Tough Love

Posted on Jan 13 2016 - 2:13pm by Dan

I have a special fondness for all the traders out there who have opened an account of their own, taken a small pile of money and are trying to grow that stack of cash into something larger.  All fueled by a dream.  We would refer to you as a discretionary, self-directed retail trader.  

That label is not an insult.  At times I have asked individuals if they are a ‘retail trader’ and I suddenly  find myself within a conflagration of indignation.   There is no reason to be offended.  There are retail traders who are decamillionares.  But you are not trading at an institution, or a firm.  You are not trading the funds of an individual company.  You are not trading remote prop.  You’re at home, trying to trade.  You are a retail trader.  That’s fine.  One of my own portfolio’s would be considered a ‘retail’ account.

Regardless, as I said at the outset … I have a special fondness for all of the small retail traders out there.  After all, that is how I got my start in this business.  And as Sharpe Trade, LLC likes to reach out to such retail traders, I peruse areas of the ol’ interwebs where they are apt to purlieu.

The majority of the discussions that take place in such groups, forums and chats … are … disappointing.  To say the least.

I have been told I have a bit of a ‘militaristic’ attitude.  I won’t deny that.  It’s simply a personality trait.  I say that to stress the fact, that it is not my intention to cause offense.  It really isn’t.  As I have already said, I have a special place in my heart for retail traders.  But seriously, the following ‘tough love’ needs to be put out here.  Take it or leave it.

Stop over-complicating trading

If it’s a problem we see again and again, and again … and again, is that retail traders make things much more complicated than it need be.   There seems to be this incessant need to over-complicate  and duplicate minutiae that does not matter in the slightest.  All while missing the bigger picture of risk mitigation and discipline.

Someone recently wanted to have a discussion on the Russian economy and the trades that such a conversation portends and I kid you not, the heart of their discussion was built upon the following chart.  It’s as if they are approaching any trade as if they are scrutinizing the checklist of a 747boeing-747-8-flight-deck-checklist-trading-stocks with tools that are both a duplication of effort, and simultaneously not related whatsoever to the task at hand.

Let me let you in on a little secret.

Trading can actually be quite simple.  So keep it simple.   We are not piloting a 400 ton aircraft.  If someone wanted me to trade a market ‘technically’, I could trade any market with two EMA’s, and that’s it.  The best technical traders I have had the opportunity to meet have the same overriding tendency to keep things simple

How can you trade?  Regardless of the approach, find what I refer to as ‘the wobble’ of a market. For example, if the overriding force and pressure of a market becomes exhausted?  It is at that point that the market may ‘wobble’.  Or perhaps the market is not ‘wobbling’, at all and you believe that the strength of that market will continue.  So you take a measured risk, because you feel you have an implied edge.  Stay disciplined, with preset risk and trade management models.  Be willing to grind out trades, according to a particular process for years on end.

That’s about all there is to it.

I don’t care if you are valuation investing, or scalping.  It doesn’t have to be complicated.  I understand the allure of the pretty lights and colorful charts.  I myself have nearly been sucked into that particular singularity on a couple of occasions.  But that’s all they are.  Pretty lights and colorful charts.  Not only are they not helpful, they can actually cause a great deal of harm.

There’s something else.  It’s something I heard the PM of a hedge fund recently state and I have to agree with it wholeheartedly …

Stop trying to compete in the same space currently
dominated by 
Grand Masters

I’ve been doing this for nearly 20 years, and have had the opportunity to meet Asset Managers who make me look like a complete and total dunce (and pardon the ego but I’m dang bright and ridiculously talented).

I don’t try to compete with those traders, in their arena.

Top-down macro-economic analysis, while it allows us to have some inkling of a concept of what might be going at the moment?  It also has to be one of the single most difficult ways in existence by which to build a process to extract BPS from the markets.  None of the processes that I use to trade Complex systemsthe markets use macro-economics as a part of what it’s doing.  I look for lower-hanging fruit, to obtain the same result.  What result?

Money.

Unless you have a particular aptitude and talent when dealing with non-linear complex systems, (and to be sure, some do) stop trying to compete with Mr. G. Soros.  We already have a Soros.  There is no need to be a Soros, if your only aim is to make money.

And for pities sake, stop trying to analyze the economy, for a trade that is only going to last for 3 days.  That’s just silly.

Have Realistic Expectations!

This is a subject that we have already discussed here at Sharpe Trade.  On a number of occasions.

But please … have realistic expectations.

No one is profitable, every single month.  No one is profitable, every single year.  Stop trying to criticize Mr. Warren Buffet because he had a down year in 2015.  Seriously.  Stop it.  You sound stupid.  The man has probably one of the longest-running, well-established track records in existence.  

One of the top rated and longest running Futures programs out there also experienced 11% drawdown for 2015.  So what.  I imagine they cry themselves to sleep each night on the pillow of their 365,800 life-time Basis Points (BPS) they collected before that draw-down occurred.

That’s all for now.  More ‘tough love’ may follow in the days to come.

But I felt it needed said, because I do have the aforementioned fondness, for self-directed retail traders …

1 Comment so far. Feel free to join this conversation.

  1. Sammy Q January 5, 2017 at 7:05 am - Reply

    Having gotten Sharpe Trade’s information, I can honestly say it’s some of the best trading course and information I have ever run across …

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