traderpsyches: “To be better risk-managers or traders, you need to become conscious of your feelings and emotions. Then, you can be aware of your biases and you’ve got a better data set.”

If anyone is interested in becoming a better trader or investor, then I highly recommend the work of Denise Shull over at traderpsyches. The following comes from a recent article:

'...Feeling and emotion are part of your analysis and decision-making,” she says. “To be better risk-managers or traders, you need to become conscious of your feelings and emotions. Then, you can be aware of your biases and you’ve got a better data set.”

She says modern portfolio theory and behavioural finance have neglected to explain how individuals’ views of the market are shaped in the first place, while context-free trading formulas and market theories fail to describe financial markets accurately.

“These are social markets,” she says. “All you’re doing is betting on what other people are going to pay for. We’ve tried to turn that into an algebra problem and it’s not.”

This is challenging stuff – not just for the male-dominated world of trading. Ms Shull suggests that what she is proposing is nothing less than “rethinking thinking” – challenging our ingrained views about how we should use our brains in the first place.

“Our psyche uses feelings and emotions as a resource, but we’ve all been brought up to think it’s not a resource,” she says. “It’s been denigrated. We’ve got to teach people how to reclaim it and analyse it. It’s always been there, colouring our perceptions of the market.”

By telling traders to set aside these emotional data, Ms Shull maintains, conventional wisdom goes against human nature. “We’re fighting the way our brains work,” she says. “Let’s start working with our brains. If you do, you’ll be able to manage risk better and read markets better – and have a chance of beating the people who aren’t.”

She is sceptical of the notion that high frequency trading has removed feelings from the activity. On the contrary, Ms Shull says, algorithmic trading strategies are stuffed full of assumptions and sensitivities – and deciding when to shut them off can be emotional...'

'...Ms Shull’s technique is founded on identifying feelings and articulating them. “Feelings and actions are separate things,” she says. “Everybody says: ‘control your feelings’. But you don’t have to control your feelings, you have to control your actions.

“However, because people haven’t been taught to deal with feelings as data, the energy of the feeling goes straight to the action – you act out the fear, the greed, the anger, because you haven’t been taught to look at fear, greed and anger as data first.”

She advises traders to identify their emotions and analyse how much they are connected to their trading positions as opposed to external influences. It helps to articulate them – if not to a psychologist then by speaking into a tape recorder or writing in a journal.

This way, traders can know if they are anxious because of something in their personal lives, or because of their feelings about the market.

Ms Shull says emotions can sub-consciously signal trading opportunities. “Your brain has been watching these markets for years,” she says. “It knows patterns you’re not conscious of, and it’s communicating that on a feelings-based level...'

Using systemic trading models as an aid in discretionary trading

• brett steenbarger recently posted on the potential benefits of using "...system-related research as decision support for discretionary traders..."
• this comment mirrors how i use my 'BTD Index' model to not only generate systemic trading signals for the NQ, but to also influence where i bid for a second or third contract when adding size to my discretionary swing trading in the NQ:

• this summer's rally has seen 4 swing lows...they are highlighted on the above 'BTD Index' NDX chart with white circles: 6/23, 7/8, 8/17 and 9/2...
• the last 3 swing lows, occurred on the same day or on the following day that the NDX closed below its lower bollinger band (yellow bar highlighting an NDX close below the lower red line)...this area around the level of the lower bollinger band has acted as support, and marked the general area of the swing low...
• last friday's low was just above the lower bollinger band (lower red line), suggesting this 1690 area may be the general area of the current swing low for the NDX (NQ)...
• while i did not add another NQ contract to my discretionary swing trade, i have been using the lower bollinger band level on the 'BTD Index''s NDX chart to help inform me of where a possible bottom for the NDX (NQ) may form...this potential swing bottom area has influenced the general levels where i will consider bidding for a 2nd and 3rd contract when building the size of my NQ discretionary swing trade...
• i take the same view brett takes: systemic trading models can be useful inputs into the decision making process for the discretionary trader...
• my overall trading plan contains both systemic and discretionary trading styles, and i believe i am a better trader for it...of course i still have a lot more to learn cognitively about both trading styles, as well as practicing to become more emotionally comfortable with the uncertainty of each trades outcome, but using the tools and bias's of both styles has made me a better trader...

