Monday 14 December 2015

A few words on Intuition from Albert Einstein



Many of the best traders and investment managers I coach are 'Masters of Intuition', or as I like to think of it, 'The Informed Guess'. With this in mind, I came across this excellent quote from someone universally perceived as a master of the 'Rational Mind!!' Albert Einstein. 

"The intuitive mind is a sacred gift and the rational mind is a faithful servant.We have created a society that honors the servant and has forgotten the gift."


Saturday 12 December 2015

Risk intelligence - How to live with uncertainty. - The Best Least Known Book in Behavioural Finance.


The Best Least Known Book in Behavioural Finance.

Risk Intelligence is a special kind of intelligence for dealing with risk and uncertainty. It doesn't correlate with IQ, and most psychologists failed to spot it because it is found in such a disparate, rag-tag group of people - American weather-forecasters, professional gamblers, and hedge-fund managers, for example.

Dylan Evans PhD, and former senior lecturer in Behavioural Science in the School of Medicine at University of Cork, has written about his work in researching risk intelligence in 'Risk Intelligence - How to Live with Uncertainty'. Evans asserts that people in positions which require high risk intelligence - doctors, financial regulators and bankers, for instance - seem unable to navigate what Evans calls the "darkened room", the domain of doubt and uncertainty.

Risk Intelligence is a traveller's guide to the twilight zone of probabilities and speculation. Evans shows us how risk intelligence is vital to making good decisions, from dealing with climate change to combating terrorism. He argues that we can all learn a lot from expert gamblers, not just about money, but about how to make decisions in all aspects of our lives. 


i read it once, and re-read it a second time. It is in my opinion, the best, yet least known book, on behavioural finance. 

Friday 11 December 2015

The 'Rogue Trader' Look

The Rogue Trader Look

My thanks to KPMG for hosting a superb event earlier this week at their London offices on 'The People Dimension in the Risk Equation.' where I was delighted to be one of the speakers. there were some excellent talks from all speakers involved.

I particularly liked an observation from James Maycock of KPMG, who was providing a round-up of recent rogue trading and market abuse cases. James rather amusingly pointed out that one way to easily spot a 'Rogue Trader' is their penchance for 'Light Blue 'V' neck sweaters. He accompanied this with a picture of Tom Hayes (Libor) and Kweku Adeboli (UBS). The irony, is in putting this together I just stumbled upon a picture of Nick Leeson, and look what he was wearing..... - You couldn't make it up.



'Why on earth would I employ a coach for my traders?'


 'Why on earth would I employ a coach for my traders?'

That was the retort from the head of trading of a fixed income unit of one of the world's leading investment banks. -He added, 'We have some of the best traders in the financial markets, these are the last guys in the world who need coaching'.

Imagine how would it sound if the head of major sports franchise took the same attitude to their top talent.' : 'Guys, we've spent millions bringing you in, the next game is on Sunday, just turn up and do your best'.

Sports franchises and clubs spend millions on coaching their top talent, getting the best out of them, physically, mentally, psychologically, strategically. The military does the same, their special forces fighters receive more training, coaching and development than any other part of the armed forces. In business, most senior executives in the world's leading corporations receive high powered executive coaching, the world's top executives coaches, such as Marshall Goldsmith can charge seven figure fees to work with CEO's, COO, and senior executives, and still they are queuing up to work with him. Meanwhile in the medical profession, medical practitioners spend thousands every year continually updating their professional capabilities. - So how come the 'Trading Profession, where individuals who daily trade notional sizes in the trillions of dollars, seem to think they alone do not need to develop, hone and improve their skills and capabilities? 

What can Trader Performance Coaching Do?

First it would be helpful to try and understand what professional trader coaching is and what it can do. - Coaching, at the level we are discussing is akin to a professional sports coach, where the coach facilitates the performers or team to be at their best and to achieve their best to meet the competitive challenge they face. Novak Djokovic does not employ a coach because he needs to learn how to play tennis, nor does he need to be pandered to about how be could be a better player. Rather he has coaching to help him refine his game, to keep himself sharp, to work on enhancing his edges, and to have someone who can challenge him, cajole him, and keep him motivated. A coach is someone who can help a person improve in all areas and aspects of their performance, working with them to help them become more self aware. Then helping them take that raised awareness and translate it into strong performance, and better outcomes. 

High quality performance coaching for traders works in a similar way, though it might be fairer to compare it to executive coaching. Executive Coaching is a facilitative one-to-one, mutually designed relationship between a professional coach and a key decision maker in an organization. The coaching is contracted for the benefit of the decision-maker who is accountable for highly complex decisions with have a deep impact on the performance of the firm.  

At Alpha R Cubed, we work with some of the financial market's top talent inside hedge funds, investment banks, and commodity trading firms. Our work aims to make traders and professional investors stronger as risk takers, helping them improve their decision-making around their work, helping them improve their resilience to stress and anxiety, and improving how they function in the highly uncertain, complex and extremely challenging world of financial markets. Our coaching aims to take people from 'good to great', and from 'great to outstanding'. The coaching helps people understand more about themselves, how their personality impacts their behaviour and what blind-spots they possess. We help them become more mindful and conscious of the blindnesses, which Daniel Kahneman stressed in his comment, 'We are all blind to our own blindnesses'. 

