one of my key trading skills is more than a little counter-intuitive, and perhaps may be very surprising at first glance. The good news is you can develop this arcane skill too, but, I have to warn you, it is a bitter pill for some people to swallow—I am really, really, really good at being wrong.

I think this skill might come from my previous career as a classical musician. I spent much of my childhood and young adulthood as a classic pianist and a composer. At least once a week, my work would be reviewed by a teacher and criticism was much more likely than praise. At some point, you just accept criticism and critique as normal; you develop a thick skin and stop having any emotional reaction. I even once had a teacher hit me in the back of the head and say, “everything you are doing is very, very bad” and storm out of the room. My reaction? I sighed because I knew he was right and resolved to work harder next week.

Now, don’t get me wrong. I was very good at what I did and I knew it, but I came to understand that the process of getting better was constantly realizing that I could be better, and that failure was my guide. Rather than being afraid of failure and weakness, I sought them out (that fourth finger of my left hand), and then focused days, weeks or months of work to fix them. I was essentially wrong in something every minute of every practice day, for six to eight hours a day, every day. You get used to being wrong, and the emotional charge associated with it goes away.

That has translated to my trading, though it wasn’t always like this. I’ll write more on this later, but I remember my early days of trading when I literally would have to go to the bathroom every 3 minutes from anxiety, would read newsletters desperately looking for support for my position, and would agonize over every tick of every trade. Today, I know that I know nothing. I know that every time I trade I’m essentially doing nothing more than flipping a weighted coin that comes up heads a little more than it comes up tails. Why would I care about a losing trade? The coin comes up tails a lot, so how can I have an emotional reaction to that? Why would I stick with a loser past my stop point? The market went to that price, so now I know I’m wrong—the coin came up tails, so I’ll just pick it up and wait for a chance to flip it again.

I think it can be a productive adjustment for many developing traders. Think about the things you do once you have decided to make a trade, or after you are in a trade. Do you tweet or blog to support your position? Do you argue with other traders, explaining why your trade is right? (Fundamental or macroeconomic arguments can be especially dangerous.) The majority of what I see on my twitter feed or read on blogs is noise and nonsense, just people making arguments about why they are right. Be careful, because this can easily lead you to become more attached to your position, making it harder to get out (or even to flip your position) when you’re wrong. Cultivate objectivity: If you get into a trade, you will know you’re right if price goes in your direction and you make money. If it goes against you to your stop point, you are wrong. You will be wrong a lot, so get good at it.


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.

This Post Has 10 Comments

  1. Chris terry

    Turn your monitor upside down and you will be really good at being right !

  2. Berke

    that is very true and I must admit that I did that a lot when I started trading. Costed me handsome. The real problem lies within more on patience side rather than discipline in my case. It is patience that makes you disciplined and not discipline to be patient. It brings better RR in most trades.

    my solution is; plan as much trades as possible and pick most appropriate according to the circumstance. This allows you to switch between asset classes (not to the ones you don’t know anything about) and you have a selection of opportunity at timeframes you like. Fundamentals tend to price in, be aware but be aware.

  3. mars10p

    Greetings from another classical musician (violin) turned trader (with a career as a software engineer in between). Excellent post. Trying to seriously master a significant skill has so many benefits whether or not the specific pursuit is continued. Combining the ability to “be wrong” that you mention with objective self-awareness, concentration, experimentation, and persistence, leads do the formation of a positive feedback loop that can become a very constructive habit. Of course the extra challenge in trading is the randomness factor. (At least with piano, you know that pressing a given key will always produce the same pitch.) I’ve just started your book and it looks great. I’ve been a 100% mechanical system swing trader for 15 years, but seem to be clinging to an increasingly narrow edge lately. Perhaps my insistence against using any discretion in my trading is my own answer to not wanting to “be wrong”. If you need an idea for a future post, something on the topic of transitioning from systematic to discretionary trading would be very interesting.

  4. Andre

    I think it is specially difficult for a beginner trader to have the objective view of the moment when the market is a “coin that comes up heads a little more than it comes up tails”

    1. Adam Grimes

      Yes I agree. It takes time to develop this sense, as well as a correct understanding of what we really do as traders (which is not to predict the future.)

  5. jim nazyum

    if the majority of what you read on your twitter feed is noise and nonsense,

    why are you reading your twitter feed?

    1. Adam

      Why have I seen you post under this anon name and email address on trading blogs for several years?

  6. Jonathan Affleck

    Dear Adam Grimes, Are you not simply saying that successful trading requires algorithm, expertise, & discipline — especially not to panic?

    1. Adam

      Hi Jonathan. No, I think what I was saying goes a little beyond that. Everything you said is true, but I was saying that being able to take a loss with no emotion at all is a valuable and underestimated skill.

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