Break Your Trading Routine :David Varadi

The answer to successful trading cannot be found in any coach, book, or system. Success is something that is cultivated over time, with directed effort.
- Brett Steenbarger

The biggest secret about success is that there isn’t any big secret about it, or if there is, then it’s a secret from me, too. The idea of searching for some secret for trading success misses the point.
– Ed Seykota

To anticipate the market is to gamble. To be patient and react only when the market gives the signal is to speculate.
- Jesse Livermore

"Every once in a while you must go to cash, take a break, take a vacation. Don't try to play the market all the time. It can't be done, too tough on the emotions." - Jesse Livermore

This week we are reproducing here an article by David Varadi . Hope you find it useful

Routines are what define many of us as people. They can be defined as a group of habits and tasks that are often bounded by time intervals. Routines are the great stabilizers in life, and help us to preserve precious mental and physical resources. When times are tough, they allow us to coast on autopilot. They bring an element of certainty and regularity in an unstable world.

In my profession which entails building models and systems, routines are impossible– I am always forced to do new research or solve new problems. I am paid for approaching things in a novel way, sophisticated clientele don’t need me to find a boxed solution. Rather than operating 9-5, my hours can range from 8am-5am to accomodate overseas clients or tight deadlines– and it all revolves around what needs to be done. On the one hand, I wish my life involved more routine– I am always running in third gear and cannot risk slipping into cruise control (ie mediocrity). Its often difficult to plan to do ordinary activities. Many times to keep my edge, I will simply take some time off to go for a walk–especially in the spring and summer–just to think about how to solve various issues. Sometimes, I will go to a coffee shop without a book and a computer and just reflect on some ideas.

I notice that when I do not have the time to do these things, my creativity suffers and I am often approaching problems in a circular manner—like a dog chasing its tail. I notice the same effect when I am forced to stick to a structured schedule, or am overloaded with correspondence via modern communications. I often marvel how anyone in this century gets anything done at all of tangible value since the advent of email and the blackberry. The cynical side of me believes that people have allowed themselves to confuse activity with actual work. According to my friends in the corporate world, if you are not going to meetings or answering emails you apparently aren’t getting anything done.

Trading is the same way– its easy to think of yourself as a pro trader simply because you get up every day in the morning and follow the news on Bloomberg or Reuters before the open. Its easy to think you are a pro simply because you have your own proprietary tools, and you have a cool workstation. Maybe you think that you will be successful simply because you are diligent and have a disciplined routine. Perhaps you fancy yourself a player because you place dozens of trades a day. Well the truth is that many of these activities are potentially positive, but the real trick is to recognize that it is not enough to look and act the part of a trader. It is not enough to just try to stay unflinchingly consistent in executing your gameplan. You have to sometimes shake things up, and think of new ways to make money–because the truth is, while you are settling into your comfort zone, someone else is trying to figure out a plan to eat your lunch.

Every week you should try to make some time to think outside of the box. Read or re-read a new trading book (note I re-read my books sometimes 4-5 times). Spend some time on system design- but force yourself to tackle something new or something that you have had trouble solving in the past. Try to learn a new instrument, or search for a new type of trading setup to compliment your most reliable methods so you having something to fall back on if things get tough. Trading is like nature–always evolving and different species thrive or die off as environments change. I can recall many “pros” in my poker playing days that wanted to always play the same way and were often in denial when their drawdowns lasted much longer than luck would dictate. They resisted change right up until the bitter end–until even the weakest players figured them out and milked them dry. Friends of mine who survived and even went on to win major tournaments were always looking to improve and try new strategies–while respecting that they would not completely re-define their game in doing so. They focused on figuring out how to win in the most efficient manner even while being very efficient winners.

Think of some of the pioneers in the trading world: 1) Jesse Livermore 2) Nicholas Darvas 3) William O’Neil 4) Paul Tudor Jones. All of these people approached the market with a unique insight that allowed them to reach levels far beyond anyone else. They all worked hard and tried to constantly re-invent or re-invigorate their methods with sometimes costly experiments. Its not enough to just be discipline, and its not enough to just be smart or knowledgeable. Universities these days are teeming with people like that. You need to step away from your routines and away from the crowd and be different. Treat your most reliable trading methods as part of a discplined routine–like flossing your teeth. But take some time to think carefully outside of the box and add to your strategy mix, otherwise you face two possible undesirable outcomes: 1) you may get bored and find diversions through impulsive and costly mistakes 2) you may face a sudden struggle for survival if your bread and butter trades are no longer working.

http://cssanalytics.wordpress.com/2010/03/18/break-your-trading-routine/

Have a nice weekend

All About Being A Good Trader -By: Evan Lazarus

Meet Trader "X" , By: Evan Lazarus

I know and have worked with many traders around the world. Over the years, I met one individual who is by far, the best trader I have ever met. He is very consistent and makes an incredible amount of money as an active intraday trader. For the sake of anonymity, I will call him “Trader X.”

