Ray Dalio - Always worth listening to.

I don't often do economics on this blog, there are plenty of other people covering the 'dismal science'. However just occasionally I veer slightly over to the dark-side. Inparticular,there are certain people, who to me have a great grip on the subject, and understand it deep enough for their comments to be relevant. One of those people is Ray Dalio. - Dalio is the founder of Bridgewater Associates, the worlds largest Hedge Fund, and according to the FT earlier this year, he had overtaken George Soros as the world’s most successful hedge fund manager. 

I will actually defer at this stage to another blog, the excellent 'Daniel's Trading'  who has covered a discussion involving Dalio at 'The Council on Foreign Relations sponsored'. The hour long discussion, “A Conversation with Ray Dalio”, is a great explanation of what is going on in the global economy today. The blog provides a succinct summation of Dalio's perspective of the global economy right now, along with his insights into investing.The full discussion can be seen below.

CNBC: In Battle for Dominance, Traders turn to Coaches

Thank you to Nia Williams for penning the following article published today: 'In Battle for Dominance, Traders Turn to Life Coaches'. Of course I would have preferred the writer to have used the word 'Performance Coaches'; there is a big difference between a 'Life Coach' and a 'Trader Performance Coach'. - Life coaches work with individuals on aspects of their every day life, and are largely seen as, rather unfairly, a little new age and almost other-worldly. On the other hand Trader Performance Coaches have their roots in understanding what is occurring within the 'Minds and Behaviour of Traders' from having 'walked-in-their-shoes' and worked with them extensively.

My experience as a Trader Performance Coach, draws on over 25 years in the financial markets, principally as a trader in the Foreign Exchange, Rates and Fixed Income markets for some of the world's leading investment banks. This is buttressed by having studied and qualified at one of the world's top 'Executive Coaching Schools' and worked as an 'Executive Coach' with traders, brokers and managers at many leading investment banks and brokerage firms. I have also provided education and consultancy work on many aspects of trader performance and psychology, this includes creating a portfolio manager development programmes and supporting documentation for two of the world's leading global hedge funds.

Further to the article, I would like to explain the work I do as a Trader Performance Coach (And Executive Coach): I offer specialist performance coaching, mentoring and development services to businesses and participants in the financial markets. I have worked with and helped traders, portfolio managers, fund and investment managers, brokers, sales people, risk managers, teams, desk heads, managers and leaders.

My experience and knowledge of the landscape, environment, culture and demands of the financial markets, together with abilities and skills learned and developed as a coach, combine powerfuly to help and assist individuals and teams in the financial markets in making real and lasting change, to develop and enhance potential, and to face up to the extraordinary challenges and demands required by the job.

Currently the demand for coaching services in the financial markets has never been higher as businesses and their staff face-up to an extremely challenging trading environment and ever-changing demands and challenges from a torrent of legislation, regulation, technology, competitive and even political threats.

So what it is I exactly do with my clients: In truth the demands are many and varied, I have included a list of some examples of the outcomes I look to achieve in helping my clients:

• Working with traders on issues of confidence and self-belief; with those who never had it, and with those who have lost it. 
•  Helping traders come to term with their trading fears and redefining these.
• Addressing self-defeating behaviours and habits.
• Developing a repeatable and powerful approach in relation to placing successful trades.
• Coping with the 'ego battles' within the trading room.
• Coming to terms with and adapting to changes and challenges in the markets.
• Dealing with perfectionism and the need to be right.
• Helping traders to progress through self-imposed ceilings in performance.
• Facilitating better self-awareness and understanding to help traders hold on to positions rather than grab profits or limit profit by not taking large enough risks.
• Working with traders to improve discipline and patience.
• Helping traders to raise their risk profile and more optimally manage their portfolio.
• Helping traders to develop a style and approach more commensurate with their personalty and strengths.
• Managing change from market-maker/flow-trader to a proprietary approach.
• Helping traders cope with the change in competency required when shifting markets, products or even styles and approaches.
• Working with traders to develop better money/risk management practices.
• Encouraging traders to become more active in working to improve their approach.
• Helping teams work better together and with other teams and groups.
• Working with traders to understand why they are under-performing and helping them to regain prior levels of performance.
• Working with managers who have faced difficulty making the leap from trading specialist to a role which requires them to both trade and manage.
• Helping managers make the adjustment to becoming a strategist.
• Improving end enhancing how one engages with clients, colleagues, managers and reports.
• Developing a better understanding of the needs of clients and customers to improve sales and broking services.

