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Happy trading,
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Tate on Trading - The Need for Certainty
Chris Tate
As the New Year rolls around we are bombarded with predictions for the coming year. I have not looked at this year’s round of tealeaf gazing but last time I did, all predictions were so wildly off that you might as well have asked a slightly agitated baboon for their opinion on the market and got a more accurate series of forecasts.
The need for certainty is innately human. Unfortunately, markets cannot provide this certainty so we attempt to craft it by imposing a set of predicted outcomes upon a market that cares little for our predictions. As our predictions are proved incorrect, we adjust them to suit the market thereby never having to admit that we were wrong. This is the hallmark of those with predictive methodologies. The predictions are never wrong it is just that the market did not conform to the original prediction so a new one had to be made.
The point is not that people make predictions despite the overwhelming evidence that that they are hopeless at it, but rather that people continue to listen to them despite the fact that they are invariably wrong.
This raises the question: with a new calendar year upon us what do we do? The answer to this is simple and I have distilled my thoughts for the New Year into five main points.
1. Accept all possible outcomes
It is said that acceptance is the fine line between misery and ecstasy. As a trader, you need to accept all possible outcomes; all possible defeats and all possible victories. This also means that you accept what the market is doing at any given time – railing against the market going up when you are short is pointless.
2. Anxiety exists in the past and the future, not the present
The trader need only exist in the moment. The past and the future are irrelevant. What separates the ordinary from the extraordinary is that the extraordinary do not let fear overcome them. It does not stop them from achieving what they want to achieve. Too often people are bounded not by any external constraint but by their own fear.
All of us feel fear as to be afraid is natural. To be afraid of the unknown and the unstructured is a feature of evolution and has served us well.
Fear is an effective and powerful enemy for the trader, it is also not as harmless as many people imagine. It is one of the most powerful of our foes because we can give our fears as much power as is necessary for them to overwhelm us if we so choose.
3. Dream, the power to imagine
Habitual imagery is important to what we believe about ourselves. Pessimism breeds negative expectations and negative outcomes. Optimism breeds positive expectations and positive outcomes. We have a tendency to become what we think about ourselves.
As traders you must acquire the power to believe in the possibility of all positive outcomes. Believing follows a set path.
- The evolution of a set of intuitive responses. This is to a degree an intellectual response based upon a sequence of trials. Through this, we obtain a sequence of reinforced beliefs in our trading system and ourselves.
- Evolution of an intuitive sequence of beliefs, this leads to the concept of faith. This is the highest level of belief. It is your belief in your ability as a trader. Most important is the faith in yourself that you can keep going in the face of adversity. My belief is that people by and large are weak and they falter at the first hurdle. The greatest skill some people possess is the ability to make excuses for themselves.
4. Recover, learn the skill of resilience
Taking risks involves the implied assumption that failure is possible but not inevitable.
When we face defeat traditionally, we encounter grief. This emotion can be handled like other emotions it merely takes appropriate strategies.
The first stage is to acknowledge that something has gone wrong. If we possess the rationality necessary to be a trader then we cannot hide from what has happened. Denial is not part of our nature. A loss is a loss and no amount of rationalization can distort this fact.
Denial gives way to anger at almost any inappropriate source. We are angry at our system, the advice we took, the black box sitting on our desk. These are all scapegoats for the true villain which is you. Your mistakes are your own.
5. Point your bum in the right direction
If there is a single technical point that will enhance your trading success it is understanding the prevailing trend in the market and pointing yourself in that direction.
Having eschewed the notion of prediction I will leave the final word to Psychic Nikki 'astrologer to the stars' who last year predicted that Barack Obama would be assassinated, a plane and a meteorite would collide and that the stockmarket would go up and down. What more do you need to know.
How I Got Started Trading
Louise Bedford
It all started for me around 20 years ago. I went to a seminar about the sharemarket and I thought to myself - "It's about time I took control". Back then, I was a National Manager for a large Multinational company, and I was flying high. My professional ambitions had finally begun to come true. I started to trade alongside my job and then - just a few short years later... the unexpected happened.
Over the course of a few short months, I progressively lost the use of my arms through an unexplained tendon condition. I found that even simple tasks such as opening doors had become a day to day painful struggle.
Dressing, driving and feeding myself had now become daily challenges. Because of this, I had to quit my terrific job.
Life was looking bleak indeed.
