The Art of Learning and Trading – The Journal

BarroMetrics Views: The Art of Learning and Trading – The Journal
In all the years as a trading coach, one of the most difficult ideas to get across and have the retail client execute is the keeping of trading journals – psych and equity. The second? Getting them to learn from their failures and successes.
Part of the issue was the format I was using – somewhat clunky, and many of the routines had to have separate entries. A new software has some out that does away with these difficulties.
Once setup, the trading journal outputs the stats we need as well as insights into our psychological behaviour. Let’s look at some of these:
  •  Its ‘Emotional Analytics’ function pinpoints the emotion/emotions affecting your trading results.
  • Its ‘Tilt Meter’ identifies the mistakes you are continually repeating.
  • The ‘what if’ (Alternative Strategies) shows you how your trades would face fared using different entry and trade management techniques.
  • It has all the stats we traders need, and the graphical displays are excellent.

That’s just a small sample of what Edgewonk does. The bottom line is you now have no excuse not to keep your journal and no excuse not to learn from it. Doing will improve your profitability.

Certainly, the designers have done all the can to make the software useful and supportive to the trader.  I like it so much that I’ll be bundling it with my courses. By the way, if you have taken any of my courses, and would like a copy, let me know. We managed to secure a 20% discount for bulk purchases.

I like it so much that I’ll be bundling it with my courses. By the way, if you have taken any of my courses, and would like a copy, let me know. We managed to secure a discount for bulk purchases. Note that this offer is available for past and present students only.

Opps I almost forgot. The current cost is USD 169.00 and the URL:

https://www.edgewonk.com/

The Art of Learning and Trading

BarroMetrics Views: The Art of Learning and Trading

“The key to pursuing excellence is to embrace an organic, long-term learning process, and not to live in a shell of static, safe mediocrity. Usually, growth comes at the expense of previous comfort or safety.”

“…..successful people shoot for the stars, put their hearts on the line in every battle, and ultimately discover that the lessons learned from the pursuit of excellence mean much more than the immediate trophies and glory. In the long run, painful losses may prove much more valuable than wins—those who are armed with a healthy attitude and can draw wisdom from every experience, “good” or “bad,” are the ones who make it down the road.” (Josh Waitzin ‘The Art of Learning’)

Two great quotes and both applicable to trading. In essence the first says to succeed, we need to move out of our comfort zones, and the second says success comes from learning from profitable and losing trades.

As my coaching expertise has grown over the years, I have found the truth of both statements prove itself time and again. Those who attain their trading goals are those who exhibit both qualities. Those who fail have usually been reluctant to engage in either.

But, let’s say you are willing, what actions do we need to take in pursuit of the improvement?

Well, my first bit of advice would be to get a trading coach…..

The second, acquire the habit of keeping an equity and psych journal, then acquire the habit of learning from your entries. Again, this is easier said than done; but, technology has come to our rescue.

More tomorrow…….

 

 

The Art Of Learning

BarroMetrics Views: The Art Of Learning

Josh Waitzkin’s bio makes for interesting reading (see http://www.joshwaitzkin.com/josh/): it’s not often Chess aligns with the Martial Arts. I came across him when I saw ‘Searching for Bobby Fisher‘ – great movie.  I’ll leave it to you to read the links.

Here I’d like to shine a light on Josh’s ideas on how to learn. Now, I have to say that I dislike the format of the book: combing through pages of personal anecdotes in search of nuggets of gold is not my idea of fun. Still, the effort was worthwhile.

Josh’s main messages – to learn:

  1. We start by integrating and internalizing the fundamentals seeking to understand the principles of our discipline.
  2. Fueled by our understanding and internalization, we increase our repertoire of techniques, choosing the ones that best suit are personality while maintaining contact with our central core.
  3. What results is a network of deeply internalized, interconnected knowledge.

His techniques:

  • Bite-sized steps and complexity. Start with the simple and move up in complexity as our knowledge grows.
  • Once we attain competence, we look to attain the desired results with less and less effort (what he calls making ‘smaller circles’.
  • We attain mastery through ‘presence in the now’, learning to stress and recover. Mastery he defines as one where our rigidity to the ‘dogmatic interpretation of principles’ is replaced by making decisions defined by current circumstances. We are ‘at peace with and navigating the tensions of competing truths, letting go of any notion of solidity’.
  • Finally, his learning model is akin to Deliberative Practice.

On Monday, I’ll look at Josh’s approach in relation to trading.

Accountability 3

BarroMetrics Views: Accountability 3

Great! We’ve finally arrived at Reeder’s equation. The basis is a simple one, the degree to which you are motivated is the extent to which the positives outweigh the negatives.

(Treasures – Troubles) + Contributions – Choices = Commitment (or lack of it).

What are treasures?

Well, here’s my contribution: Our values must form the basis of Treasures. Our goal needs to be based on and formulated in line with,  our top values. Once Values are in place, we can think of Treasures as the rewards we are seeking by our goal achievement.