In order to help businesses and companies assess the value of my 'Trader Performance Coaching', where practical I offer a complimentary trial coaching service prior to committing to an investment. 

Further information, check out my website at www.bgtedge.com, or contact me direct on (+44)207 993 5362/ (+44)7753 446097 or email - sgoldstein@bgtedge.com.

Paths to a Trading Career

Trading offers opportunities which few other jobs and careers can match. For those able to achieve success they can attain financial independence at a relatively early stage in their life, with the possibility to earn very large or even huge amounts of money and set oneself up for a very comfortable lifestyle. – As a job/career, it is an extremely interesting and exciting choice; no two days are ever the same, and the challenge of competing and winning against the markets and other traders is both highly rewarding and extremely stimulating. Unlike many other careers, trading does not follow a linear path based on intellectual and academic ability or privilege. Trading is a skill which can be learned and developed; in many respects trading is closer to an art than a science. 

As owner of the Linked-in group 'Trader, Trading and Risk Psychology' and a 'Trader Performance and Development Coach' I receive countless Linked-in messages from people asking how they can get into trading. – I use to reply personally to a few of these, with a summary of the various options open to them. However, the number of Linked In messages I now receive asking this question together with time limitations from my work responsibilities, make this no longer possible. I have therefore now decided to put together the following piece which is my thoughts on this issue, and then throw this question open to Linked-in group members who can then pool their knowledge and experience and perhaps come up with various thoughts on this matter to help young, and perhaps even the not so young, to get started in trading.

The main issues are:

1) Finding paid employment as a trader: - It is increasingly difficult to get work as a graduate trader inside an investment bank in the wake of the Global Financial Crisis and with the subsequent constraints on bank capital, increased regulation and within a contracting market place. The days of getting a job on the floor of an open-outcry exchange are largely gone, however there are an increasing number of private proprietary trading firms which have and continue to move into this space (More about that below).

2) Trading location: - In order to learn trading I feel it is important to be around a trading environment with like-minded people from whom you learn from and with. The noise and buzz of a good trading environment provides useful information in itself, and stimulates the senses in a way that just staring at screens cannot achieve. A good location will offer many resources in terms of access to markets, monitors, pc’s, trading management systems and availability of news and research. - Though many people can and do trade from home, I would recommend being in an office with other traders if possible: Trading from home is a very lonely existence, and that in itself can be demotivating and can undermine one’s ability to learn and develop.

3) Obtaining adequate trading capital: - This has always been the dilemma of the self-starter. Until one has proved themselves, using one’s own capital is pretty much the main avenue open to most people. For many self-starters, and particularly for those without access to capital, this is usually extremely difficult. – Even for those with access to capital, producing an income in the early stages, and until the capital has increased sufficiently, is extremely challenging.

4) Training and development: - Good training is essential, there are various avenues to this such as classroom based learning plus practice on a simulator or with a small trading account, plus on the job training and practice along with a good mentor and teacher. There are of course many people who teach themselves, reading from books and publications, though I believe some human guidance is essential.

