One of the most frequent comment poster on this site, Bluecollartrader has asked some interesting questions lately and got me thinking about some things that I hadn’t had the occasion to think about in a long time. Namely what were the breakthroughs or “AH HA” moments that made the spark of realization go off in my head.
I remember such a moment that had profound effect on my trading quite clearly.
After about a year and a half of watching the markets everyday, all day, I started to have more than just random success at predicting the movement of stocks. I was pretty good. I thought possibly that either the market conditions were responsible but on up days or down days I was still switched on. Maybe, just maybe I had learned enough and turned the corner from novice to a higher level. After another month of watching and predicting I finally asked myself, “How do I know?” I didn’t have an answer. After another month of not knowing it was really driving me crazy not knowing.
You see, I wanted to have an exact formula that would guarantee success with every trade. I wasn’t content with predicting any losers and wanted to eliminate them. (wishful thinking) One day, after more time not knowing how I was doing it, I stumbled across a box of my old motocross racing trophies. I reminisced fondly to those events 25+ years ago. It was interesting to see my progression through the ranks. The memory that the sanctioning body moved me from the Junior class to the Expert class in the space of 1 year triggered off more memories that led me to recall unique conversation from back then. When I questioned them as to why they were moving me and begged them not to
they basically said, “Look you can’t unlearn the skills you’ve got now. You’re getting better and faster every race weekend. Just keep on doing what you’re doing now and you’ll be fine”.
I hadn’t thought of it that way before “You can’t unlearn what you know.” Staring at those old trophies, I suddenly drew a parallel between time spent learning how to ride and race motocross and the time spent watching and learning the markets. Both skills were acquired through hours and hours of practice and IT DIDN’T MATTER HOW I KNEW WHAT TO DO, IT ONLY MATTERED THAT I COULD DO IT.
With trading, my eye saw price, information and patterns and processed the results and gradually built up my knowledge base in the same way I learned about bumps, jumps and muddy conditions for motocross.
It was a light bulb switched on in my head moment. I didn’t need to know! In fact I didn’t need to know any information about what made the markets move. Only that they did move.
After that point my thoughts were on how to have a plan to capitalize on the moves. That was the start of the hard work. How to position my skill and structure a stream of random events so that my skill can produce money from the events flowing across my screens? This was the genesis to develop a trading plan and hone my edge to take advantage of my skills.
But after all that, what is this skill? I believe it is nothing more than a gigantic memory bank that you draw from and try to fit in the missing piece of the market puzzle – the future event that will become either your next winner or loser. The eye sees. The brain records and files it away. After some time passes realization occurs. “Prediction” skills accumulate.
Your entry is nothing more than a guess no matter how much time or calculated theorizing you’ve done. Probabilities are the only thing the learned trader can go forward with. Playing the odds of a certain series of market events turning out as your collection of memories have seen play out in the past. This is what makes trading so fascinating to me.
Gut feeling is an interesting sensation and one that gets developed along the way. I trade with the first thought that comes in my mind when I see a chart because that is what my brain has surmised in an instant from looking at the details. I don’t bother with trying to talk my way into or out of a trade. I’ve learned to trust my instincts. My skill aquired by many hours of practice and observation.
An interesting and singular event happened to me last year when I should have trusted my gut feeling but didn't. I touched on it here http://fearandgreedtrader.blogspot.com/2008/10/good-day-at-155000.html#links but let me explain it in more detail.
During the market meltdown last fall there were many days of incredible moves. I was having a field day during this time as my trading style perfectly matched the market conditions. I was totally in the zone and attuned to the markets every move. At the end of this particular day my wife asked me to go to the supermarket for something she needed. (I usually take a nap at this time) As I went out the door I was struck by the idea that I MUST find a hat to wear. Here is what went through my mind :
-“Why do I need a hat? In case you need to walk home and it’s raining out”.
-“Why would I have to walk home? Because you’re going to have an accident!”
I was like a zombie for a minute of two as I looked around for a hat.
- “Fuck it I don’t need a hat”, went out and got in the car.
-“ Buddy go find a hat or you’re going to get your head wet when you’re walking home.”
- “Why am I going to be walking home? Because you are going to have an accident”
- “I have never had an accident in 30 years whats different about today?”
I got out of the car, went back inside and rooted around in a trance for a hat by the door, in my gear room, not seeing all the hats or hooded jackets right in front on me.
- “Forget this stupid shit, go to the store now so you can come back and take your nap”
So out I go, without my hat.
Less than a minute later I T-boned a black minivan.
And then it started to rain.
After finishing up with the cops etc. I started to limp the four blocks home vowing to always heed my gut feeling. All the while, a gentle rain fell down on me as I pondered the convergence of timing and events that needed to transpire to place me here in this moment.
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8 comments:
Good post Scott, just shows how practice can refine someone's ability, without knowing how it was accomplished. Pattern recognition is an awesome gift we have, but so many people subdue that ability because of fear and greed. I've started a papertrade account with my broker (25k simulated to day trade) while I look for stocks that I can afford to play with momentum, as my starting account is only 4k. Stocks you have used in the past still have an ability to produce some nice profits, and my hope is to learn from them via my paper account.