I still remember the day that I realized just how successful Trader X was at trading. Today I must admit that although I have met traders that make considerably more money, I still hold him in the highest regard as a trader and personal mentor, as he has never deviated from his path. I am lucky to know Trader X and have reaped many benefits from incorporating the lessons I have learned from him into my own trading over the years, so that now I play the part of mentor to many novice and even seasoned traders. I would like to share with you some of the lessons I have learned from him. Although he has never taught me formally (in a teacher/student capacity) as I do with others, these are lessons that I have acquired from observing him trade, that I continuously teach in our T3Live education classes.

1. Patience is Paramount

An important lesson learned from Trader X is that patience is everything. Profitable traders, like Trader X, wait for the perfect trade setup. 90% of all traders who do not consistently make money trade for the sake of trading, as I used to do. I used to look at the markets and ask myself "which way is market/stock going to go?" Now I look at the markets and say "Is there a low risk trading situation developing?" I have learned to be patient, and my profit factor has been consistent over time.

2. Never Follow the Herd as the Herd Consistently Gets Slaughtered

If you think about it, it makes perfect sense - the very best time to buy something is when everyone is convinced that the price is going to fall lower, and the very best time to sell something is when everyone is convinced the price is going to shoot to the moon. Trader X taught me the importance of trading against the crowd. The crowd is reacting to the market, and that is exactly why you must react to the crowd. This simple change in mindset can produce incredible profits if you are willing to look like a fool (in the eyes of others). Now, this is not code for counter-trend trading as a means to success, but rather a mentality I implore the same as when shopping for a car. When you go to a dealership or a car show, the cars all look beautiful and pristine. New car smell, nice paint job, shiny tires, but do you ever kick the tires or look under the hood? Is that beautiful car as healthy on the inside? Being a good technician means not getting caught up in the superficial.

3. Do One Thing, and Do It Well

If there is one simple thing that I have learned from my Trader X, the best trader I have ever known, it is this: to make money trading you only have to become an expert at one type of trade. There is no need to do ten things, or yet worse, ten things at once. Simply concentrate on one thing, and if you trade it well, you can become a very successful trader. Too many traders (especially the day traders) think they need to make multiple trades in a day, or to trade multiple stocks over the course of a day in order to make money. Chances are that the more you try to do, the less successful any of those trades will be--a “jack of all trades but a master of none.” As I tell all of my trading students, “it only takes one lemon to make lemonade.”

4. What’s YOUR Style?

How many times have you heard some expert say something like "technical analysis doesn't work" or "never trade on options expiration" or "scalping is impossible." One thing I have learned from my trading mentor (and from working with traders all over the world) is that the very best traders create their own trading style. This doesn't mean that you must reinvent the wheel to become a successful trader; it simply means that many successful traders have found their way to success by adapting trading strategies and making them their own. It is not important that you trade precisely as other successful traders do, but it is important that your style of trading makes sense to you, as this will ensure that you stick with it over the long haul.

Trader X has a completely unique trading strategy that he has crafted over time by exposing himself to many different ideas and many different traders. His system is unique because it is his, and it makes sense to him. This is important because it means that he is better able to maintain confidence through the drawdowns that inevitably occur.

5. Have An Extremely High Win Rate

There has been a lot written about win rates (what percentage of your trades are profitable), but what some traders do not seem to understand is that it is possible to have an exceptional win rate. 70%, 80%, even 90% is possible. This I have learned from Trader X- he has an incredibly high win rate, and I do too now because I have learned so much from him.

Trader X is continually improving as a trader. He is constantly figuring out ways to get better at what he does. He uses every loss as an educational experience - that is how he sees them. Every loss is a lesson that the market has handed him. I would not say that he embraces losing trades, but he certainly does learn from them.

6. Everyone Has a Bad Streak

Even my Trader X will have the occasional unlucky streak with several losses in a row. This is not that interesting to me, but what interests me is how he deals with these streaks. He does not lose confidence and continues to take the next trade setup, as it occurs, and never questions his strategy. He knows that anyone can flip a coin and get "tails" 4 times in a row, and that is precisely how he views a non-winning streak. He knows that in the long run he will make up the lost money, and then some, so there is no need to panic. He knows with the utmost of confidence that he “is an earner.” Over the long run, he will continually just earn.