5) Understanding the nature of the job and the risks involved: - Many people come into trading seeing it as a job they can merely learn and apply, or as an extension of some casual trading, hobby or interest they have. However trading is so much more than that, it is all consuming and encompassing and in every sense akin to starting ones own business: This includes the danger and very real risk of losing a major part of or even all of ones capital, also a very sharp learning curve, and the high possibility one will suffer serious setbacks as one learns and develops. Furthermore, in the same way a new business owner rarely earns a decent income in the early years, the new trader will probably not earn a living until they can stand firmly on their own two feet, which may take some time. Finally, like the failure rate for new businesses, the failure rate for traders is unfortunately very high.

So what other options are open to get into trading?

The opportunity to work in a bank trading room as a way into trading is as mentioned growing increasingly limited as banks retrench from trading following the difficult market environment of the past few years.  There is still some hiring occurring, however it is mostly from higher education establishments through graduate intake programmes, and the numbers being hired are I believe considerably down on a few years ago. - Hedge funds tend not to employ inexperienced traders, however one or two of the larger funds, do have graduate training programmes, but once again I believe these are mostly open to graduates from the select establishments. 

In the absence of obtaining an internship or graduate place at an established trading institution the next best option and the option open to virtually anyone, is to try and get into training programme at one of the many and growing number of proprietary trading firms.  This is becoming increasingly popular as a means of providing opportunities to potential traders. There are usually two types of approaches here:

• Non ‘Fee-paying’ programmes at proprietary firms: These either take graduates and pay a small salary, or they may take in a number of recruits on a short sharp ‘boot-camp’ type approach, which they quickly whittle down to a very small group who they train and then place within their company, though often without a salary or a very small token salary but with the opportunity to earn a trading income.  This option is only open to relatively small numbers and only a few traders get selected, however often the training is limited and traders have to learn the method particular to that firm.

• ‘Fee-paying’ programmes and courses at proprietary firms: The firms provide a fee based training course and programmes and then ‘cherry-pick’ those that show the most potential for hire. Upon being hired they then earn a small salary or/and the opportunity to earn a trading income : Some people may have an issue with paying to learn and then only ‘possibly’ getting hired, however this seems to be very much 'the way' in this day and age of ‘training courses’ and unpaid ‘internships’. - This approach usually involves firms charging a fee to participate in their training courses and programmes. In return they provide education, teaching, mentoring and facilities to trade on simulation software, or may even provide you with a small trading account in which to trade real money. Some firms run diploma courses and these may be attached to a recognised or accredited education establishment.  As would be expected the education and training is far more in-depth, broader based and of a higher quality, and for those who do not wish to or cannot continue in trading or would like to move into a related area within finance or the financial market industry, it could be a useful addition to their curriculum vitae or résumé.

Some considerations to pursuing these options.

This involves a level of commitment and sacrifice by the trader that in many respects is their first trade: For example:-

• The ‘fee-based’ training programmes and courses, though not cheap are probably on a par with training courses in most professions and industries. – In most cases, the trading education at the ‘fee-based’ training courses is far superior or more in-depth than the non-fee-based approach and should provide a far more solid grounding.  
• Many of the training programmes can lead to opportunities to be hired by the proprietary firm providing the training; however the actual number hired may be quite small. Nonetheless the training can be a springboard to a career in trading elsewhere or in one of the many associated businesses or careers.
• Earning potential is of course very high in trading, but in the early days, weeks and even first couple of years learning the job, income may be low compared to alternative career choices. This can become troubling when one sees friends earning considerably more in another role, or if one has big financial commitments or dependents to support. – The need to make a decent amount of money quickly, is unrealistic and can be the death-knell of many a promising trading career.
• Intellectual ability does not necessarily equate to trading success. This is one of the biggest stumbling blocks for many people who expect, having achieved straight A’s and first class degrees throughout their education, to be able to achieve success in trading. One has to go in with an open mind, and be willing to learn from scratch if they want the big rewards.
• Persistence: If you really want to trade, and the first attempts do not work out, or your experiences at a proprietary firm or on a particular course are not positive, do not be too downhearted. Many a successful trader experienced similar starts to their careers, it is in many respects part of the learning curve. I know of one trader that had three attempts and many years trying before finally getting going.

