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What books have I found have influenced me most Firstly, apologies to you, my readers, for how long it's taken to post this. I've been busy with life, and the blog has had to take a back seat for a week or so. I've meant to write this post for a while, but I keep getting sidetracked By current events or the like. So finally, I'm going to get down to it and write about some of the books that have most influenced my trading style. Whilst I list a few in my trading resources section. I wanted to go into more detail about what books have really influenced me and why. I'm going to start off with some of the most recent books I've read. The most recent books I have read which are the which are the Laws of Wealth and The Behavioural Investor by Daniel Crosby. I'm going to talk about them together as:
I've found both books fascinating, and there are many references to other greats of behavioural finance, something I've had experience in my professional (non-trading) career. One of the takeaways for me in both books is that trading is hard because we try and overcomplicate it. So for me, it has caused me to reduce the number of indicators and factors I use to analyse the market. So far, this has been yielding results, but we'll see what happens over time. The next book I'm going to mention is Mike Covel's Trend Following. To me, this is really the bible for a systematic trader. It really changed my approach to the markets and broadened my horizons. Before reading this, I was a haphazard trader who tried to trade off daily momentum. My downfall was I had no idea about risk management and position sizing. I just took big positions and hoped for the best. The most significant influence from this book was that systematic trading works, and that whole Efficient Market Hypothesis is complete bollocks. After reading this book, I stopped holding losers. I started setting stops and diversified into different markets (futures, FX etc.). The other key change for me was that I stopped listening to financial news and media for making my decisions. Ultimately I decided that fundamentals were irrelevant for my trading style. One of the things I like about Covel's book is that he provided real case example of people who have succeeded using trend following. I particularly would like to emulate John W Henry and Bill Dunn in my trading career. I'm a real convert to the model, as you can tell! All in all, I'd credit Mike Covel's book with starting me on the journey to profitability, I still had a lot to learn following this, but it was really the thing that changed my approach. The third major book for me was Trading in the Zone by Mark Douglas. This book was probably one of the best trading books I've ever read. It really walked me through the process of how to become a consistently profitable trader. I read this one after quite a few other ones, which allowed me to really appreciate the book and its message. This book was my primer to understanding the psychology that was driving my trading behaviour. It allowed me some introspective into my personality also. The real big thing that came from this book for me was how I manage my psychology and really outlined the importance of developing an approach that took me and my emotions outside of the decision-making loop. I still regularly do the quiz at the front of the book to track how I'm going. A further great pair of books that have influenced me are Steve Burn's New Trader, Rich Trader (both one and two). To me these books are really good at explaining the journey that traders take on their way to success. I found myself thinking throughout the books, hmm that's precisely what I did or felt. To me these books reinforced some of the painful lessons the markets taught me and allowed me to improve on my trading style and technique. I'd highly recommend these books for a new trader. The biggest message from this book for me is that if you trade 1% risk each trade is only one of the next 100, it makes the psychology so my easier to manage! The final big one for my is Alexander Elder's trading for a living. Dr Elder work is a really interesting perspective, he's a psychiatrist by background and provides some really valuable insights into trading. The thing that I really took away from the book is to use different time frames to analyse the market behaviours. This has improved my trading a lot as it helps filter out the noise and refine entry and exits. Other books which have I've found useful are: Jack Schwager's market wizards series. To me these highlights that being a successful trader can come from any number of methodologies and there is no magic formula for being successful (at least in terms of trading style). The magic formula is really how you approach the market and how you manage yourself. Some more excellent books are any of Steve Burn's trading explanation books. These are usually nice short books that explain specific ideas and concepts such as Moving Averages, Psychology, Risk Management etc. I've found these books excellent for re-enforcing messages I've read elsewhere. There are a lot of other books I have read, but these really are the summary. If you have any questions or want to know more, hit me up on insta or via email (or leave a comment below). Once again, thanks for reading. Happy trading. Nick the Trader Guy May 21 (just…). Blog Post What books have I found have influenced me most Firstly, apologies to you, my readers, for how long it's taken to post this. I've been busy with life, and the blog has had to take a back seat for a week or so. I've meant to write this post for a while, but I keep getting sidetracked By current events or the like. So finally, I'm going to get down to it and write about some of the books that have most influenced my trading style. Whilst I list a few in my trading resources section. I wanted to go into more detail about what books have really influenced me and why. I'm going to start off with some of the most recent books I've read. The most recent books I have read which are the which are the Laws of Wealth and The Behavioural Investor by Daniel Crosby. I'm going to talk about them together as:
