I want to share a note I got from a friend and developing trader, Glenn:
A note on my trading. It is better than it has ever been. It is simpler then it has ever been. I recognize the pattern and trade it..Less thinking and more lets say brick laying type of work. Most of my losses are shorts and that is my biggest problem. I might consider not necessarily always having longs and shorts. I traded [a lot of] shares last year [doing small size on each trade] and almost broke even which is leaps of progress. I believe 2018 could be a breakout year for me…
Now, the internet is full of “you’re doing it wrong” posts. Someone will tell you a “better way” (or at least a different way) to do any and everything, often under the guise of a lifehack: how to drink water, how to put on socks, how to fold socks… you get the idea.
Furthermore, people respond much better to negativity. If I’d titled this blog “Reasons why Glenn is an idiot” (he’s not an idiot) then more people would have clicked on it—the twisted lure of clickbait. (Look for a future blog post on my 6 week and running self-imposed exile from the swamp of negativity that is Facebook. Short summary of that post: my life is better.)
But the fact is, sometimes we are doing things right, and positive reinforcement is a good thing. It’s even harder to know, as traders, when we are doing something good and right, and that’s where a little outside perspective can be helpful. Let’s look at Glenn’s note.
First, he acknowledges up front that his trading is “better than it has ever been” and, interestingly enough, is simpler than it has ever been. In a world where traders seem hellbent on adding indicators, complicating factors, ratios, and a layer of complications to trading, here is a trader reporting the progress he is making with simple, robust patterns.
The OODA loop
Second, he has closed the OODA loop. The OODA loop is a military strategic concept developed by John Boyd: Observe. Orient. Decide, and Act. Consciously thinking through the steps of this cycle can bring great clarity to the trader’s problem: Observe what is going on in the market. Orient yourself through a solid understanding of patterns and market structure. Decide what to do, and then do it (Act).
Now, in the interest of full disclosure, I know Glenn pretty well. He’s been an advisory client of mine at Waverly Advisors for a few years, and he and I have done some one on one coaching and even a few hypnosis sessions. Nowhere in those sessions did I speak the phrase “OODA loop” to him. (In fact, he’s probably saying “hmmm” the first time he reads this post lol.) But much of our work was designed, through a few gentle nudges and changes, to get him in this loop.
If you think about it, there are many places a trader can get lost, and many ways we might not see clearly. We might simply not take in the market data, and not to the homework. I stressed the Glenn the importance of showing up to work no matter how you felt about your trading. You have to immerse yourself in the flow of the data.
You also must have correct patterns and structure within which to orient yourself. This is why I hate that mindset that says “since you really only trade your beliefs and not the actual market, you can believe anything and make it work.” That’s simply a lie. Your beliefs must be aligned with the realities of the forces in the market. Glenn did a little bit of study and work to get the core of what drives the kinds of trades he wants to make.
Then, of course, the ugly problems of trading psychology really come to focus in between and around the second half of the cycle. Maybe a trader just can’t make a decision. Maybe he makes a decision, but can’t follow through. Maybe he makes a hasty decision out of frustration. Maybe he doesn’t do something when he should because he’s frozen, angry, or shocked at something the market did.
The Plan
In all of these cases, it boils down to having a plan and to following that plan. I know Glenn has a plan, and I know he works on and with that plan to make it better and to make it fit him better. In fact, if the only thing he got from our work together was the necessity of having a plan, that might have been enough to get him to turn the corner.
The Plan’s the thing, to paraphrase the Bard badly… especially for the developing trader, we are lost without the plan. Without a plan, even if we do something right, we probably can’t do it again. Having a solid plan, a realistic plan, and then working with that plan is one of the keys to the kingdom.
The land of breakeven
Last, I’d like to point out that you are seeing here the brutal, real grind of a developing trader’s struggle. Glenn isn’t popping bottles of champagne and hanging out in pools with a bevy of supermodels while he waits for his helicopter to pick him up to take him to dinner… his success is incremental. So small he might miss it, if someone hadn’t pointed out to him what success looks like. The is work and grind and it’s very, very hard. Many of the traders who fail probably would have succeeded if they’d put in the hard work, and weathered the discouragement of the grind.
Success, especially at first, is quiet and subtle. Losses are smaller. They hurt less. You find yourself more focused on the next trade, and on the lessons. The nagging doubts start to go away as you focus on the process and just work the process. “Almost breaking even” is a stage of success. Nearly all traders start in the natural state of “pretty consistently losing”—this is natural. This is normal. When we move toward profitability, we spend some time in the land of breakeven first.
And that’s a good thing. I’ve had many traders say things like “I’m going to stop. I’ve been doing this for three years and I’m finally just breaking even and maybe paying for my commissions.” Don’t stop. That’s success, and your future, full success lies ahead of you… but first, you probably need to walk some steps in the land of breakeven.
I’m looking forward to Glenn’s 2018 almost as much as he is.
(If you haven’t seen my free trading course, go check it out now! These concepts, and others, are explored in-depth in a series of 9 modules, each of which is between 2-4 hours. This course provides a solid foundation for a professional approach to technically-motivated trading.)