Other options available:

• One can start and learn at home on one’s own or in a small proprietary trading office or arcade where you hire space and equipment. 
• If you know someone in trading, perhaps a family friend or friend of a friend, try and spend some-time with them, watching and learning, and seek their opinions on a career in trading. They may be able to give you or know someone who can give you a head start.
• Major trading hubs, such as London, New York, Chicago, Dubai,  Hong Kong, Singapore, Frankfurt, etc,  tend to offer far more possibilities than provincial and towns and cities. 
• There are some trader training companies and businesses which provide online or classroom training and/or support systems. However do be aware that there are also many dubious but well-presented and marketed companies out there posing as professional training organisations, promising you the world and getting you to part with your money for very little return.  – Do your homework and investigate all options thoroughly.

'Learn' and 'Future' images courtesy of FreeDigitalPhotos.net.

Lance Armstrong and my Cognitive Dissonance.

A sideways look at how correctly resolving your 'Cognitive Dissonance' matters for future success as a trader.

I was extremely disappointed last week when I heard that Lance Armstrong was not going to fight the recent charges brought against him by the US anti-doping agency. Armstrong has long been one of my personal heroes, a man who has fought and overcome a prolonged, and at times near futile, battle with cancer. Against all the odds not only did he survive, but then went on to become the greatest touring cyclist of all time, winning the ‘Tour De France’ an amazing seven times, and becoming a champion of the fight against cancer. – Allegations of using performance enhancing drugs have however dodged Armstrong throughout his career, something which was rife in his sport, yet something which he has always strenuously denied – that is until now. For someone who has spent his life fighting any adversity or opponent, be it death, cancer, the best cyclists in the world, the incredibly tough and demanding cycling events and terrain, and numerous allegations, is quite a statement, and would suggest to me - ‘hands-up, you got me’.

Personally this leaves me in a bit of a bind. Armstrong, as I mentioned, was one of my all-time sporting heroes. I bought into the whole Lance Armstrong thing, perhaps not in a huge way, but nonetheless he was someone I hugely admired and revered. I read his two autobiographical books; ‘It's not about the bike: my journey back to life’ and ‘Every second counts’, I have watched documentaries about the man, read countless articles and followed him on Twitter. For me Armstrong is someone who overcame the most incredible adversity to achieve the near impossible. And yet, there in ‘Black and White’, he is someone who can now be associated a word which I almost have trouble typing in relationto him - ‘Che-t’ (could not quite bring myself to type it). – This is a circle I can not quite square at the moment. – Two weeks ago I was at the Olympic Games for the finals of the men’s 4x100 metres. When the announcer read out the names of the various team members, each name was greeted by the crowd with a roar of appreciation, that was until the name Justin Gaitlin was announced, his name was followed by a mixture of boos and muffled silence. Gaitlin is man who is a ‘Cheat’, he has been found guilty of using performance enhancing drugs; is this the fate that awaits Armstrong?

How and why am I writing this on a blog about trading, and what lessons can this possibly have for traders?

Firstly, I want to explain what is happening for me ‘in my mind’ around this Lance Armstrong issue:- I am suffering from a clash in my belief system, my mind firmly believes one thing, and yet I have an opposing and contrary belief in my mind too.

• Belief 1) Lance Armstrong is one of the all-time great sporting heroes and a living legend, despite the fact that he has now almost certainly been found guilty of using performance enhancing drugs. 

• Belief 2) I despise cheating in sport, including the use of performance enhancing substances.