Trader Performance Coaching works with people to help them refine their own trading edges, develop their performance, improve their confidence, enhance their self-belief, improve how they cope with stress, and help better manage themselves and their emotional drivers which impact decision-making. We do not tell people how to trade, nor do we encourage them to change their approach, alter their style, nor adopt a different methodology. We work with people as they are, not how we think they should be. At the core of our work we are informed by the principals of 'behavioural finance. We also look to help them cultivate improved levels of risk intelligence a particular type of intelligence, distinct from intellectual and emotional intelligence, which people use for thinking about risk and uncertainty. Additionally the coaching looks to help  this we work with them to improve their emotional intelligence, develop greater resilience, and cultivate positive psychology in relation to how they engage with risk. - The coaching gives traders a chance to look at their process, practices, behaviours and attitudes, in a way they have never looked at them before. There are many areas of trading and investment performance that are ripe for refinement; analysis, risk management, money management, execution, trade management, portfolio management, position-taking, individual resilience, mindset, focus, attitude, beliefs, behavioural biases, ego management, team working and relationship management skills when working  with sales, quants, investors, the list could go on.  

At the root of coaching for traders, as in the case with many forms of coaching, it is about  working with the individual to be able to help them improve their decision-making in whatever challenges or environment they face. With traders, and investment professionals, it is ultimately about helping them to be able to make better decisions and choices in fast volatile and highly uncertain environments, where emotions can very easily throw people off track and effect their ability to make sound decisions at key moments.   

Examples of Trader Performance Coaching interventions:

It is not always easy to demonstrate the benefits or returns possible from coaching, often the results are not clearly quantifiable or easily determined. We have however attempted identified to capture some examples where we can demonstrate the returns. These examples are based on clients stating how much difference they think the coaching made. A previous article, The Extraordinary Returns from Investing in Coaching for Professional Traders and Portfolio Managers, highlights these examples. The table below summaries these. 

The exceptional returns on investment highlighted sometimes do appear ridiculously off the scale, however the client themselves expressed these as fair summations. Part of the reason for such exceptional returns, is the size of the notional values when people are trading in  financial markets, a small difference in actual performance, can translate into major gains in financial terms. One aspect not captured in these examples, is the difference the coaching made on non-measurable aspects. A client we have just finished working with, not included in these examples, has reported how he is seeing so many other improvements in all areas of his working (and non-working) life. This was reflected in his end of year review at his firm, a tier 2 investment bank with some 2000 employees in the trading business worldwide. Each employee has an end of year review whereby they are given a star rating, only a handful of employees receive a 5 star rating, even a 4 star rating is not readily given out. This year the individual was given a 5 star rating, as opposed to the 3 star rating he has always previously received. In addition, he is now being put into the firms management programme, something that was not even on the radar for him previously. It is worth pointing out that in terms of performance, he has just had his best ever trading year out of 15 years trading, more than doubling last year's performance. His story is not atypical by any means, we have received much feedback similar to this. 

Why on earth would I employ a coach for my traders?

In response to this statement made at the very beginning. I hope I have laid down a strong case why a firm should employ coaching for his traders. Whilst the case is strong alone based on performance alone, banks are under pressure to demonstrate steps they are taking to raise standards of professionalism within their trading businesses. In the UK, the Fair and Effective Markets Review (FEMR), demands this of banks. A more complete list of the many benefits of our work can be seen on our website at http://www.alpharcubed.com/coaching.

Steven Goldstein is a leading Performance Coach working with Traders, Banks and Hedge funds at AlphaRCubed Ltd: To know more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com

To view a brochure on their work click the link here

To subscribe to their monthly newsletter, email info@alpharcubed.com, and request brochure and or newsletter. 

Follow Steven on Twitter and Linkedin

Join the flourishing linkedin group Trader, Trading & Risk Psychology.


Sunday 6 December 2015

Fascinating Interview with Alan Collins of 3cAnalysis : One of the World's Leading Technical Analysts.


Alan Collins of 3cAnalysis is one of the world's leading exponents of Technical Analysis, his firm's daily, weekly and monthly forecasts of FX, Fixed Income, and Equity Indices grace the trading floors at many of the world's leading Hedge Funds and Investment Banks. Following the high level of interest and excellent response to the recent interview with Brady Dahl author of 'Momo Traders: Tips, Tricks, & Strategies from Ten Top Traders', we now have the pleasure to publish an interview with Alan Collins.

