10 Tips From the Trenches

My buddy @bclund asked me to write a couple of trading tips for a project he’s working on.  My first thought was that there is literally nothing left to say on the subject.  Let’s face it, it feels like we’re approaching the efficient frontier in financial content.

I was struggling to come up with even one.  Then I started reminiscing about all the stupid mistakes I made along the way.  I finally managed to whittle it down to 10.  Every one of these points has a story behind it and each story contains a lesson taught via capital losses.

 

  1. Do not become passive in response to negative external events.  Always take action.  Correct your mistake and move on.
  1. Do not become passive in response to positive external events.  Conduct the analysis and remember that “news” is almost always that catalyst that smart money has been waiting for to sell.
  1. Trading is a hard business.  Your decision-set is confined to buy, sell, short, or do nothing, in varying amounts.   Managing positions and taking losses is draining.  Try and fill your life with other rewarding activities.
  1. If you’re starting out, don’t worry about being innovative.  Find a methodology and trade it with extreme discipline.  For the first couple years, innovate by reducing your errors.  Only add when there is nothing left to take away.
  1. A big part of a trader’s job is interpreting information.  Some information will support your beliefs and some will not.  Try and treat the opposing and supporting information the same (easier said than done).  Information from management is usually only true enough.  It’s mostly a mix of bullshit to soothe fickle shareholders.  When confronted with this type of information you have to ask yourself: does the information allow me to believe, or does it force me to believe?  If it only allows you to believe, you’re probably being misled.
  1. In cable news, debate means two opposing ideologs get equal time to spout bullshit.  In trading, opposing views means someone is actually going to be right and someone is actually going to be wrong.  Seek out debate and use it to clarify or disprove your thesis.  Find people who will challenge your opinions and listen carefully to their arguments.  Don’t be afraid to change your mind.  Don’t become a COIF.
  1. Trust the data more often than you rely on the greater fool.
  1. Be humble because you’re going to be epicly wrong.  The only thing you can do is manage the damage of your wrongness with stops and position sizing.  Either take the loss and stop yourself out within a reasonable risk parameter, or if you have less discipline, size positions so that you can be catastrophically wrong and still live to fight another day.  Find the balance that fits your style.
  1. Comparing your returns with others is an unnecessary distraction that will mess with your head.  There will always be someone much better and much worse.
  1. Strive to improve everyday.  You might not find your swagger right away, but keep at it.

 

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