After you posted your response in the comment section last week regarding "Tacit Knowledge," it started to make sense... it started to fall into place.
Your many posts on concentration, the intangibles of trading, the attention to much of the Mark Douglas teachings, etc... as opposed to a flood of technical ideas, discussions of concrete trading tips, and the more measurable items found elsewhere in the trading blogosphere. Certainly there are some very helpful "quantifiable" tips peppered throughout the 14-15 months of posting you've done. But the real Meat & Potatoes of this site had eluded me and I finally have my answer as to why. The meat and potatoes is in fact only food for thought. Sorry, I had to stick that in there.
The answer, in a sense, is that there really isn't an answer! There is a method, but there is no answer.
A google search of Tacit Knowledge got me thinking a great deal over the week-end about things I have become good at only from experience. I thought of the pole-vaulting I did in high school. Coincidentally, riding my motorcycle was one of those which came to me; knowing the bike, knowing the roads, the "feel" of the weight and how the bike corners in the rain vs. the hot pavement, the occasional frightening encounters with sand or gravel on corners. I've had some really close calls yet never laid the bike down because I know the bike and how to handle it. I wouldn't begin to know how to tell a new rider how to avoid an old woman driving across three lanes of traffic into my lane; something which I was able to do 4 years ago, with my wife on the bike AND my middle finger in the air.
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I had a friend, someone who once worked for me, who was a truly gifted pool player. Unbelievably good. I asked him on many occasions to teach me some shots. He would make a shot then say, "I can't teach greatness like that!" with a cocky smile. Now I know what he meant and I also know that he was telling a truth through his good-natured ribbing that he was possibly unaware of.
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Frankly, your exits on your charts are so eerily similar... so alike, that IT is why I initially thought there had to be a mechanical strategy at work, one which could be quantified and passed on.
But, it is good to know where I stand, and I think I am not alone given the volume of readers you have here. I have stopped studying the old charts here at FNG. Because they are static, they should play a limited role going forward. Just as you told me recently, what really counts is face-time in front of the markets. Once again, you have given valuable guidance and although it isn't what I had hoped it would be, it does allow me and others to narrow the focus. I've been all over the place with my approach to this... there are not many resources for teaching it, as I'm sure you know, and that lends itself to wasting a lot of precious time hunting for clues. I can't count the hours spent studying static charts trying to find clues to your system. The real clues are in movement and that can only be seen when the markets are in session.
At least I'll get more work done around the house now!
Thanks again, Scott.
Thanks for the comments guys. BCT, you might still find some gold in looking over my charts. I say that because they are a snapshot of the moment the decision was made. You can see how things are setting up. You can't see the future or completed pattern. That's a huge difference between this and any other site. It's easy to say after the fact at the end of day when the trends are obvious that at a certain time an classic set up led to a nice profitable trend.
Anyway I'm happy that some more light is starting to shine on this whole process for you.Anyone with enough desire can do this, stick with it.
CN- They are so many opportunities in the markets so don't feel that you are missing the last of them. Be fully prepared so that you have a solid plan. You don't want to be searching for answers live trading. You want to be machine like in the execution of your plan.
Scott, a lot of what you say is Buddhist in its approach. Having total focus in the now and being in the moment. Machine like focus and execution based on repeated behavior. It's all internal. So many people look for answers OUTSIDE, when the key to success lies within.
It's also like playing the guitar. You can take lessons, you can read tips from legendary players, you can watch training videos... but until you just play, you won't really learn a damn thing.
Scott, a lot of traders tend to become successful only after suffering a major loss or two. Have you ever suffered more than a 2% loss in your trading account? I know you spent 2yrs. paper trading before you ever committed real money to this. Was that all you needed to make it a success from day one or have you taken a big hit or two?
Exactly Scott. I want to know the stocks I'm going to trade beforehand. Even if its only 1 stock I focus on. The trick (for me at least) is to find stocks that are more in my price range, and have a consistent variability. The inverse ETFs you use are great for that, but I don't think the capital I have can make the best use of them.
Blue- Ya, I subscribe to the buddist teachings of inner harmony and happiness. They know a thing or two about the subject.
I've had 1000's of losing trades but have never taken a huge hit because the plan I follow does not have taking big hits built into it. The biggest losers I've had were times when I had internet connection or platform problems and no stops in. Those events are going to happen a few times a year so you can sort of expect it.
Also your 2nd comment disappeared.
Scott, thanks for the reply. I follow Thic Nhat Han's buddhist teachings to a small degree.
I took a 10% hit this year on one trade, because I was willing to risk holding it overnight. Was a total gamble and I lost. I've never had more than a 2% single trade loss before that doosey.
Everyday I try to remind myself: where is the momentum, is there a trend? Then I look at the volume and look at the clock. Thanks for that.
Blue - I don't have the balls to hold anything overnight. I never do it. I sleep easy.
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