Thursday, May 25, 2017

Mentor Moments

"If you don't know who you are the market is a very expensive place to find out." The Money Game

"The market will find and exploit any flaw in your personality." R. E. McMaster

I spent 40 years in exchange traded markets. Most of that time in futures markets as a floor trader. An unorthodox career path meant I never enjoyed the benefit of a mentor. Instead I had "moments of clarity" when I recognized I was hearing or reading something important to trading. What follows was one of those moments.

Three of us were having breakfast after a very busy morning in the bond markets. Bill (name changed) a scalper in the bond pit had been trading 6 or 7 years straight out of college. He traded his own account, a classic local floor trader. Joe asked him how the trade was going and what kind of size he was trading. Bill said he was trading 10 to 20 contract positions and things were going well.  Joe remarked that he remembered Bill trading 100 or 200 contract size positions a few years back.
Bill responded - and here the lesson begins - "I did trade bigger size but I found I didn't make any more money, only endured more risk. Finally I realized the larger size trades didn't suit me and led to poor decisions. So after evaluating my history I gave myself three rules. Now I am performing consistently with much less stress. First: limit myself to 20 contracts or less. Second: if I am down on the day by more than $2000 I exit and quit for the day, no matter what time of day. Third: If I am profitable by more than $4000 on the day I quit for the day as soon as the position is closed, no matter what time of day . I realized when I get outside those parameters my performance worsens and lose discipline."

Now this was a guy who accumulated and kept a million dollars in t-bills as a backup against a bad trading accident. A very successful trader. But he recognized his own limits and incorporated that into his methodology.

Get to know your own psychology as well as Bill and you stand a very good chance finding a trading style that will allow you to succeed.

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