Background

3cAnalysis was started by ex-traders Alan Collins and Steve Lucas. As traders who themselves used technical analysis, they often found that much of the technical analysis research they received could have been presented in a way more in-tune with the behaviour, thinking and actions of traders. This stirred them to start producing their own high quality research presented in a way which they felt was more conducive to how traders use and interact with analysis. Their unique approach, with special attention to the needs of the end-user, has enabled them to build up a strong client base among many of the world's leading wholesale and institutional players.

The Interview:

SG: Alan can you tell us what lies of the root of your approach to Technical Analysis?

AC: Well Steve, the underlying methodology that we apply at 3cAnalysis is trend identification and then following that trend – constantly re-analyzing whether the trend is solid or threatened by price action. As you know there are trends that can be found within almost any time frame and so, for example, our daily technical analysis is built upon the foundations of hourly and 2 hourly charts.

SG: There are countless TA services out there, what do you feel it is about your service which so attracts it to high end clients?

AC: There are 3 main reasons why we have a broad base of Institutional clients. Firstly its consistency- we supply 14 definitive FX calls per day, 4 Fixed Income and 6 Equity Indices and never fail to deliver before the market open. Secondly our forecasts are monitored throughout the day and live updates made on profit targets and risk levels as price action develops to maximise profitability. And thirdly it’s because all our analysis is written by ex-traders who understand the practical dynamics of the market rather than merely the technical theory.

SG: How did you first get into Technical Analysis?

AC: I first came into the markets with Barclays back in the early 80’s as a trainee spot dealer. I was surrounded by some excellent traders who dealt using a combination of market flow and a ‘feel’ for price action and its consequences. Responsible for minor currencies that had limited flow and an inability to develop that same ‘feel’ I had to look elsewhere for a rationale behind my positioning. I stumbled upon an article about moving averages and so, given the lack of desk computers at the time, set about drawing moving averages on graph paper - plotting USDESP (USD v Spanish Peseta) and USDSCH (USD v Austrian Schilling) etc. (everything quoted was USD based back then) and looking for crossovers to identify trends I was able to create a role. 

SG: I understand that your approach is perhaps more subjective than many of your competitors, do you think that has helped in securing such a wide following?

AC: I think our clients respect that the analysis that goes on behind our simple and graphic presentation of our calls is based on more than just technical analysis theory. Currency pairs, different asset classes and individual indices almost have personalities. Personalities that change over time and in different situations and it’s important to understand how they’re acting in the moment. So, our approach to being a value adding tool is a very pragmatic one and one that morphs as circumstances demand.

SG: Some of the traders I coach are huge fans of Technical Analysis, whilst others are more cynical. How do you respond to those who dismiss it as a valid tool for trading?

AC:You’re right that some traders are cynical about it but I’ll be willing to bet that most of them will still have screens that show charts because even the most skeptical will realise that some levels can be self-fulfilling if enough people know of them. However the key to all trading is to benefit from market movements that are driven by people’s perception of value. In other words, market sentiment. Sometimes that can be felt but overall the best way to identify market perception is to view what the market is actually doing, rather than what economic theory says it should be doing- where it is buying, where it hesitates, what price it closes etc. – and the most graphic way to recognize that is via charts.

SG: Do you have any favourite set-ups which you'd be happy to share with readers.

I’d be delighted to share 3 of my favourites.
1. I’ve never lost sight of my first technical analysis love and that is moving averages. Currently I use a 13 day exponential average as a consistent indicator of short term trend.
2. Another great indicator of trend and, importantly, strength of trend is a Keltner channel and so no chart is complete without one although I do tweak the default settings to recognize the importance of Fibonacci numbers.
3. I use intraday RSI, Momentum and Stochastics readings but unusually apply moving averages to those readings as well as the spot price. It has interesting results. 
SG: I have seen lots of people do 'bad' technical analysis. How long do you think it takes to become proficient in TA.

AC: One of the downsides to the brilliant software that has developed over the years is that anyone who’s read a technical analysis book or taken an online course feels that they have qualified as a technician. Of course that’s not the case and while Michael Gladwin’s 10,000 hours may be a little extreme I do think it takes years applying the principles of technical analysis in a practical manner to declare yourself ‘qualified’.

SG: And what advice would you have to counter bad TA?

AC: How to counter bad TA is a difficult question. I think the first thing would be to avoid analysts who lack experience and that those with experience cover a number of disciplines across our industry to ensure that the analysis is ‘real’ world and therefore of use. Secondly I would advise reading all analysis with a wary eye, constantly questioning its basis and appraising its usefulness. Quality will shine through.

SG: Indeed becoming good takes time, becoming a expert even more so. Do you believe Technical Analysis to be an art or a science?

AC: The important thing to remember is that the markets are not static. Times and the ‘personalities’ of instruments change and so technical analysis cannot ever be a science. It’s an art and one that has to be constantly maintained to keep up excellence.

SG: The previous point about continually 'questioning your own analysis' strikes a chord with me. I know from my own time as a trader, both in my trading activities and my own technical analysis that I often got into trouble when I did not question my own analysis. It was a very behavioural thing, in effect I was trying to prove my premise. This got me into trouble too many times to recall. What advice, if any, would you recommend to traders and analysts to counter this behaviour?