Disclosure: Long NQZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

9/24/2009 1130 am update: NQ, emotions influencing the decision making process, emotions as information

• NQZ09 traded down to 1696, and then bounced back to 1700...
• it then started trading to 1701, 1702, 1702.75, then back down to 1702, 1701, 1700.50...
• i began to think that the low for the morning may be in, and began to get just a bit anxious that my 3rd entry order at limit 1693.50, which missed getting filled by 2.50 points, was not going to get filled this morning...
• i canceled my previous bid at 1693.50 and place a buy stop at 1703.00...
• i got filled a few minutes later...
• currently long 3 NQZ09 at an average of 1714.08...
• the last two additions (1711.75, 1703.00) occurred at higher levels than i initially planned (1708.50, 1693.50)...
• part of the change in the trading plan is related to fear of missing an opportunity to increase my size because my limit order may not get filled...part of the change is also a re-analysis of the trading environment...i am not sure how much of the change in my plan is related to emotion and how much is related to cognition...
• if the change is more related to emotion, i have to pay more attention to how my emotions factor into my decision making process...the problem is, i don't know how to determine or measure how much the emotion played into the trading plan change...
• if anyone has any suggestions on how to do this, please let me know...
• i hear and read a lot on how traders are supposed to remove as much emotion as possible from the decision making process...this is part of the reason why a large part of my overall trading plan includes systemic trading models...
• i wonder if a further goal of trading is to not remove emotion from our decision making process, but to use what we are feeling and what the market as a whole is feeling, as part of the decision making process: emotion as information...
• perhaps we are not supposed to immediately react to an emotion that happens to pass through our being on any given moment (sad, glad, mad, scared), but rather recognize what we are feeling, and then cognitively decide if this is something that we need to respond to on a trading basis...what do you think?

Disclosure: Long NQZ09.

***remember this is an illustration of what i am trading and my thinking...my trading plan may change without notice...this is not a recommendation for you or anyone else, to buy or sell this or any other security...trade at your own risk***

Quiz: What personality trait may best predict achievement in the real world? Hint: it's not smarts.

Answer: According to the following article, the answer is not the standard measures of intelligence, but rather the ability to set a long term goal and work exceedingly hard toward it. In a word, its 'grit'.

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The truth about grit

Modern science builds the case for an old-fashioned virtue - and uncovers new secrets to success.

by Jonah Lehrer

http://www.boston.com/bostonglobe/ideas/articles/2009/08/02/the_truth_about_grit/?page=1

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Here are some quotes from the piece that I found to be very interesting:

"...The new focus on grit is part of a larger scientific attempt to study the personality traits that best predict achievement in the real world. While researchers have long focused on measurements of intelligence, such as the IQ test, as the crucial marker of future success, these scientists point out that most of the variation in individual achievement - what makes one person successful, while another might struggle - has nothing to do with being smart. Instead, it largely depends on personality traits such as grit and conscientiousness. It’s not that intelligence isn’t really important - Newton was clearly a genius - but that having a high IQ is not nearly enough..."

“...I’d bet that there isn’t a single highly successful person who hasn’t depended on grit,” says Angela Duckworth, a psychologist at the University of Pennsylvania who helped pioneer the study of grit. “Nobody is talented enough to not have to work hard, and that’s what grit allows you to do....”

"...Lewis Terman, the inventor of the Stanford-Binet IQ test, came to a similar conclusion. He spent decades following a large sample of “gifted” students, searching for evidence that his measurement of intelligence was linked to real world success. While the most accomplished men did have slightly higher scores, Terman also found that other traits, such as “perseverance,” were much more pertinent...”

“...Genius is 1 percent inspiration and 99 percent perspiration,” Thomas Edison famously remarked - the researchers are quick to point out that grit isn’t simply about the willingness to work hard. Instead, it’s about setting a specific long-term goal and doing whatever it takes until the goal has been reached. It’s always much easier to give up, but people with grit can keep going..."