These two opposing beliefs occurring together in my mind are what are termed a ‘Cognitive Dissonance’. Our minds loathe possession of two opposing and contradictory beliefs running at the same time; it is a very uncomfortable and at times almost painful and unsettling experience. As a consequence we seek resolution of the cognitive dissonance. We achieve this by finding excuses, justifications or narratives which allow us to square the opposing beliefs, even if this means sometimes we have to fool ourselves. In terms of Armstrong, this may take shape of: - ‘I really admire Armstrong for his battle with cancer and for his incredible charity work he has done to help, the battle against cancer, and cancer sufferers’. I could possibly add that ‘Cycling is a sport where cheating through the use of performance enhancing drugs has been rife in the past, and there is a fine-line between what is acceptable and what is not, and perhaps Armstrong inadvertently crossed that line’. – Naïve? Maybe: - Yet that is how I could resolve my ‘cognitive dissonances’ with regard to Armstrong. – And thus Armstrong, in my mind, would still be the legend, who perhaps erred inadvertently in a situation where that is always that risk, as opposed to being someone who consciously cheated.

In trading, there are many occasions where trader’s experience ‘cognitive dissonance’, often the effects are minor and largely immaterial, however there are times where the consequences could have far-reaching affects which can seriously undermine trading performance. - Traders are particularly vulnerable to experiencing ‘cognitive dissonance’ when markets or trends turn, or there is a marked change in the trading environment, or when they adopt a contra-trend approach. At times such as these traders may hold on to their firm beliefs developed in a previous trend or as a trend matures, they then exasperate the situation by deepening their commitment to this belief and may alter their conduct as they try to justify this. This is when a trader can become vulnerable to behaviours such as seeking out people with similar views, favouring news articles, web-pages and blogs which they know support their arguments and beliefs, and avoiding or dismissing opinions and views that disagree with their beliefs; - a behaviour termed ‘confirmation bias’. The result of this is often to entrench their beliefs further and deepen their commitment and resolve. – However, this sort of behaviour, often in the face of overwhelmingly unfavourable price action, can lead to a serious depletion of one’s trading account. Eventually the trader will have to throw ‘the towel in’, however at this point they face two new but related threats:

1. It is extremely hard to abandon a deeply held belief; it takes time for the belief to dissipate and during this time the trader will be prone to placing further trades which reflect the belief. – This can lead to ‘death by a thousand cuts’.
2. A new ‘Cognitive Dissonance’ may form regarding the trader’s ability. This represents a future threat if not effectively dealt with and takes the following form:

• Belief 1) I am a good trader, who has a tried and tested method and approach which over the long-term will bring me success. (Self-belief is a fragile commodity in trading, and it is essential the trader retains their self-belief).
• Belief 2) I screwed up and lost money, - a significant amount of money, which has depleted my account. Perhaps I am not a good trader. (Self-belief is under threat).

As I previously mentioned, cognitive dissonance is uncomfortable for our minds, a kind of mental disharmony. In our heads we feel internal conflict; confused, muddled, anxious and angry, as a consequence we seek to resolve this ‘cognitive dissonance’. We could do this in any number of ways, perhaps seeking self-justification, excuses, or creating a favourable narrative.

Looking at the situation faced by the trader, the question of how they resolve their cognitive dissonance, may affect how they perform moving forward:

• Let’s assume the trader goes down the self-justification and excuses route as they attempt to smooth over the battering and bruising their ego suffered. – This may take the form of refusing to accept that they were wrong, instead claiming that the market was wrong, crazy and totally irrational. I am sure most traders have been at this stage at some time in their life, I know I certainly have. – This self-justification does the job of resolving the dissonance; however it leaves the trader vulnerable. They do not learn from their mistakes, and may continue to hold beliefs in the market which are incompatible with current trading conditions. 

• If the trader however attempts to resolve the dissonance by trying to be honest with themself, which is not always easy, and creating a favourable narrative, then they could emerge from their bruising actually stronger for it. This more constructive approach requires using a little introspection and reflection, setting aside one’s ego, and putting one's actions into perspective. In this case it may take the form of the trader admitting they were wrong, and accepting that trading is a game of risk and probability and there will be times where the market moves contra to one’s views. Further to this the trader could accept that mistakes were made, and that in future they will have to look at applying greater discipline and be willing to seek out and accept opposing views. So long as they stick to their trading approach, which has worked well in the past, and avoid the sort of mistakes recently made, then there is every reason to believe that they will continue to be a successful trader. Thus they will have resolved the dissonance and retained their self-belief, whilst accepting that they made errors, and that losses and being wrong are part of trading.