AC: As you’ll be aware from your experiences in the past and in your current role as a coach, the market is made up of many different personality types and the ability to constantly question yourself is a trait of some of those types who often achieve success on a continual basis. For those for who it doesn’t come naturally to, I think it’s important to understand the benefits that will come from such reflection. Practice is the obvious answer but also looking for outside help and mentoring to adopt such a habit. 

SG: I guess one of the benefits of working in a team with other technical analysts, must the ability to have people who can question your work, and help develop more robust product and service?

AC: Certainly communication with other team members ensures that the style we present of our analysis and our methods of publication is kept consistent and remains focused on the core values that we believe will lead our analysis to benefit our clients.

SG: Do you feel being part of a team helps offer other advantages which analysis on your own doesn't offer.

AC: To be honest, preparing our work is done alone and without discussion. Where that shows a benefit is that is members of the team come to the same conclusions on US$, Sterling and such like then it reinforces our convictions. Divergence in opinions will lead to explanations to clients that extra caution is needed. That benefit can also be seen when correlation between interest rate futures and stock indices is arrived at by independent analysts.

SG: I recall in my early days as trader utilizing technical analysis, that I sometimes over-egged the pudding, trying to find certainty where no certainty can exist. Do you, or did you ever find yourself caught in that mindset?

AC: Yes without a doubt that does happen, although I think, after so many years, I managed to get the incidence quite low. I think that we all take pride in our work, no matter what environment we’re in, and when it comes to making calls, like a traders positions, a certain amount of ego is invested. That’s where discipline comes into things and a belief in the technical indicators that I’ve built up over the years into a analytical methodology.

SG: What advice would you offer to anyone caught up in that sort of behaviour?

AC: I think to find a belief in what you’re doing and that, despite the ups and downs, strict appliance of your methodology, tempered with market knowledge will lead to consistency. Of course, here again, like traders, some will benefit from outside help to rationalize their thought processes. Lose the ego is another way of putting it. The worst piece of advice I ever received as a trader was ‘these are not door numbers you’re dealing in!’. It’s actually better for a dispassionate analysis of the market to treat prices as no more important than door numbers.

SG: Most traders and most analysts have a favourite product or currency pair. Is this the case for you? And why would these be your favourites? For full disclosure, mine were the Bund Future, and Spot Aussie. On the other hand I loathed Cable (GBP v USD) and the Loonie (USD v CAD).

AC: Strangely, I have an affection for the Bund. I came to Fixed Income analysis late – most of my career is FX based – but the definitive HLOC is wonderful for pure technical analysis, the market can trend strongly and I have developed a ‘feel’ for when the technicals are likely to be BS. Cable though I enjoy but oddly I find EURGBP much tougher.

SG: How ironic, whilst I hated Cable I got on really well with EURGBP. - Following on from that. Every trader and every analyst has a favourite trade or call, which usually they can dine out on for quite a few years. Do you have any that you could share, and what was the set-ups behind these?

AC: My current favourite is the USDTRY which was a longer dated call for our Trend Table and a long call was initiated on a move above the 21 week moving average, closing basis, in July 2014 (3cAnalysis 23rd June update on this can be seen below). Confirmation and increased conviction was provided 6 weeks later when prices moved to, then through, the upper band of a positively trend Keltner channel.-That trend then rose steadily through to a peak in September this year with gains, at the extreme, of 94 big figures (44%). Importantly profit taking setbacks throughout that rise were restricted by Marabuzo lines, notably in Feb, Mar, June, July and August. Only when the latest, created at the end of August, at 2.9650 was breached did the positive trend come under threat. (Price action since has yet to confirm a complete change at the time of writing). 

SG: I notice that you talk about trends, momentum, sentiment, moving averages etc. Does this suggest that you are not a big fan of patterns or formations?

AC: That’s totally true. I, like most technicians currently, will always use Candlestick charts and these are extremely useful. But its really important not to view them as stand alone signals. They have to be viewed in the context of the trend, their relationship to moving averages and relative to what indicators like RSI and momentum are saying.

SG: Are there any patterns or formations which you particularly like or are wary of?

AC: Firstly I am a firm disbeliever in Elliot waves. In my view it is weak analysis, too often subject to hindsight adjustments and was only ever intended by its architect as applicable to Stock markets – which is where it should be solely used in my opinion.

SG: Interesting. I know a great many people who passionately believe in Elliot Wave as a tool to predict the market. For my own part, I agree, I found it better for understanding whats happened in the past rather than as a reliable tool for making probability based risk assessments. When I did dabble in the past with it. I found its rigidity to restrictive and often ended up trying to find narratives to support its conclusions. This in itself led me dangerously into 'confirmation bias'. How do you feel about patterns produced by standard western technical analysis?

AC: I’m also wary of triangles, wedges etc. as I find they always look good in retrospect but rarely contribute to accurate forecasts, especially on a short term basis. There are other analysts who would, though, strongly disagree and will pepper their charts with such formations.