Actually, I’m completely under-stating the situation. I felt black most of the time, unable to picture my future, and certain that the loss of the use of my arms meant that my hopes of becoming a mother had to be put aside.
I felt like my guts had been ripped out.
I kept fast-forwarding the images of what my life could have been before my arms stopped working, and everywhere I turned, all I could see was despair. The little self respect I had left was eradicated one day when I got trapped in my own bathroom, unable to escape because I couldn’t get the door open. By the time my husband found me, I was howling with frustration at the floor, and shaking all over with fury at my situation.
I found comfort under my doona, and spent long hours with my head buried in the covers, sleeping, or miserably contemplating my future. Every public toilet with a handle became my enemy. Putting on a pair of tight jeans was a thing of the past as I just couldn’t get my hands to co-ordinate to pull up the zip. If I was itchy, I’d find a wall to act as a scratching post. If I needed my seat belt on, I may as well have tried to run up Mount Everest.
As I did my endless physiotherapy sessions at the public pool, I found myself surrounded by people in much worse conditions than I was. Amputees, people with brain tumours, and people suffering the ravages of cancer - they all became my friends. We inspired each other, and didn’t allow excuses, as we struggled for freedom from our bodies that had let us down.
I dug deep, and was able to access a core of strength that I had always known was there – it’s just that it had seemed to desert me when I needed it most.
Then one day...
I told my accountant that I couldn't work and that I was going to trade full-time.
Well...you know how some people just want to kick you when you're down? I'm guessing he was just that sort of guy because then...
... I heard him try to smother a cackle.
Yes, a cackle!
He said: "You can't be serious! Barely anyone makes it as a full-time trader. Barely anyone! Especially NOT YOU! Look at you - you can't even type in your orders into the computer".
Blam - that's all it took.
I got angry. Really angry...
Here he was, sitting across his desk from me... laughing at me! How dare he!
I got angry. I got even.
I learned how to type with a pen in my mouth. It opened up a whole new world for me. I could share-trade online, and email my friends. It meant freedom!
Trading was a terrific diversion to the continual physiotherapist visits. Instead of being stuck at home and bored, trading allowed me to gain control over a major aspect of my life and provided a reason for getting out of bed in the morning.
It occurred to me that there must be many other people who have found themselves in a situation where they would like to create a regular part-time or full-time income from their own home. Maybe they have fallen victim to company downsizing or are finding that they would just like to scale back their hours working for someone else’s goals and dreams.
Others would just like to give themselves a well deserved pay rise and develop some control over their own salary package. Some people would even like to work from home so that they can become a full time parent.
If any of this describes your situation, trading may well be an activity that would be profitable for you to consider.
And Now...
Over the past couple of years I have had great improvement in the condition of my arms. Every day when I wake up and can move my arms, I feel a surge of joy run through my body. Today I am a full-time active private trader. Trading has eliminated the need for me to re-enter the corporate world. I'm also a full-time mum to two fabulous kids who are benefiting from the time I'm now able to spend with them every single day, and - what's even better - I've shown thousands of other traders how they can achieve this too. Have a look at these webpages to show you just some of the people I've helped, in conjunction with Chris Tate - click here, and here, and here and here.
Oh yeah... and that accountant...
I dropped him shortly after I made more money than I guessed he was making per year! I kept him as my accountant long enough so I could watch him eat his words.
Ha!
Now I've got a friendly accountant who applauds my efforts, instead of dragging me down.
So, now... 'lady who writes to me angrily' - I do know what it is like to feel angry and betrayed by circumstance. But, now that you know my story, just try and tell me that everything was rosy for me when I got rolling as a trader. If you're prepared to focus, take responsibility for your own future, and draw support from the people who genuinely want to help you - then come and join our world. If you'd prefer to drown in your own excuses, rather than seeing the bigger picture and reveling in the rewards, then, that is also a choice available to you.
I know which one I'd prefer.