Where does this leave me with regard to my thoughts on Lance Armstrong? Well that is something for me to deal with? Of course I have the luxury of not having this affect me in any material way, and thus I can continue to believe in my earlier attempt at dissonance resolution. Judging by the numerous articles I have read since Armstrong announced he would not be fighting the claims, I do not think I am alone; he still seems to be held in great esteem, if just a little tarnished.

" 'Confused mind' image courtesy of FreeDigitalPhotos.net"

Food for thought on the great Euro sell-off

I have been slightly absent from comments lately. I do apologise. – Lazy Summer days, vacations, commitments, Olympics etc. – Normal service will hopefully soon be resumed. 

Today I would like to draw your attention to two stunningly similar charts. – The top one is the Bund Continuation Future (German 10 Year Government Bond) from 2006/07, the second one is the EURSEK FX cross over the past 18 months. – As you can see the similarity is striking. – I have been incredibly bearish EURSEK in recent weeks, however it has hit some key fibonacci projection targets, which were always like to cause a pause in the downtrend. – However I would suggest watching out over the next few weeks to see if this pause unfolds. – There are of course no guarantees that this will correct in a similar way to the Bund correction higher of the second half of 2007, which completely retraced the Q2 2007 drop, but I think this is worth noting.

By the way for those of you with a curiosity for Technical Analysis, the pattern in both cases is a rare inverted ‘Cup & Handle’ Pattern. Whenever I mention this pattern to people it is usually met with howls of laughter and accusation that I made it up. Well it does exist and is not made-up, here is a link to a detailed description of this pattern.   

Revisiting - Sell in May and go away – Except in year with an Election day!

As the SP500 knocks on the door of 1400, its hard to believe that it is only 2 months since the SP500 made a loss of 1266, that is a quite awesome 10%+ gain since that low as of last night's close. In light of this it is interesting to re-visit a post from the 20th June. - The post was entitled ' Sell in May and go away – Except in year with an Election day!' which can be seen here. At the time I alluded to a comment from Bank of America Merrill Lynch analyst Stephen Suttmeier, who pointed out that 'On average, the April-May period is the weakest two-month period for the Presidential election year and this is followed by the strongest three-month period in June-August. I also include a couple of charts from Barry Ritholz's Big Picture blog which can be seen below, and which highlighted how this has played out on average in the past.


The next chart is an update of the monthly performance for this year to date into last nights close. It certainly seems to be playing out true to form for an election year thus far, though this does not bode too well for the stock market next month.

Signs of deeper correction for EURUSD.

The last couple of weeks have seen some significant price volatility on the EURUSD just above the key 1.2000 psychological support, which have produced some technical signals suggesting the possibility of a deeper correction over the next few weeks at least. 

The weekly chart below highlight's the significant downtrend of the EURUSD since March of last year. However it is noteworthy that the decline during 2012 has taken the shape of a declining wedge formation, declining wedges are not the strongest of patterns, however a breakout above the upper line of a declining wedge can trigger corrective price action. The declining wedge suggests a loss of downside momentum, which is echoed in the bullish divergence in the momentum studies (MACD and RSI) below. 

Further evidence supporting a correction is the ‘Bullish Engulfing’ Candle from last week which was confirmed this week, with a rejection of the low and a higher close.  

I am not looking for a change in direction in the EURUSD, rather a pause in the downtrend for now with a correction possibly back to the 1.26/1.27 area where the upper downtrend channel line coincides with some Fibonacci retracements and projections, and some old lows from January and highs from June. The idea of a correction would be challenged if the EURUSD were to decline back through last week’s low at  1.2135.