SG: Well I guess that is where we diverge, I was a big fan of these, though context was vital for me. Context included trend, my interpretation of how the market was set-up (how short or long it may be), market fundamentals, event risk, risk-reward, and my own intuitive senses.

AC: We also like to bring our fuller wider understanding of market drivers into play. Pure technical analysis states that one is supposed to exclude these aspects, but practical reality is of course very different, you cannot do t/a in a vacuum.

SG: A good example of this was the situation earlier this year when the FX markets were rocked by the Swiss-Franc Peg being removed, and the resultant unprecedented price action. How did that affect your calls and analysis in the immediate aftermath?

AC: Of course it made a huge difference and it would be foolish to pretend otherwise. Technical analysis is the reading of market sentiment and for that reading to be accurate the data has to be pure and true, the markets deep and an equal number of potential buyers and sellers. When a Central Bank manipulates the market in such a fashion, all normal technical indicators have to be placed on hold. Of course when you’re watching a 13 day moving average, intervention is soon filtered through, momentum based on 21 week readings is obviously going to take longer. But playing in the background for weeks afterward was the concern that the SNB could step in again in another way.

SG: I notice you are not a huge user of volume as an indicator. I guess the problem for FX has always been its ‘over the counter’ nature, which restricts decent or real-time information on volume. Are there any occasions or products however where you do consider volume?

AC: Not for FX for the reason you mention. It does have a part to play in the Fixed Income markets and Equity indices. In both, but especially the latter, increased volume will increase the confidence that can be placed in the break of a Moving Average, a move to new highs or the formation of an important Candle pattern and vice versa of course.

SG: The FX trading business has faced many challenges in recent years, many of them well documented. One of the biggest consequences is I feel we have a far more level playing field, however at the same time there are periods of low liquidity and large multi standard-deviation moves. Have any of these affected how view the markets or present your findings.

AC: Certainly FX trading has altered in many ways over the years and will continue to change its nature. I don’t feel that these changes have had an impact on the actual technical tools that I use but what it has certainly altered is how we present our views and trade ideas to our clients. In the past trend were more entrenched and maintaining a positive or negative stance was easier, riding our dips and rallies, to maintain the overall view.-While that is still valid in the longer-term, the shorter term you analysis the more volatile price action currently is. To cope with this we have altered our style to a degree to ensure the maximum benefit for clients. So whereas 2 years ago we would be Bullish say in EURUSD from whatever the price was from 7am London time with a definitive set of targets and a risk level, we would now structure the forecast to be Bullish from the 7am price but also buying a Setback/Dip to another nominated but definitive price. This helps to allow for volatility within an overall short term trend.

SG: 3cAnalysis has gone from strength to strength in recent years, and is used by many top hedge fund and investment banks. Where next for you as a company?

AC: Well, our primary aim to ensure that our consistency continues and the level of service we provide our clients with remains excellent. Naturally we respond to client feedback and have changed the products we offer when appropriate: - We added Trend Table for a longer term view on an extra 13 currency pairs, 8 Equity products and 4 Commodities. 30 Year US Bond coverage has been added recently, following an earlier introduction of Gilts. And we now have a Commentary page where bigger picture technical analysis is provided, education pieces and guest articles by respected names from other, related, disciplines.We aim to continue such changes, are looking into beginning a Commodity product and also expanding our Technical Analysis training program.

SG: If you had any advice for traders who use ‘Technical analyses, other than to subscribe to your service, what that would be?

AC: Whether they subscribe to our service or not I think the input of outside independent research is vitally important. Such forecasts and ideas have no vested interest and can be excellent in complimenting / tempering existing views and will, in the right hands, add to profitability. When selecting such outside research it is vital to look for consistency, accuracy and market experience. A combination harder to find than you may think.

SG: Not everyone is a fan of technical analysis, whilst other people seem to be completely dismissive of it. What would you say to persuade those who don’t use or believe in Technical Analysis to consider it or to open their mind to it?

AC: I think many of the non-believers feel it is bland research offered by geeks with charts covered with lines and shapes with the ideas either buried within swathes of text or without any firm conclusions. Such ‘analysis’ is ripe and to really understand the benefits then it’s important to assess analysis that is, as I said above, Consistent, Accurate and provided by analysts that have a broader market experience than merely as analysts. In the final result charts definitely show what the market is doing rather than what many consider it should be doing. Reading that properly and then turning it into a probability of where the market is next heading is an art rather than a science. But even if you despair of finding a Leonard da Vinci who’ll help you make money, the levels that a pragmatic analyst can provide will place you ahead of the curve.

SG: Alan thank you for taking the time to let me interview and discuss your service. As a thank you I'd like to give you a chance to provide a call to action for any prospective clients interested in using your service. 

