BarroMetrics Views: Trading and Flying
Yesterday I flew home to Hong Kong from Singapore. Flying is a regular part of my life and yesterday’s flight has to be the most turbulent flight ever for me. I handle this type of hurly-burly badly – on one choppy night, I became seasick on the ferry ride from Hong Kong to Kowloon- that’s like getting sick on the Staten Island Ferry Ride!
So, you can imagine what happened to me on this flight and how I was feeling when I landed.
It seems to me that trading can be much like that. One moment we are in ‘flow’ state, everything we do is profitable; the next moment, everything we do turns to a loss, the ‘ebb’ state has set in. What distinguishes a winning trader from a losing trader is the way he handles this sudden turn of fortunes.
The winning trader has a process that manages the event; indeed, most winning traders I know have a process to manage life’s (not just trading’s) unexpected events. Unlike many New Age advocates, I don’t believe we are responsible for everything that happens to us; but I do believe we are always responsible for the way we react to events. This means we need to have some process that will handle whatever life’s Black Swan occurrences.
The losing trader usually handles the changes in fortune by behaving in a way that just about ensures another failure; he:
- Blocks out the information that is saying: ‘be careful, conditions have changed. You need to change what you are doing’.
- He increases position size, in short he starts to overtrade.
- He increases the frequency of trading another form of overtrading.
- Having been stopped out and then have the market ‘go his way’, he abandons risk control.
- If he did keep an equity and/or psyche journal, he stops keeping them. And so on….
Flying and Trading have their similarities. We can’t always control what we encounter. But we can accept accountability for our responses; if we add a generic process to handle the misfortune, the experience need not be a disaster. Sure, I felt poorly when I deplaned yesterday; but I did not ‘up-chuck’ and with a good night’s sleep, all is well in Barros-Land.