AlphaMind Podcast Episode - Jared Tendler: The Mental Game of Trading.

 

The mental aspect of trading is probably the hardest and most challenging part of trading to manage and overcome. You can be strong technically, and may possess a great process or system, but it is the mental side which often causes the most frustration for traders. This is not dissimilar to what happens in sport and gaming.

Our this episode of the AlphaMind Podcast we featured an interview with Jared Tendler. Jared is the author of a new book, “The Mental Game of Trading”.

Jared talks about the blindspots people have in seeing the mental challenges and problems they face. He believes they often compound this error by trying to fix their costly and recurring trading habits by trying to improve their technical skills, when the real root of these mistakes reside within each person at a psychological level.

Jared has worked as a mental game coach with golfers and poker players and has written extensively about the mental game of poker.

Issues Jared talks about in this episode include:

- Choking, which is common to all areas of high performance.

- The importance of getting 'In The Zone'.

- How Jared’s approach, as featured in his book, seeks to bridge the gap from knowledge of psychological issues to helping people make transformations.

- Many other areas of the mental game which will fascinating to people involved in and curious about trading and investment roles.

If you enjoy this episode, do feel free to share this with colleagues and to review and rate the episode on which ever medium you listened on. 

Links to Jared and his new book:
Webpage: https://jaredtendler.com/
Twitter: https://twitter.com/jaredtendler
Linkedin: https://www.linkedin.com/in/jaredtendler/
Book: The Mental Game of Trading: A System for Solving Problems with Greed, Fear, Anger, Confidence, and Discipline

Listen Here

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SP500 runaway train, EURUSD faces Sov Debt worries, Trader Psychology and the best Technical Analyst,

The SP500 continues to surge it has the full force of the Fed, and the market trend behind it right now. I don't much care at this moment whether it is overvalued or undervalued, whether its behaviour is rationale or irrational, right now it is a runaway train: If you are not already on the train, then it ain't gonna be easy to catch, however I'd rather be on it than standing in the way right now.

The big event today of course is Non-Farm payrolls, this either has the ability to accelerate the speed of that train, or to slow it down slightly, but I doubt on its own its gonna stop it. Also I am keeping half an eye on the European Sovereign Debt issue, this is bubbling under again, particularly in relation to Ireland, much like it was in April this year. Already this morning the EUR is well off yesterday's highs, I can not rule out the possibility that the EURUSD slips back to last week's lows, or even lower. It may even be possible that the high for this move is in for now with regard to the EURUSD at least. The chart below shows the EURUSD with 2 day candles, note how the RSI and MACD are showing very strong Bearish Divergence, in a similar way to the early 2008 peak and late 2009 peaks. Finally I have re-posted the EURUSD chart I produced a couple of weeks ago (See lower chart), back then I hinted that price action suggested an extended consolidation is possible, this seems to fit in with a failure in the Euro in the low to mid-1.4000s and further consolidation in the the upper 1.3000s to low 1.4000s..  

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Some more on trader psychology: I was recently writing an article for someone on the characteristics and traits of successful traders. One of the major traits all successful traders have is their ability to think independently and when necessary stand back from the crowd. - I used an example from my younger trading days working at an Investment Bank in the City to emphasise this.

It occurred at the start of the 1994 bond bear market. - Bonds had soared over the previous 12 months, I was part of a trading group of 12 traders. Early in that year all the talk had been about further Federal Reserve rate cuts. - Bolstered by a strong trend, and a favourable economic scenario, all the traders loaded up on the same position (long of bonds) to take advantage of the suspected rate cut. - I had a slightly different view, I was somewhat anxious about the state of the market; furthermore our ‘Technical Analyst’ was  recommending a short position; her view was that the market was dangerously overbought and ripe for a (severe) correction,and possibly a full trend change. Most the traders were, like me, fairly young and relatively new to the game, most of them had jumped on this trade largely because the two most senior traders were on the trade. - Close to the end of pre-meeting day, I had actually wanted to go the other way, but found myself compromised, however I cut my long position and went flat.