"...One of the main obstacles for scientists trying to document the influence of personality traits on achievement was that the standard definition of traits - attributes such as conscientiousness and extroversion - was rather vague. Duckworth began wondering if more narrowly defined traits might prove to be more predictive. She began by focusing on aspects of conscientiousness that have to do with “long-term stamina,” such as maintaining a consistent set of interests, and downplayed aspects of the trait related to short-term self-control, such as staying on a diet. In other words, a gritty person might occasionally eat too much chocolate cake, but they won’t change careers every year. “Grit is very much about the big picture,” Duckworth says. “It’s about picking a specific goal off in the distant future and not swerving from it...”

The following finding from the study surprised me. As a parent, I have been praising my three year old son for the effort he puts into figuring out the the world around him and sticking to the task in front of him. Perhaps I should do it more.

"...In recent decades, the American educational system has had a single-minded focus on raising student test scores on everything from the IQ to the MCAS. The problem with this approach, researchers say, is that these academic scores are often of limited real world relevance.

However, the newfound importance of personality traits such as grit raises an obvious question: Can grit be learned?

While Duckworth and others are quick to point out that there is no secret recipe for increasing grit - “We’ve only started to study this, so it’s too soon to begin planning interventions,” she cautions - there’s a growing consensus on what successful interventions might look like.

Interestingly, it also appears that praising children for their intelligence can make them less likely to persist in the face of challenges, a crucial element of grit.

For much of the last decade, Dweck and her colleagues have tracked hundreds of fifth-graders in 12 different New York City schools. The children were randomly assigned to two groups, both of which took an age-appropriate version of the IQ test. After taking the test, one group was praised for their intelligence - “You must be smart at this,” the researcher said - while the other group was praised for their effort and told they “must have worked really hard.”

Dweck then gave the same fifth-graders another test. This test was designed to be extremely difficult - it was an intelligence test for eighth-graders - but Dweck wanted to see how they would respond to the challenge. The students who were initially praised for their effort worked hard at figuring out the puzzles. Kids praised for their smarts, on the other hand, quickly became discouraged. The final round of intelligence tests was the same difficulty level as the initial test. The students who had been praised for their effort raised their score, on average, by 30 percent. This result was even more impressive when compared to the students who had been praised for their intelligence: their scores on the final test dropped by nearly 20 percent. A big part of success, Dweck says, stems from our beliefs about what leads to success..."

We can test our own level of grit here: http://www.gritstudy.com/

7/24/2009 noon update

NQ discretionary swing trade:

• NQ ran back up to the top of the base that formed from the overnight session and the morning high...got nervous when it started to sell off from this high, and exited the long position at 1587.50 for a net gain of 12 points (27 for the day)...
• nervous is the operative word here...perhaps fearful is a better word...i didn't want to give back my nice gain...i initially placed my target at 1597.50, thinking that the morning low was greater than the overnight low, so we had a slight uptrend in place...if the NQ could rally back to the top of the base (forming an ascending triangle), then there was a good chance it could break above the base and then rally to the 1600 whole number and i would exit at 1597.50...this was the thought process and the plan...
• however, my emotions started to get amped up after we hit the top of the base, and then started to head lower...i didn't want to give back my gains, so i hit the sell button...
• this exit was not part of the trading plan that i described this am...though i did book a nice gain, i did not execute the plan...i will give this trade a C+
• my plan could have had another contingency, such that i could take my profit at the top of the base....since i believed that the NQ could test 1600 today, i could re-enter on a break above the top of the base with a tight stop a few points below the break, or i could re-enter on a move back down to the low 1580's - high 1570's....
• right now i have an order to get back in at 1577.50...
• i am feeling somewhat jumpy as i watch the NQ move back up toward the top of the base again...maybe it will break above it, maybe it wont...i am hesitant to buy a break above the base as i feel like i am acting on the frustration of not trading the plan according to specs or not having a better plan laid out this am...i do not want to trade from a place of frustration, so i will not enter a long position today above the top of the base...
• i still want some longside exposure for a longer term move up, so if the NQ breaks above the base, then i will raise my limit order (which is currently below the market), from 1577.50 to 1582.50...