3cAnalysis currently only offer their excellent service to wholesale and institutional. If readers wish to know more about their service, they offer a free trial to potential new clients . Their website is www.3canalysis.com
Steven Goldstein is a leading Performance Coach working with Traders, Banks and Hedge funds at AlphaRCubed Ltd: To know more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com

To view a brochure on their work click the link here

To subscribe to their monthly newsletter, email info@alpharcubed.com, and request brochure and or newsletter. 

Follow Steven on Twitter and Linkedin

Join the flourishing linkedin group Trader, Trading & Risk Psychology.

Monday 30 November 2015

Inspirational 'Self-Belief' Poem: The Man Who Thinks He Can.


In the constant battle for success in trading, there are many qualities needed to overcome the many hurdles put up by both the market, and more particularly by our-selves. In this constant battle, one of the greatest allies one can have is 'Self belief'. - Not the sort of 'Self-belief', born of arrogance or desperation, which obscures our-self from reality, and leads to over-confidence or self-delusion. Rather its a self-belief which keeps us positive, striving towards goals, and avoiding the many pitfalls and traps set out for us by the markets, and by our own self-doubts. Without self-belief, the chance are you are already beaten.

The following is a wonderful short poem, written some 100 years ago, which nicely captures the value of 'Self Belief': 

The Man Who Thinks He Can.
By Walter D.Wintle.  
 
If you think you are beaten, you are
If you think you dare not, you don't,
If you like to win, but you think you can't
It is almost certain you won't.

If you think you'll lose, you're lost
For out of the world we find,
Success begins with a fellow's will
It's all in the state of mind.

If you think you are outclassed, you are
You've got to think high to rise,
You've got to be sure of yourself before
You can ever win a prize.

Life's battles don't always go
To the stronger or faster man,
But soon or late the man who wins
Is the man WHO THINKS HE CAN!

Sunday 29 November 2015

Momo Traders: Tips, Tricks, & Strategies from Ten Top Traders. - Interview with Author Brady Dahl.


'Momo Traders: Tips, Tricks, & Strategies from Ten Top Traders', is an exceptional new book from Writer and Trader Brady Dahl. It is to the private, internet based traders of today, what the 'Market Wizards' books were to he traders of the late 80s and 90s. In the following article, Momo Traders writer, Brady Dahl, has agreed himself to be interviewed about the book, and the insights he learned about himself as a trader, from writing the book. 

Book Review : Momo Traders
Most traders have read at least one of the Market Wizards books. Momo Traders follows in the path set by Market Wizards, however whereas Market Wizards largely features traders who made their fortune in the environment of the 80s and 90s, Momo traders is far more relevant to the modern day trader, working from home using the Internet. ‘Momo Traders’ is a book that most of the private traders working from home, or from one of the many private trading rooms which have sprung up, can relate to, irrespective of what markets they trade. .

‘Momo Traders’ is written by Brady Dahl in collaboration with Nathan Michaud of Investors Underground. Dahl, is a writer who trades, he has previously worked as a screenwriter on the hit US crime tv drama, ‘Sons of Anarchy’. As a writer, Dahl is able to keep the reader interested and captivated, and it is clear that his interviews have an engaging conversational style, which comes out throughout the book. Dahl is able to make the traders feel at ease through the interviews, thus facilitating thought provoking, insightful and at times compelling interviews. 
The unique aspect of this book is that most the traders featured have achieved great success from very humble beginnings. These guys are not the ‘masters of the universe’ of the 80s and 90s. Rather they are regular guys, who made mistakes, blew up, lost heavily, and yet persisted. These traders often had periods where they rode their luck too, but eventually they found a way, a method, an approach and a niche, which worked for them, and which eventually became the route for their own particular successes.

Like the traders it interviews, this book has the potential to be a future trading classic. Perhaps I feel there may have been one or two minor aspects which could have added some extra dimensions: Perhaps the inclusion of one or two traders of other markets; maybe FX, commodities, or energy. Saying that the theory behind trading is the same, whether you trade APPL, USDCAD, or West Texas Intermediate, it is the human aspect that matters to success, and this is what the book captures excellently. Perhaps, these extra elements could be included in a sequel. 

The Interview by Steven Goldstein

Brady Dahl, the writer of Momo Traders, has very kindly agreed to have the tables turned on him today by being interviewed himself. I hope readers of 'The Being of Trading' blog, enjoy his insightful and revealing interview:

SG: Brady. My first question: I am based in London, the word ‘Momo’ is not a word or term I am familiar with here in the UK. My assumption is that this refers to ‘momentum traders’. However, could you clarify for me and other non-US readers, exactly what the term means, and why this was used as the title for the book?

BD: You got it right. "Momo" is short for momentum. We used it in the title because the traders interviewed in the book constantly seek out momentum in the market—stocks about to have momentum, stocks currently with momentum, or stocks where the momentum has recently died. They know how to profit from "momo" in a myriad of ways.
SG: What motivated and inspired you to write Momo Traders?

BD: I always wished I could sit next to great traders while they worked and ask them dozens of questions. I wanted to know more about guys who traded like me, day traders working for themselves at home and earning a living. I wanted to know what made them tick, what they actually did all day, what tools they used, what action they were looking for, what strategies they found most profitable—basically any insight I could get.