As expected the Fed cut rates by 50 basis point that night, however after a momentary jump in bonds, the market turned around and started dropping and just continued to drop, by the end of the next day bond prices had made a serious and dramatic turn lower. Although the Fed had cut as expected, they also indicated that the economic cycle may be turning and that this could be the last rate cut. Some traders cut quickly, but most hung on in the hope that this would turn, eventually suffering heavy losses and being forced to cut.

This highlights the danger of a lack of independent thinking. Some of the younger traders learnt a harsh but valuable lesson from this, those that heeded this lesson went on to become highly successful traders.

For the record the Technical Analyst at the bank at the time was Carol Harmer. She was the best tech analyst I have had the pleasure to work with. She still provides daily technical analysis for intraday traders across a wide spectrum of markets from her base in Gibraltar. - Her link is Charmer Charts which can be seen by clicking here. - She offers potential new customers a free trial of her service, I would recommend giving her service a try.


On that note, I will bid you a good weekend. However before I go, 'Something for the Weekend' :  In honour of US equity markets- Soul Asylum and 'Runaway Train'.




Have a great weekend.

Mastering Psychological and Emotional aspects is critical in trading.

With conditions very quiet yesterday, (though this morning seems a touch more spicey) I thought I would break from my usual analysis and instead comment on one of my favourite subjects 'Trader Psychology'.

Understanding and appreciating the psychological and emotional aspects of trading, is in my opinion probably the most important part of trading, if one is to truly be successful over the long term. A trader could possess the best trading system/method, the optimum risk and money management techniques, and a deep knowledge of markets, however if this is not underscored by the correct mental attitude it could all count for nothing. Plenty has been written on this subject over many decades, yet achieving and mastering the psychological aspects of trading is something that still eludes the majority of traders. In ‘One-Way Pockets’, a book written in 1917 by Don Guron, which looked into the activities of the most active traders at a brokerage firm, Guron wrote ‘The fact that impressed me most forcibly was the trading methods… ………..may be classed with a number of psychological phenomena that cause the great majority of speculators to do the opposite of what they ought to do’. Later in the book Guyon says, ‘The man who applies this or that method successfully must be able to exercise patience and self-control to withstand all forms of mental temptation, to ignore the dictates of fear and greed.’ Jesse L.Livermore touches on it too in ‘Reminiscences of a Stock Operator’ published in 1923. ‘The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, or for the get-rich-quick adventurer. They will die poor.’

In the acclaimed classic trading book Market Wizards published in 1989, Jack D.Schwager conducted a series of interview with successful traders. In the preface to the book Schwager asks ‘What sets these traders apart?’ He answers this by saying that ‘Most people think that winning in the markets has something to do with finding the secret formula. The truth is that any common denominator among the traders I interviewed had more to do with attitude than approach’. In the sequel ‘The New Market Wizards’, Schwager says ‘The secret to success in the market lies not in discovery of some incredible indicator or elaborate theory; rather it lies within each individual’. I could go on but I think I would be labouring the point.


The factors I mentioned earlier; trading system/method, money/risk management, and knowledge of markets, are the essential pillars of a successful trading approach. Yet there is nothing is more crucial than to understand oneself and the psychological aspects of trading if one is to overcome the many self-induced obstacles that contribute to trader underperformance.

I will paraphrase Bruce Lee* here, 'To know oneself is to study oneself in action with the markets'.

*Bruce Lee is of course better known as the great martial arts exponent and actor of the early 70s, however he was also an accomplished student and great advocate of philosophy. His core belief was to 'Know Yourself', and the quote I paraphrased originally went ' To know oneself is to study oneself in action with another person'.

My Top Trading Books

I have just ordered a new copy of  'Market Wizards', I lent my old copy out to someone, only to forget who I lent it to, and then not had it returned. - However this has prompted me to decide to compile a list of my Favourite 'Trading/Financial Market' related books. The list includes books which I consider related to trading in any number of ways, some obvious, some less so. As well as my favourite (Top 10) books, I also have written a list of books I consider influential in some way, though for one reason or another they did not make my Top 10. -  By the way you may notice a bias towards market psychology and individual trader psychology. - Here goes:


My Top 10 List - In no particular order :

- Market Wizards (And the New Market Wizards) - Interviews with Top Traders. By Jack D. Schwager. This is the Daddy of all trader related books.  - If you have never read this, read it. If you have read it, well read it again. 