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security***

Stuck

9:15 am:

discontinuing 2 models led to me not being long the NQ tues/wed...left 7.5% on the table...

cognitively ok with it as the models were no longer robust...

emotionally, the ride has a been a bit rougher...mostly felt sad last night and questioned my ability to succeed as a trader...

slept ok, but felt stuck in 'trader insecurity' mode this am...did some reading from ari kiev's 'trading to win' book...this has helped me refocus on the day in front of me, instead of how trading will be for me 5 years down the road...

http://www.amazon.com/Trading-Win-Psychology-Mastering-Markets/dp/0471248428/ref=sr_1_1?ie=UTF8&s=books&qid=1247753529&sr=8-1

10:03 am:

2 discretionary daytrades for my vcm account...first one generated 1 R of profit, the second was a scratch...cant say anything i did was a good example of a strategy that can be repeated...both trades had some anxiety as a motivating force to open them...i am feeling the need to 'do something' to get my confidence back...

i think the best thing to do right now is to stop daytrading and put my research hat on...i am rebuilding the Narrow Bar models using 'true range' instead of 'range'...this is the initial filter...the old narrow bar models used 'range'...'range' does not factor in opening gaps, 'true range' does...

i also have some ideas that i want to model to help increase my confidence in some daytrading setups, stops and targets...

a systemic trading model is due to generate a short at today's close, so mentally i am gearing up for that...

stressin, but doing what i can to get some cognitive work done and cross some things off my list...

12:20 pm:

modeling secondary filters on the narrow bar concept...making progress through the permutations...identifying some candidates for the next round of testing (walk forward on unseen data)...

feeling a little looser, a little less 'stuck'...

airport run...

5:15 pm:

finished modeling the primary and the secondary filters for the narrow bar SPY...2 models out of a total of 45 possible models, made it through the walk forward test successfully...these two models are in line to replace the current narrow bar SPY models...

will work on the narrow bar NDX testing tomorrow...

will work on a coding up a model that i discussed on the phone today with a good trading friend...

also want to code up some vcm concepts to help increase my confidence in some vcm setups that i like...

two systemic models generated entry signals at today's close: one is now short the NQ, the other is now long the EMD...more on these models tomorrow...

feeling less stuck this afternoon...it feels good to be getting some research done....

Extreme Frustration, but keeping my chin up.

For the past few days I have been in the process of culling out models that have not been performing well over the past few years. On the surface this is the right thing to do. However 3 of the 4 recently discontinued/suspended models have performed very well over the past few weeks:

Narrow Bar #1 NDX: generated a trade a few days ago that made about 0.5%. I have suspended the Narrow Bar models due to a flaw in the logic.

NDX OU: This morning, I closed the NDX OU trade pre-market for a 0.22% loss. The model has performed poorly over the past few years and for all intents and purposes is declared dead. The after hours futures have gapped up 25 points, so that model would be sitting on a 2.0% gain due to be closed at 4pm Wednesday.

NDX 14th DOM: I discontinued this model 15 minutes before the close of today's markets. The initial concept was sound, but the logic filters no longer made sense to me and the model has been performing poorly over the past few years, so I discontinued it. This model would have generated an entry signal at 4pm today. Right now, with the gap up in the NQ futures, that model is up about 1.85%.

Oh, the models that I am keeping, and that have generated positions over the past few weeks have either been scratches for small gains, or have gotten stopped out:

BTBT NDX
BTBT RUT
Payrolls NDX
NDX 1st DOM
NDX Summer Rally
NDX 30th DOM

Right now I am very frustrated. My cognitive side still believes in the models that have performed poorly over the past few weeks, and still believes the models that I have discontinued should stay offline. However, my emotional side is very frustrated. This reminds me of the challenging dynamic I experienced from the summer of 2007 to the summer of 2008. Nearly everything I did was wrong. The entry signals I took often turned into losers, and the entry signals I ignored ofter turned into winners. The basis for ignoring those profitable signals was disbelief in robust models. This happened so often, that I became too scared to trade.