I've found both books fascinating, and there are many references to other greats of behavioural finance, something I've had experience in my professional (non-trading) career. One of the takeaways for me in both books is that trading is hard because we try and overcomplicate it. So for me, it has caused me to reduce the number of indicators and factors I use to analyse the market. So far, this has been yielding results, but we'll see what happens over time. The next book I'm going to mention is Mike Covel's Trend Following. To me, this is really the bible for a systematic trader. It really changed my approach to the markets and broadened my horizons. Before reading this, I was a haphazard trader who tried to trade off daily momentum. My downfall was I had no idea about risk management and position sizing. I just took big positions and hoped for the best. The most significant influence from this book was that systematic trading works, and that whole Efficient Market Hypothesis is complete bollocks. After reading this book, I stopped holding losers. I started setting stops and diversified into different markets (futures, FX etc.). The other key change for me was that I stopped listening to financial news and media for making my decisions. Ultimately I decided that fundamentals were irrelevant for my trading style. One of the things I like about Covel's book is that he provided real case example of people who have succeeded using trend following. I particularly would like to emulate John W Henry and Bill Dunn in my trading career. I'm a real convert to the model, as you can tell! All in all, I'd credit Mike Covel's book with starting me on the journey to profitability, I still had a lot to learn following this, but it was really the thing that changed my approach. The third major book for me was Trading in the Zone by Mark Douglas. This book was probably one of the best trading books I've ever read. It really walked me through the process of how to become a consistently profitable trader. I read this one after quite a few other ones, which allowed me to really appreciate the book and its message. This book was my primer to understanding the psychology that was driving my trading behaviour. It allowed me some introspective into my personality also. The real big thing that came from this book for me was how I manage my psychology and really outlined the importance of developing an approach that took me and my emotions outside of the decision-making loop. I still regularly do the quiz at the front of the book to track how I'm going. A further great pair of books that have influenced me are Steve Burn's New Trader, Rich Trader (both one and two). To me these books are really good at explaining the journey that traders take on their way to success. I found myself thinking throughout the books, hmm that's precisely what I did or felt. To me these books reinforced some of the painful lessons the markets taught me and allowed me to improve on my trading style and technique. I'd highly recommend these books for a new trader. The biggest message from this book for me is that if you trade 1% risk each trade is only one of the next 100, it makes the psychology so my easier to manage! The final big one for my is Alexander Elder's trading for a living. Dr Elder work is a really interesting perspective, he's a psychiatrist by background and provides some really valuable insights into trading. The thing that I really took away from the book is to use different time frames to analyse the market behaviours. This has improved my trading a lot as it helps filter out the noise and refine entry and exits. Other books which have I've found useful are: Jack Schwager's market wizards series. To me these highlights that being a successful trader can come from any number of methodologies and there is no magic formula for being successful (at least in terms of trading style). The magic formula is really how you approach the market and how you manage yourself. Some more excellent books are any of Steve Burn's trading explanation books. These are usually nice short books that explain specific ideas and concepts such as Moving Averages, Psychology, Risk Management etc. I've found these books excellent for re-enforcing messages I've read elsewhere. There are a lot of other books I have read, but these really are the summary. If you have any questions or want to know more, hit me up on insta or via email (or leave a comment below). Once again, thanks for reading. Happy trading. Nick the Trader Guy May 21 (just…).
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This isn't quite the post I thought I was going to make, but I feel this is more interesting and probably useful. TLDR; I ignored my own advice but learnt from the experience.