Troubles are the price we pay for our success. Their impact depends on their severity and acceptability. It’s important to bear in mind that Troubles outweigh Treasures by a factor of five to one.

Within the definition of Treasures and Troubles, we fit Gracia’s model. So, for Treasures and Troubles, we not only consider the Rewards of Success and the Pain of failure; we also consider, the Rewards of Failure and the Pain of Success.

Contributions are the irrevocable investments we make in terms if time, talent and tangibles (money and what money can buy). There are times we need to include ‘tenderness’: the giving of self e.g. caring for another.

Finally Choices. The more choices we have, the more commitment will decline.

The strategy to maximising commitment is to increase positives and reduce the negatives. Both books provide a series of strategies to do this as does Acceptance and Commitment Therapy (ACT).

So, over to you. You now have the means to secure any goal you truly desire. You just need enough willpower to run through the equation.

Accountability 2

BarroMetrics Views: Accountability 2

Yesterday, I raised the possibility that the idea that all we know about ‘willpower’ needs revising. The problem with the current ideas – that willpower is like a muscle that needs to be exercised and like a muscle, tires – is it fails to explain how we can improve it.

Jason Gracia and Heidi Reeder have come up with a better model. One that places motivation squarely on our shoulders. We now have a model that, if applied, will garner all the motivation we need for any goal.

In this entry, I’ll start with Gracia’ model and then show how it fits nicely into Reeder’s.

But first, some context:

  • Humans move away from pain, perceived or actual.
  • Humans depreciate future events and appreciate present ones.
  • Humans, as a rule, prefer the stay within their comfort zones.

The two principles are an important backdrop to the models.

  1. Here’s Gracia’s:

Our motivation is directly linked to Pleasure and Pain. For any activity, the expected Pleasure has to be greater than the Pain. But, the equation is not as simple as it looks because there are four parts to the two quadrants, not two:

Quadrant One:

  • Pleasure of Success
  • Pain of Failure

Quadrant Two:

  • Pleasure of Failure and
  • Pain of Success

Quadrant one is self-explanatory. But, Gracia says we also need to consider the Pleasure of Failure and Pain of Success.

Can success be painful? You’d better believe it! Any trader going through Deliberative Practice will tell you that it’s not a stroll in the park. Or ask any gold medal winner of the effort she had to put in.

OK, then what about the Pleasure of Failure?

Staying within our comfort zone is hard wired. The most extreme example I have encountered was over ten years ago. A broker had invited me to give a talk to their high net worth and active traders.

After the talk, he introduced me to one of his clients, a gentleman who had experienced a high six-figure loss since opening his account. Into the conversation I asked him:

“To change your results, you need to change what you are doing. What will you change first?”

“Nothing!” was his reply.

“Nothing?”

“Look. I can probably make some of the changes you have suggested. But, how do I know they will work? If they don’t, I’d have wasted time, effort and perhaps, even more, money.

If I just keep doing what I’m doing, I’ll be in familiar territory; and who knows, perhaps my luck will change”.

Hmmm. The first sign of insanity keep doing what doesn’t produce the results you want and hope things will change.

Are you paddling that canoe?

Tomorrow we’ll look at Reeder’s model.

 

 

Accountability

BarroMetrics Views:  Accountability 

On the weekend, I watched “Hidden Figures“. It’s a great movie, telling the story the role three women played to break through the colour and gender ceilings at NASA.

What I liked best about the story was the way each lady took responsibility for her life. Identifying what she wanted, dealt with the setbacks and persevered: the key thing is they took ACTION;  no whining, or lip service but consistent action. This is especially true of the character portrayed by Octavia Spenser.

We know that over 90% of newbies fail – I believe because many starters have unrealistic expectations. But, once this group gives up, what accounts for the continual failure of the majority of the survivors? At some point, they must come to realise that what is needed for success. Yet, the numbers among this group remain dismal.

Usually, the fault is laid at the feet of willpower: ‘I don’t have the willpower to be disciplined’. But wait!

There is mounting evidence to suggest that much of what we thought we knew about willpower is incorrect. See for example: “Against Willpower“.

So, if willpower is not the answer to discipline and commitment, what is?

Over the next few days, I’ll be presenting a model of commitment that bypasses will power. The ideas are taken from Jason Gracia’s ‘Shft the Balance‘,  Heidi Reeder’s ‘Commit to Win‘ and my own experiences and ideas.

Isn’t great to know that discipline is available with only a little willpower; the rest….more tomorrow.

Learn By Doing 2

BarroMetrics Views: Learn By Doing 2

Continuing from Learn by Doing….

The question needs to be asked: what did those who succeeded do, or not do, differently that led to their success?

The answer is they integrated the theory, and applied it in the right manner. What is the right manner? They not only ‘did’ i.e. traded, but they also traded using deliberative practice. (See ‘Deliberative Practice) and (Deliberative  Practice II). That’s not to say that the successful course attendees practised.