This current environment appears to be different. A string of poor timing where good models produce losers and bad/suspect models produce actual/potential winners. I am not going to change how I trade. Except tonight and tomorrow will probably be rooting for the gap up to be sold! Emotionally, I want to be right, cognitively I won't be changing a thing.

Chin up!


p.s. the gap up may not be all that bad...i have been building a longer term investment position in the FAS for my IRA and some custodial accounts...the FAS may be held for another 3-15 months, depending on how it performs...ideally i want it to go down more so i can build up my position...alas i cant control what it does, so if it decides to put in a run, i will have a partial position, which is better than nothing...

Disclosure: Long FAS.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security***

Trader Education

My good friend JE over at the 'ES Trader' (http://myestradingjournal.blogspot.com/ ), recently blogged about the value of 'trader education' and Don Miller's new trader training program. This post has generated considerable interest with other trader's and bloggers posting their comments on these two topics.

I felt compelled to add my two cents on 'trader education' and my experience with VCM's (Velez Capital Management's) 'Trade for Life' Program(http://myestradingjournal.blogspot.com/2009/07/don-millers-jellies-group.html). Here is a copy of what I posted:

je,


since i am not familiar with don miller's trading method or his training program, i cant speak to their pro's and con's...

however i do want to speak on the value of a trading education...

i do believe that trading can be taught...i believe some people would be better students than others, like with any skillset...i also believe some people would be better teachers than others, especially when it comes to trading...

as you know, i am a prop trader with velez capital management's 'Trade for Life' program...i paid a fee ($9000) to learn the discretionary daytrading and swing trading methods vcm teachs, and to get access to vcm's capital...their training model and their prop trading model is working for me...

some of the highlights of vcm's training/trading model include: i can retake the 2 day training seminar every month for the rest of my life for free...i can retake their online trading lab every month for free for the rest of my life...i get access to their twice daily update every day for the rest of my life...i get daily access to two different chat rooms that are monitored by very advanced traders, some of whom are significantly advanced, and who generate trading gains nearly every single day...i get to network and share ideas with other vcm prop traders via 2 vcm facebook sites...i get access to vcm's capital every day for the rest of my life...the better i trade, the higher the % of profits i get to keep, and the more access to capital i get...i love the model of their training/trading program...

yeah, i paid $9000 up front, and now the price is up to $12,000, but for this kind of education and access to capital, it is almost cheap...i have literally booked millions of dollars of gains trading the markets since 1996, and have booked millions of dollars of losses since 1996...so paying $9000 for professional training and access to capital when i was looking for help and another means to generate a trading earnings stream, was a no brainer for me...

again, i cant speak to the pro's and con's of don's training program or his trading method...i can say the vcm training/trading program works for me...i am still a pretty poor discretionary day trader on a technical basis, but i am making progress...however, the psychological training that is an informal part of their training has significantly helped me become a better systemic swing trader when it comes time to execute my models...

we will all pay our market tuition one way or another...the teachers at vcm suggest it will take anywhere from 18-48 months for someone to fully understand the methods and be able to execute them consistently...however, some will never make it...just like the students who drop out of their vocational, undergrad or grad school program...so if someone is a quick learner and is on the 18 month track, then the current upfront vcm tuition rate of $12,000 comes out to about $32/trading day for daily training and access to capital...this sounds pretty cheap to me...

overall, i guess trading is not for everyone...but for someone who is inclined to trade, and can find someone they trust to train with, then the odds of success can only increase for that trader...trust is the key word here...i like to believe that vcm will still be here 3, 5, 10 years down the road...i have no reason to believe they wont, but who really knows if they will...so far, they have been everything i hoped they would be...

whether don's training and trading model will work with his students remains to be seen...i hope that don and his students are very successful...vcm's training and trading model is working for me, and i am very happy to be part of their organization...

i do think trading education can work, but it has to be with the right students, the right teachers, and the right program...

adam

'Trading Systems that Work'

'Trading Systems that Work' is the title of a great book by Thomas Stridsman. He outlines how to 'Build and Evaluate Effective Trading Systems'. I have used his concepts extensively when building, testing and optimizing my 35+ Systemic Trading Models.