SG: What was the aim or goal of writing Momo Traders?

BD: Well, co-creator Nathan Michaud and I had both read plenty of books on trading, but they all seemed to feature famous traders or hedge fund managers—guys who were trading millions and even billions of dollars, often using other people's money. It wasn't relatable to me and the guys I knew who started trading with a few thousand dollars of our own money and tried to eek out a living day after day. So the goal of the book was to showcase successful day traders and show the readers 10 varied yet completely attainable paths to profits. It's not easy, and the journey is different for everyone, but it is possible.

SG: As a writer of one of the most successful crime dramas of recent years, writing Momo Traders seems like a big departure for you. What challenges did you face in writing about traders?

BD: Well in this case, I couldn't simply make it up! Writing for film or television is an exercise in creativity, whereas writing Momo Traders was an exercise in editing. Believe it or not some of these interviews started out as over 50 pages of transcribed conversation. Without months of whittling and choosing what was most important, the book would have been 500 pages long.

SG: In terms of the interviews, attitudes and perspectives expressed in this book, what stands out for you in terms of recurring themes?

BD: Independence and freedom. These traders loathe the thought of working for somebody else and have spent the better part of their lives avoiding that. Of course they love what they do—trading—but they love the freedom it brings them even more. They have no boss, so whether they want to take the afternoon off or the next three months, they can—and do. It's not the money that brings them happiness but rather the time and independence.

SG: Whilst I loved all the interviews in the book, both ‘The Scanner’ and ‘The Rock’ stand out for me. Do you have a favourite interview or sections of interviews which really stood out for you?

BD: As a writer, 'The Storyteller' stood out most for me, because of the way Gregg Sciabica and I discussed taking into account all the variables surrounding a stock and creating the 'story' of the trade. But as a trader, I gained insight from each and every trader, even the ones with whom I didn't think I had as much in common. Some of the most eye-opening moments for me came from traders who have strategies completely different than mine.

SG: Was there anything that surprised you during the interviews?

BD: The most surprising element was just how open, honest, and forthcoming these traders were. They didn't shy away from answering any questions and never hesitated to discuss specific trading setups or techniques. When I asked them to walk through actual trades or most profitable setups, they did. And whenever I pushed for further explanation, they gave it.

SG: Can you tell the readers something about yourself as a trader?

BD: I've been trading since '08 with both good years and bad. Although I came to the market as an 'investor,' I soon saw people posting daily gains online of 50%, 100%, and even more trading penny stocks. I was drawn to the quick buck. Over the years I grew out of penny stocks and began trading any stock with a ticker. Currently I would say I primarily short sell momentum stocks that get over-hyped and overbought, but I—just like our readers—am working on all aspects of my game. I don't think the process of learning every stops, especially in trading

SG: As a coach, a big part of my work is to get people to self-reflect; to become more conscious of their inner-selves and how this impacts their trading and their engagement with risk and uncertainty. I am sure this project provided plenty of opportunity for you to embark on self-reflection, what did you find out about yourself as a person and a trader?

BD: Great question. Two of the biggest things that stood out to me while working on this book were my stubbornness and tendency to gamble. Both have actually served me quite well in other aspects of my life but are a detriment to my trading. I gambled when I moved to Hollywood with no connections and little money to try to become a screenwriter. And my stubbornness and determination not to fail helped me succeed in that endeavour. But great traders aren't stubborn. They don't need to be proven right in a trade. Instead, they cut losers quickly and move on to the next setup. Great traders also don't gamble. They deal in probabilities and let the math work. You have to work hard not to get in the way of your own success.

SG: You’ve just used a wonderful phrase, which I think every trader should heed: ‘You have to work hard not to get in the way of your own success.’ What new aspects of trading do you believe you have learned from the interviews which will help you achieve this?

BD: Reacting versus predicting. Most people, myself included, think successful traders are predicting price action. We think these geniuses must somehow have a gut feeling or intuition for where a stock's price is headed. Surely he knew XYZ was going to go up two dollars so he longed it right before it did. But what I've learned is that's not how it works at all. Most of these great traders—even if they don't know it themselves—are not predicting future action but rather reacting to current action. They see certain variables setting up—whether that's a news release, stock promotion, price action, volume, or any other stimuli—and then they simply react! They buy or sell based on similar setups they've seen in the past. Then, taking it a step further, if the stock doesn't do what they expected it to do, they react to current action again, by either decreasing size or stopping the trade altogether. That realization may sound simple to some, but it signifies to me that trading can be learned and that you don't have to be a prophetic genius.

SG: So what, if anything, will you do differently in your trading compared to what you were doing before?

BD: Have patience. I think it was Gregg who said we're not paid to sit at the computer and push buttons all day. We're paid to wait for great setups to come along and then capitalize on them to the fullest. Personally I forget that sometimes and begin to overtrade, but overtrading leads to taking losses on less than ideal setups.