7. Being Wrong is Being Human

Trader X taught me that even the best traders, like him, are sometimes caught on the wrong side of the market. There is no need to panic when this happens, but once it does, a very good thing to do is to simply get out. Once you realize that your trade was not a good idea, there is no need to wait for your stop loss to get hit. When you know you have made the wrong move you can simply get out of the market and wait for the next trade. While I always preach about managing risk and evaluating stops, remember, you are a professional speculator and if it seems apparently clear that something with your trade is obviously wrong don’t be afraid to pull the plug early.

8. Let the Trades Come To You (Be Patient)

If there is one thing I have noticed about how Trader X trades (and this is not a unique characteristic, many of the very best traders I have ever traded with also have this characteristic) it is that he does not go looking for trades, he waits for them to jump out at him. This may seem like a weird way to trade, but it is precisely how he takes so many profitable trades. He waits and watches, and when the market gives him an opportunity to jump in to a good situation, he strikes. He never trades simply because the market is open, and he sometimes sits in front of his charts for hours without making a single trade.

I have learned from him that successful trading means being ready for the market to offer you "easy money" - or ideal trading setups. When these setups come along, I know it because I feel like I must take advantage of the opportunity the market is offering. Remember though, these setups come along infrequently and most of the time Trader X spends trading is NOT TRADING. This is very counter-intuitive to what most traders do and how they act. This is also the reason I believe that the trading profession is “hard.” Most traders feel compelled to trade the same way sports gamblers can’t watch a football game without having “action.” In the end, it’s a losers game.

9. Continue The Educational Journey

Trader X has such a high win rate, and is so good at picking high probability trade setups that some people may assume that he knows that he has the markets "figured out." Not so. He is constantly learning, he has many trading books, trading magazines and we are constantly talking about trading strategies. He learns from some of the best institutions and research centers around the world because he has a constant thirst for knowledge. The fact that he is open to new ideas and the fact that he is an exceptional trader is probably not a coincidence. I think that many successful traders are open to new ideas. This doesn't mean that successful traders switch trading strategies every month (Trader X has been trading the same trading strategy for years), it simply means that many successful traders are open to new ideas and new ways of profiting from the markets.

I hope that you have learned something from Trader X, I know I have.

You can see the full post on

http://blog.t3live.com/2010/02/meet-trader-x.html

Weekend Reading - SUN TZU ART OF WAR

We are giving you the link for your weekend reading .

http://www.thecrosshairstrader.com/2009/05/sun-tzu-and-the-art-of-stock-traders-patience/

“THERE ARE ROADS WHICH MUST NOT BE FOLLOWED, ARMIES WHICH MUST NOT BE ATTACKED, TOWNS WHICH MUST NOT BE BESIEGED, POSITIONS WHICH MUST NOT BE CONTESTED, COMMANDS OF THE SOVEREIGN WHICH MUST NOT BE OBEYED.” SUN TZU ART OF WAR VIII.3

Why does SUN TZU go into such detail here about what NOT TO DO? Is it just semantics? I think not. I believe SUN TZU is wanting his listeners to know that in battle patience is just as important as the attack itself, if not more so.

Th quote above is taken from the chapter entitled VARIATION OF TACTICS, which, in military terms, refers to the techniques for using a combination of weapons in various situations for defeating the enemy. One of the general’s, and the trader’s, most effective weapons is patience. Simply put, there are trades that should not be entered, stocks that should not be traded, markets that should be left alone, areas of strong defense that should not be challenged, and restrictions placed on the commander himself.

THERE ARE ROADS WHICH MUST NOT BE FOLLOWED

There are trades that should never be taken no matter the set up. If your trade decisions are based on technical analysis as mine are, you patiently wait for the trade to set up, then you enter the trade as planned. When you are given a signal you trade. However, there are times when you are given a signal and you decide to patiently wait for the next signal. Why? Because the proper use of tactics implies a combination of weapons. Profitable trading systems are not designed to work in a vacuum, which can help explain why a handful of traders can take just about any trading system and make money whereas most others consistently lose money trading the same system! The successful trader knows that factors other than the technical contribute to the success of their system. These factors include knowledge of the following: the general market condition (TERRAIN), the strength of the sector traded, the upcoming major market moving news events (such as FED statements, economic announcements, etc.), and the earnings date for the stock you trade, among others. We should all patiently wait for our set-up with the understanding that the set-up itself may have to wait. There may be dead ends but there are other roads to take.