- Reminiscences of a Stock Operator. By Edwin Lefèvre. This 1923 book is a biographical account of legendary trader Jesse Livermore. I consider it a must read for anyone interested in trading. Not an easy read, partly due to its age, but with patience the reader will see why it is a classic of Trading Literature.

- The Wisdom of Crowds. - Why the many are smarter than the few. By James Surowiecki. Though not directly related to the markets, this book touches superbly on mass crowd psychology, which is so essential to understanding the way Markets and Technical Analysis works.

- Liar's Poker. By Michael Lewis. This excellent book is a tell-all of Lewis's experience as a Bond salesman at Salomon Brothers in the late 80s. It helps to understand the culture of the big banks and brokering houses in the late 1980s. This culture never died out, and was in my opinion a major factor in the great financial crash of recent years. 

- The Inner Game of Tennis. By W.Timothy Gallwey. Though pertaining to tennis and written almost forty years ago, the psychological lessons learnt from this book are so relevant and applicable to the art of trading. - Forget all those other self-improvement 'How to be a billionaire in a week' type books, take my word from it, this is a brilliant book. - It may improve your tennis too.

- Any book by Malcolm Gladwell: This is cheating really, as it covers four different books, plus none of the books are actually Market or Trading related. However, every time I read a Malcolm Gladwell book I seem to be able to take away something which I can then apply to further my understanding of market psychology,  trader psychology, or some other facet which I can then apply to better understanding myself or my own trading. For the record Gladwell's four books are; 'The Tipping Point', 'Blink', 'Outliers', 'What the Dog Saw: And Other Adventures'. - These are an enjoyable, easy to read, but nonetheless thought provoking, insightful, and extremely well written series of books.

- Who Moved My Cheese By Dr Spencer Johnson : This is one of those small self-improvement business books, which makes use of metaphor. Not everyone's cup of tea, and not related to trading but far more general. I found it incredibly useful at a time when I needed it.

- Forecasting Financial Markets, The Psychological Dynamics of Successful Investing. By Tony Plummer. A book from the late 1980s which delves into trying to understand Markets and Market analysis in relation to crowd psychology. Some chapters are a touch meandering and waffling, but overall a book which I thought was a brilliant piece of work.

- Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders. By Curtis Faith. Really enjoyed this book, written by the most successful of Richard Dennis's Turtles. What I really took away from this book, was less what he revealed about the systems, or the Turtles techniques, but far more what he wrote regarding the mindset of the successful trader.

- Bringing Down the House: The Inside Story of Six MIT Students Who Took Vegas for Millions. By Ben Mezrich. Once again a book with no direct links to trading, however as all traders know, gambling and trading are two different sides of the same coin. This book is an enjoyable read, and I found much there one can take away from and apply to trading.  

List of Market/Trading Related Book's I have read, which I consider influential or which I enjoyed one way or another, but did not not make my favourites list:

-  Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Application. by John J Murphy.
-  Japanese Candlestick Charting Techniques. by Steve Nison
-  The Black Swan. By Nassim Nicholas Taleb.
-  The (Mis)behaviour of Markets. By Benoit B. Mandelbrot.
-  Risk - The Science and Politics of Fear. By Dan Gardner.
-  Against the Gods - The remarkable story of Risk. By Peter L.Bernstein.
-  Breakthroughs in Technical Analysis. Edited by David Keller.
-  Just One Thing. By John Mauldin.
-  The Mind of a Trader. Alpesh B.Patel
-  Bubbles and how to Survive them. By John P.Calverley.
-  Bailout Nation. By Barry Ritholtz.

Other Books of note which I have not yet read, but plan to:

- The Crowd, a study of the popular mind. Gustave Le Bon.
- Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude. By Mark Douglas.
- Japanese Candlestick Charting Techniques, Second Edition by Steve Nison.
- The Way to Trade, by John Piper.

If anyone has any further suggestions, these would be greatly received.





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