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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