That’s not to say that the successful course attendees actually practised.

I saw little evidence of that – despite my exhortations. But, they did apply the principles of Deliberative Practice to their trades. In the process, they learned from their losses and profits.

They also learned, to a larger or lesser extent, to live with the four fears that bedevil all traders, the fear of:

  1. Missing Out
  2. Leaving Money on the Table
  3. Losing Money
  4. Being Wrong

In turn, the four fears are driven by the most basic human responses of Fight, Flight and Freeze that cause impulse trading.

Using the tools of mindfulness, defusion and acceptance, they learned to be comfortable with the fears. That’s not say they have mastered the processes – it’s not even true to say they are competent at them. But, at least they are making an effort to apply the tools, and it shows in their trading results.

So, my questions for you:

  • Where are you on your journey to success?
  • If you’d like to do better, are you keeping, and reviewing, your journals? Are you even keeping them?
  • If you are, are you learning from them so that you manage the ‘3 and 4 Fs.’

Fear – The Trader’s Nemsis

BarroMetrics Views: Fear – The Trader’s Nemesis

An examination of my trading results shows that around 80% of my results are in the ‘win-some, lose-some’ category i.e. they have only a small impact on my annual ROI. It’s the other 20% that make a difference where my profits and losses are larger than expected.

For some time, I have focused on reducing the losses in the 20%. And, as that has improved, so too has my bottom line.

The EURUSD is an example this strategy in action. Given the setup, I had certain expectations for the price action if the trade was to be profitable. When that did not happen, I exited.

All this makes sense, right? Yet, once in a trade, we resist early exit. Why? Because of fear. We are afraid that we exit, only to have the market then move in our favour in a humongous way! Worse still, we are afraid that we’ll sit on the sidelines and miss the move; or enter late and have the market move against us as soon as we enter. And, with the nature of trading, all those things can and do happen.

But, if we examine our results, we’ll see that despite the occasional trades where we do sit out a large move, the early exit produces a much-improved ROI.

So, the question arises: how do I overcome my resistance?

The answer is through preparation. By taking a few moments to visualise our actions if ‘x’ occurs, or does not occur, we are more likely to follow-through.  This strategy has certainly worked for me.

Unrealistic Expectations

unrealistic-expectations

BarroMetrics Views: Unrealistic Expectations

In “Asia’s Best-Forming Hedge Funds“, Bloomberg reported that the best funds averaged around 15.5% with two outliers at 30% and 45% ROI. And these are the best funds for Asia.

Compare this with these expectations: “If I didn’t believe I could make at least 5% per month, I’d give away the game!”.

“And, what would you expect your losses to be?” I asked.

“I don’t believe in losses” was the reply.

The above is an accurate restatement of a conversation I had over lunch with some retail traders.

Let’s have an in-depth look at the retail comments:

  • A 5% monthly return is 60% p.a. far better than any of the Asian funds.
  • The best average loss for the funds was about 8% whereas the retail trader did not expect any losses.

Given the unrealistic expectations of newbie traders is it any wonder over 90% fail at the trading game?

 

Perception of Reality – The Key

percep-vs-reality

BarroMetrics Views:  Perception of Reality – The Key

Before the blog, a comment on my schedule. I thought I’d have more free time this week. Nope! For example, tomorrow I have medical appointments lined up back to back from 8:00 am to 2:30 pm AEST

So, my blog posting will probably be inconsistent until I have recovered from the hip replacement.

Apologies.

Continuing from the last blog…..

One of the differences between successful traders and unsuccessful is the fact that successful traders align their perception with reality. You will recall that my view of the way we humans interact with reality is “out there as seen by the in here”.

There are three ways humans use their perception:

  • Contextual: the Freud approach…we have unconscious responses built upon previous experiences, especially those from our childhood.
  • Reframe: the NLP approach…..we reframe past experiences, so they provide empowering rather than limiting stimuli.
  • Acknowledge and Accept: the ACT approach….through attention and awareness we accept our feelings so as to prevent the 3Fs (flight, fight and fear) from overwhelming our cognitive faculties. By developing value-driven goals, we engage in value driven effective action – effective because the actions lead to goal attainment.

In a recent session of Ultimate III, I saw just how important is ‘attention & awareness’.

We were running through the process which FX pair we’d trade last week. During the review, the reasons why the USD should prove strong, the AUD, NZD, EUR and JPY weak. The rest I’d rate as neutral.

One student traded the AUDCAD because I recommended it – notwithstanding that I specifically said I’d leave the CAD alone because it was neutral.

It’s important to understand that the student believed that I had recommended the CAD as a possible pair. Luckily I video all sessions, so I was able to check.

Now that was a minor issue. More important is the way this approach when trading – we’d continually reinterpret events to suit our analysis. Then we’d wonder why we can’t make money.

Success is dependent in aligning our perception with reality. The tools we use are attention and awareness to our emotions and behaviour.