So last week, I made a post about how the moves last week were just a pullback and nothing to be concerned about. Really just part of the standard procedure for the markets after the big run-ups we had. This week I have to admit that I didn’t completely listen to my own advice. By last Thursday, I became somewhat convinced that the markets were on their way to correction or worse. Even someone who has been trading for a while can be influenced by their emotions, despite being aware of them, guarding for them and generally trying to ignore them. In summary, managing emotions is bloody hard. And having a plan, knowing your emotions and trying to manage them isn’t always enough. So what did I do? Well, I can say that I didn’t panic sell any of my positions or even adjust my stops (which for most of my US positions was great, as they recovered on Friday – 14 May). So what did I do? I ended a couple of defensive option positions to hedge my positions. To some of you reading, your probably thinking, what’s wrong with that. Seems like a sensible precaution to an unstable market. And to some extents it was. But what was wrong with the trade:
At the end of it, I wasn’t too costly a mistake as I still ensured that I position sized correctly (always harder with options, on this occasion I used around 2/3 loss stop – which with options is not guaranteed) and didn’t over do it. Let me be clear, despite my risk management they were still bad trades. So what did I learn.
So what steps have I put in place to stop this from happening again?
So more on that second point. Recently I’ve been reading more on behavioural investing; specifically, I’m now reading Daniel Crosby’s first book. One point in so far that has really struck a chord with me is this. When you think of giving back open profits as a loss, it affects your mindset and emotions, which can and does impact your trading. What Daniel recommends is reframing this. Most of us who are on the journey to profitability have no problem taking a loss when our stop is hit when we first enter a trade. But it seems very difficult to take that same hit when we’ve had a big open profit. Crosby opines that this is essentially due to we’ve already counted those open profits, as profits and mentally treat them the same a realised profit. Therefore it’s much harder to take the loss. This is a mistake that I (and I’m sure many other traders) have made over the years. To deal with this, a trader can shift their view of open profits to not consider it a profit until it’s realised (however, I should say here don’t do the same with an open loss, just cut that sucker). Personally, this reframing has allowed me not to worry so much about the givebacks, as they were never mine in the first place. As long as my overall capital is increasing, I’m happy! Anyway, that’s enough for now. Thanks for reading, and I hope you’ve found this interesting. Cheers, Nick the Trader Guy May 21 Click here to This week's blog is a little bit different from the last couple of weeks posts. This week I'm going to focus a bit more on the current market. I talked with one of my trading buddies earlier in the day around the US market declines over the last couple of days (on the evening of 11/5/21 AEST the US markets are down around 4% overall). It's a bit of decline, and you can see the tone of many comments across the various groups and forums I follow. There is a bit of panic setting in. My buddy made the observation that everyone seems to be looking for a reason to panic and sell because it's the expectation that the next big crash is around the corner. I suspect he has a point. Anyway, I think this is a great observation and probably an insight into the psychology of the masses (I feel that I talk about psychology in every post, it must be getting a bit repetitive dear readers 😊). That being said, I think a pullback like this (at this point in time, there is nothing to suggest it's anything but a pullback) is an excellent opportunity to manage your positions and potentially open new ones. Keeping in mind the Oracle of Ohoma's wise words of "be greedy when others are fearful and fearful when others are greedy". To keep things simple, I'm going to focus on my home market of the ASX.  The ASX (I'm using the XJO – S&P-ASX200) has just broken its ATH on Monday at 7172 (although I'm told if you add in dividends, we're actually quite a bit higher).
Todays 1% move down, essentially sees the XJO just slightly above Monday Open and around the high point of Friday. Nothing to worry about here. In addition, the overall trend is still up and the Bollinger bands are starting to expand again after tightening last week. To be honest, the ASX actually looks like it has broken out from a range it was stuck in over most of April. All in all, I think these are pretty bullish markers currently. But I guess time will tell. So what am I doing with this market. You can see from my analysis that at least for XJO there is nothing much to be concerned about yet. I think today's (and likely tonights – 11 May 2021) will likely continue down, but unless we see a fall below the 50 day MA (currently around 6900) I think nothing to see here. Since last night, I have seen around a 2% pullback in my account. To be honest, I'm not overly worried about this; it's part of the game and to be expected as a trend follower. Even if the market continues to fall, I've got my stops set, so I'm not stressed. I know how much I'll lose, and I'm comfortable with that. I also trust the system that I have built and backtested. I think, to be honest, the motto of a trend follower should always be, expect the unexpected! Essentially trust your system, set your stops and let the system ride out the storm. If the decline continues, expect lots of stories about why it is happening. At the end of the day, this is just noise, often made up to drive readers/viewers/listeners etc. So, in summary, I don't think there is anything to be worried about just yet. But I'd suggest that you check your stops and be prepared for anything. Anyway, I hope you've found this helpful. Happy Trading. Nick the Trader Guy May 2021 This blog post may well be a bit of a shorter one, but essentially I want to talk about trader psychology and some of things that I have learnt across my journey. In particular would like to share these with you my readers to hopefully help you avoid some of the pitfalls of trading psychology.