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"Louise knocked 35 years off my working life" "The privilege of having Louise Bedford as a personal mentor and friend knocked 35 years off my working life. Now I am a stay at home mum for my son, Jake, and trade when it suits my lifestyle. As a direct result of Louise sharing her 20+ years experience I was able to design my own system for my timeframe." Sharon Cunningham, full-time trader, Gold Coast |
Scott Lowther Mentor Program "Focus and action personified" |
A Quick Note from Louise: For those of you who don't know Scott Lowther, he has been personally trained by Chris Tate and me, so he knows our systems intimately. As well as being a successful private trader, he has become a close personal friend as well. He has a passion for trading like no other. With his qualifications including an MBA, a Diploma of Financial Services, plus a Bachelor of Science and a Graduate Certificate of Computing - he has everything you need to help you get up and flying as quickly as possible. If you're a beginner, Scott will give you a glimpse into the future. If you're experienced, you need to hang off this man's every word! |
Getting Real
Scott Lowther
So you have just finished back-testing your trading system and the numbers look good. So good, in fact, that if you had only started trading your system 5 years ago, you could retire today. Well before you put your hard earned cash on the line there are a couple of things you need to check.
Often when we build our systems we tend to do only cursory checks of our entries and exits as generated by our system, and while this is as boring as bat droppings, its actually one of the more critical areas in identifying if your trading system is viable in the real world.
Some of the more common mistakes system builders make is that their system creates an entry in their back test database based on the closing price on the day of the signal. Well this sounds reasonable in theory, but impractical in real life, unless you have real-time data allowing you to generate signals in the last minute of trading for the day.
So because most of us don’t have access to this type of real-time data and instant analysis and position sizing capabilities, we need to make sure that our system generates it's entry signals based on the open of the next period.
The next issue with opening positions, as we all know, is that we don’t always get the trade entry price the same as the open. This is called slippage. Now we can handle this in our trading system by allowing for slippage and or in real life by using limit orders to enter our positions.
While some prefer the limit order to open their position, I find this more frustrating for my psychology when I miss out on the trade entry and prefer to just purchase my shares on the open. I include a slippage factor in my trading system to try and represent my back testing as close to reality as I can.
Working out a slippage amount to include in your back testing can be as simple as adding a small percentage to your opening price, or over time by monitoring your trades you will be able to work out an average slippage factor and apply that.
Just remember slippage works both ways with both positive and negative values and while you may find it’s not really a big issue it's worth being aware of.
Similar issues tend to occur with our stops. One of the more common errors that does not translate well from back-testing software to the real world is when the back testing software needs one of the four price data points, i.e. Open, High, Low, Close (OHLC), to penetrate the stop level.
The most common of these is requiring a close below our stop with an exit on the next period open.
As you can imagine, having your stop placed on your trading platform will trigger an exit as soon as your stop is hit or gapped past. This is where the fun starts. All of a sudden our fantastic trading system does not work in the real world and even worse our trading account does not match our back testing results.
One way of dealing with this issue is to have a combination of two stops. The first is called a soft stop which is maintained off market and monitored manually until the position closes past your soft stop. While a second hard stop is placed further away and is maintained on your trading platform. The soft stop is used to handle the close below your stop, while the hard stop is used to manage your risk.
This is why it is so important to check the fine detail of your trading system trade by trade, to ensure what you are testing is actually feasible in the real world. Boring? - yes, Worthwhile? – critical.
Enjoy.
- Scott Lowther
Final Thoughts
OK, so you're settling back to your routine carrying a couple extra kilos of holiday fare. You've cleaned out your inbox and planned (at least mentally) for the year.
What are you going to do now that is different from everyone else? If you do what you've always done, you'll get what you've always had.
I challenge you to get real and honest with yourself. Is 2010 going to be the same as every other year? There is so much opportunity out there - yes, especially in the markets - for you to grab hold of and change your life for the better, permanently.
One thing that you can do to take action immediately and 'pay it forward' is to invite your friends to get their very own copy of this life-changing newsletter. You know what it's done for you. You're already a step closer to achieving the results you deserve out of the markets, just by having us feeding you this premium market information every month. So, just imagine the difference it could make to your friend, your neighbour or your brother or sister. Tell them the GOLD you've discovered. Don't let them miss the opportunity to get involved. Forward this newsletter to them right now, and tell them to click here to sign up for their very own copy. Like you, they'll also receive a bunch of free trading goodies when they join our lovely trading community, including:
- their very own brand new trading plan template by email, straight away
- a free monthly email newsletter
- a free month of Trading Game forum access
- the chance to win a home study course
- Plus my 5-part e-course called 'The Sharemarket – Your Unfair Advantage'
More than ever, Chris Tate and I are on a quest. A quest to create as many happy, independent, wealthy and skilled share traders as possible - by providing life-changing resources. It's great to have you on board for the journey.
Happy Trading and we'll chat next month (if not before)!