TradeStation, the platform I use to model and autotrade my Systems, offers online tutorials (for subscribers) on the following:

• Introduction to Strategy Trading
• Strategy Testing and Optimization
• Strategy Automation
• Introduction to EasyLanguage

Learning how to build robust trading models and then learning how to technically execute them takes a lot of time. And this is just the cognitive part. Learning how to emotionally trade them takes time as well. It doesn't matter if we are discretionary traders or system traders, pressing the buy or the sell button when we are supposed to is a skill set in and of itself.
For anyone interested in using TradeStation, Wealth-Lab or any other platform to build Systemic Trading Models, or even to just build an Indicator, please understand that these platforms are like rocket ships in their capabilities. Let us learn how to effectively use their functions before we take off. We don't need to crash and burn to learn a lesson!
Do your research and testing before putting your hard earned capital on the line. In my view, 'Trading Systems that Work' and the TradeStation online Tutorials are a good place to start.
http://www.amazon.com/s/ref=nb_ss_gw?url=search-alias%3Daps&field-keywords=stridsman
http://www.tradestation.com/default_2.shtm

The Holy Grail of Trading

What is the Holy Grail of Trading?

Is it that one strategy that never loses?

Is it that one Indicator that never fails?

OK, OK, we know (hopefully) these don't exist.

Maybe its the way Warren Buffet invests in companies? He is one of the most successful investors in world, so he obviously knows what he doing.

Maybe its the way George Soros fearlessly trades the FOREX market?

Maybe its the way Bill Ackman of Pershing Capital astutely navigated this historic bear market?

Maybe its the way Jim Simmons works with his team of 50+ PhD's at Renaissance Technologies to scientifically model and trade the global capital markets?

At least we know its not the disgraceful and treacherous way Bernie Madoff went about his business, to the ruin of all those that trusted him.

So if its the way Buffet or Soros or Ackman or Simmons trade, then why don't we just hire them to manage our money?

Well, if you are reading this, then perhaps it never occurred to you to have someone else manage your money. Or maybe we let some hedge fund guy or mutual fun gal do it for us, and they didn't perform up to their benchmark or our expectations?

But ultimately, I say its because we want to trade the market ourselves and have a crazy notion that we can do it as well if not better than these trading masters.

So if we are going to do it ourselves, we better have an edge, a plan so to speak. And we have to be able to execute this plan. If we don't then the capital markets of this world will eat us, eat us alive.

I suggest the key, the Holy Grail of trading, is to have a trading plan that fits our personality. In the end, if we are the ones that are going to push the buy and the sell buttons, then these actions must be derived from our own cognitive analysis of market behavior and then supported by our emotional intelligence of our internal process.

Yesterday, JE wrote in a very personal manner, about the struggle to find a trading strategy that fits his personality (http://myestradingjournal.blogspot.com/2009/06/off-hours-two-year-anniversary.html). In my view, developing a trading plan that fits our personality is the key to trading survival, success and ultimately mastery. For me, 13 years into this game, it continues to be a work in progress.

Here is a copy of my response to him:

*******************************************************************************

JE, great post and follow up comments...

i strongly agree that the key to trading the markets, the holy grail so to speak, is to have a trading plan that fits the trader's personality...

there are hundreds of trading strategies available fully detailed in books, magazines, online, etc...if all we had to do was pick one and trade it, we would all be millionaires in due time...however nearly all of us fellow traders are not...

why?

i think the key is whether or not we can psychologically/emotionally trade the plan....

can we take the trade when the signal is given?

can we exit at the defined profit target?

can we take the stop loss?

can we withstand the periodic drawdown?

can we sleep at night?

can we recognize our fear, our anxiety, our greed when the position is on, and still trade the plan, even if it means continuing to feel these emotions?

can we deal with the uncertainty of an unknown outcome?

i pose these questions because i believe they are essential emotional/psychological markers of our ability to be truly successful traders...

to achieve trading mastery, we have to answer 'YES' to each question...

currently, this is the center of my work as a trader, and it's a bitch...

adam

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'NB #2 SPY' Generated an Exit Signal for Wednesday's Close

'NB #2 SPY' Generated an Exit Signal for Wednesday's Close. The position was held for 1 Day as is directed by the model. The Money Managment Stop was not hit. The position generated a profit of about 0.8%, very close to the average trade return of 0.7%.