I’m mainly focused on this at the moment as I truly believe that most markets currently are in a bubble (and I covered off why in my thoughts and rambling post yesterday – see it here). While the post yesterday was focused on crypto, I think by the same analysis it hard to argue against other more established markets being bubbles. So what do I mean by trader or trading psychology? Essentially what I mean here are emotions and how these influence trading. Really what I believe and what I’ve read, there are two powerful emotions that affect a trader, and these are:
Both of these are some of the most powerful emotions that influence human behaviour, so it stands to reason that they would influence a trader. I’m not going to go too much into psychology itself, as it is not an area I’m qualified in. If you want to read more, I highly recommend Dr Alexander Elders book – Trading for a Living and Dr Daniel Crosby’s The Behavioural Investor. For a more generic book on the matter, have a look at Daniel Kahneman’s Thinking Fast and Slow. Something else which I think is important for a trader to watch from a psychological aspect is:
I think ego is one of those things which can really lead to a trader blowing up their account, so definitely something to watch out for. So now I’ve got the context out of the way, on to my thoughts. Fear I’ve spoken about fear in a couple of posts, but I reckon one of the most common forms that fear affects traders is FOMO or fear of missing out. FOMO is dangerous as it has often caused me to chase a trade, usually too late in the cycle, which lends itself to a poor risk-reward ratio. Fear in the past has also caused me to sell a position early, which usually results in the trend resuming, just without me along for the ride. So really there are two types of fear, well at least as far as I’m concerned. Both need to be respected and managed if you want to continue on the trading journey. So how do I manage fear? Position sizing, position sizing and position sizing, with a helping of backtesting and suitable stop placement. Essentially, I manage my fear by never taking a big position (always less than 1% capital at risk initially), setting a stop and knowing that I a trade which is non-profitable is a possibility. These steps have served me well, and I don’t feel as though I’m really beholden to fear any longer (look, I admit I hate seeing a position go against me, but I understand that it’s part of the game). In Steve Burn’s words, each trade is just one of the next 100. It is actually a potent sentiment! Greed Greed is the second major psychological factor that gets traders into trouble, doubly so in a bubble. Personally, greed usually manifests itself as taking too big a position or visualising what I’m going to do with profits before I realise them. The first form is the more dangerous one to account; the second one leads to poor decisions and early exits (see fear above). How do I manage greed? I have a trading plan that I regularly review which guides me on when to enter a position, when to exit and how to work out my position size. The other aspect of greed is often brought about from watching other ‘traders’ get rich quick from penny pump and dumps and crypto. I’ve personally felt these feeling quite frequently lately, and I manage them by remembering what happened to me when I traded without proper risk and money management techniques. In short, I had lots of big winners, but also lots of small winners. Ego Personally, my Ego has often tripped me up (shout out a whirlpool compatriot who keeps me honest on this one). Why is Ego dangerous. Ego makes you trade in dangerous ways because you think you know better than your system, you think your more intelligent than other traders, and you think you’re a brilliant trader. That’s how I used to feel anyway. The market is great at humbling traders egos, but sometimes they creep back in. So how do I manage my ego. Once again, I follow my plan, remind myself of the lessons I have learnt and remember that I’m not a shit hot trader. I make mistakes, and if I want to be successful, I have to keep these to a minimum. Once again, thanks for reading and happy trading. Nick the Trader Guy May 2021 |
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