SG: One of the things that jumps out to me from these interviews is that the interviewees seem to have no hesitation sharing their inner most thoughts and feelings. As least that is how it seems, would that be a fair assessment?

BD: Yeah, like I said, their honesty surprised me. But when I thought about it after, it made sense because these people are confident traders. They're confident in their current strategies and confident in their ability to continually learn and evolve with the market. None of them are worried about someone learning their 'secrets,’ so they’re willing to share.

SG: Where I feel Momo Traders really differs from similar books of this genre, is the focus on ordinary guys starting with virtually nothing, sitting behind computer screens and getting their information via twitter, social media and internet based services. What was it about these guys that attracted you to interview them and cover their work?

BD: Exactly that. The fact that they started with very little money, work mainly alone, all day, at home, and for themselves, just like me. They all grew into wildly successful traders doing things that are most likely within my realm of ability, so I set out to absorb as much of their knowledge as they would allow.

SG: I have spent 30 years in and around bank trading rooms. Yet this business never fails to surprise me. What has reallysurprised me is the extraordinary results achieved from such minimal initial resources. What qualities do you feel were a major aspect of the success of these particular traders?

BD: Mainly their determination. Most of these traders blew up at least one, if not several, accounts in the beginning of their careers. And that's when 90% of the other traders quit and never came back to the market. There's a saying in Hollywood that talented writers and actors move home every day, basically meaning the people who "make it" in the business are simply the ones that stick around long enough to outlast the others. And I believe it works similarly for trading. The guys who get back up every time they're knocked down, who don't let losses take over their emotions, who stick with it day after grueling day, are the ones who make it.

SG: My coaching work with traders, typically inside banks and hedge funds, has enabled me to identify many of the same themes and traits which seem present in the traders featured in Momo Traders. What would you describe are the major personal traits which were common amongst these traders which were key factors behind their success?

BD: Besides the determination we already discussed, I'd say all these traders are very disciplined. Even the ones that seem a bit wilder are still disciplined in their own way, otherwise they wouldn't have lasted in the trading business this long. Their discipline allows them to do two very important things, without hesitation—1) Enter the trades that present themselves, and 2) Stop the trades when they're not working. Sounds easy enough, right? But most traders fail because they don't do one or both of those things well enough.

SG. That’s a fascinating response. Nearly all traders tell me they’d like to be more disciplined, however what disciplined means for one guy, means something totally different for the next.

SG: In my many years as trader I could not imagine working from home on my own. It did try it for a short time, but the loneliness nearly killed me. It must take acertain type to be able to work from home on your own?

BD: Absolutely. Just ask my wife. She'll tell you it takes a deranged lunatic to work from home all by yourself every day. And sometimes I agree with her! But in all seriousness, I do think it takes a certain type or person. I love the freedom it allows me, but again, it comes back to discipline. I answer to nobody but myself, which is a great luxury, but if you're the type of person who would rather sleep in a little later or watch Youtube videos all day instead of work, it may not be the best thing for you—you may need a boss to push you. But for me—It's Sunday at 11pm right now and I've been in my office working for the last 7 hours. Sometimes I wish the Boss-Me would give the Work-Me a break.

SG: What is it about your book which you think will most attract readers to purchase Momo Traders?

BD: The honesty from ten great traders. Where else can you learn from successful traders who speak freely and openly about their finances, how much money they keep in accounts, and how much money they put to work and in what increments in specific trades? Also, many traders have reached out after reading the book and thanked us for putting it together, saying all kinds of nice things and talking about how it has helped their trading, which has been very rewarding for us to hear.

SG Aside from telling aspiring traders to buy your book, what one piece of advice would you give to traders setting about on embarking on a career in trading?

BD: It's one thing, but I'll say it three times: Cut your losses, cut your losses, cut your losses. Don't ever let a loss run thinking that it will 'come back eventually,' because it usually doesn't. And even if it does, how long did it take, why did you need to go for that ride, and what toll did it take on your mental health? You can always re-buy or re-sell if the trade sets up again. There is absolutely no good reason to hang onto a loser, yet it's probably the number one killer of beginning traders. Learn to love the loss. Cut it quick, keep it small, and move on. That one small discipline will allow you to maintain your account value for as long as possible while you try your hand at trading. Oh, and cut your losses. Did I say that already?

Brady thank you for the interview.

I highly recommend investing in a copy of 'Momo Traders'. It could be one of the best investments you ever make. In addition, it is worth noting that some of the profits from the book will be going to good causes through the charity ‘Traders4ACause’. To buy directly and/or to purchase the e-book, go to https://www.momotraders.com/ or alternatively the book can be purchased on Amazon and other online book retailers.  

Steven Goldstein is a leading Performance Coach working with Traders, Banks and Hedge funds at AlphaRCubed Ltd: To know more about Alpha R Cubed, visit their website www.alpharcubed.com or email Steven at steven.goldstein@alpharcubed.com

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