The position had been up nearly 2% by late morning but then pulled back prior to the FOMC announcement at 215pm. Market participants found things to dislike about the announcement and the SPY continued to drop and just about filled its opening gap up. A rally during the last 45 minutes brought the SPY back up to close about 0.8% higher than yesterday.

A bit of a roller coaster but with System Trading this is par for the course. Once the model has been built, the 'plan the trade' portion is complete and I can put my IQ on the shelf. Once an entry signal is generated and the position is put on, I have to pull my EQ off the shelf and 'trade the plan'. Now, no matter what kind of ride the market goes on and no matter what my emotions may go through, I have to follow the rules of the plan.

I was not happy to give back the near 2% intraday gain, but there was nothing I could do about it except to 'trade the plan'. Needless to say, I was happy to see the EOD bounce back to decent profitability. Interesting how my 'happiness' was strongly corelated to how this position played out. I bet my 'happiness curve' would have been higher and steeper if I was not monitoring this position minute by minute today, but rather playing with my son and/or hanging out with my wife. I think one of the skills I need to continue to develop is to emotionally detach myself more and more from the outcome of any individual trade, knowing that if my overall System Trading Portfolio is full of robust trading models, then the profitability will come over following 12 months. Currently, I would give my System Trading Portfolio a B+ for robustness. Emotionally digesting the Portfolio's robustness and profitablity is a work in progress.

However, I did greatly enjoy the telephone conversation I had with my trading friend JE (over at http://myestradingjournal.blogspot.com/). He found a unique way of using the ATR Volatility Bands that I developed and have written about. It just goes to show that the creative process knows no bounds, and what one has not concieved of, another has already put into motion. Nice job JE!

IQ and EQ

i see successful trading as a combination of two skillsets: the intellectual (IQ) and the emotional (EQ)...the intellectual will plan the trade and then the emotional will trade the plan...the greater
these two skillsets and the more in balance with each other they are, the greater the chances for not just profitable trading, but trading mastery...

i have been trading for 10+ years, have had a fair amount of success, and am still finding big holes in my game...most of my success has been swing trading stocks, options, and stock index futures, with holding periods of 1-5 daily bars, though sometimes more depending on the model that i am using for that particular trade...

i am discovering that i am a horrible day trader!! i think the reason is that as i don't have a firm understading of the technical setups, thus my day trading plan is not good...

my primary income stream comes from swing trading my 25+ models of US stock index behavior...my swing trading plan is very good, but could always use some improvement...

the biggest thing that i have learned since becoming a prop daytrader this past summer, is the importance of emotional intelligence (EQ)...with the great moderators at the prop daytrading firm constantly in my ear about planing the trade and trading the plan, i have become a significantly better swing trader...their message isn't entirely new either...i was just more ready to hear it and change my behavior...

my personality has always tended to be on the introspecive side...this has helped me see my own behavior...losing a lot of mony from the summer of 2007 through the summer of 2008 because i didnt follow my swing trading plan (too scared), significantly helped motivate me to change my behavior...since the summer of 2008, i have done an increasingly better job at following my trading plan, stemming the losses, and now generateing consistent gains...my capital accounts are turning back up and i believe that my emotional intelligence is increasing...today, i am trading the plan 95% of the time...what about the other 5%? well, i am working on it...my goal is to trade the plan 100% of the time, no matter how i feel...i am almost there...

we all want to succeed at this incredibly difficult endeavor...not everyone will...if we really want to though, we have to look at ourselves as clearly as possible and identify our intellectual and
emotional strengths and weakness...if we dont, then the market will do this for us, and the results will be ugly...

if we do and are then capable of making the cognitive changes when planing the trade, and the behavioral changes to correctly trade the plan, then we just might have a chance at not only making some money, but also achieving trading mastery...