Allowing the Stars to Align

Characteristics and practices that make for better trading results are often counter-intuitive to what people generally associate with success. The go-getter, the early adopter, and the assertive - the types of people that are lauded in general when it comes to certain occupations, aren't necessarily the types that will succeed in trading. These characteristics (generally positive), coupled with less savory characteristics of being way too loud and biased, for example, might make for successful TV and internet personalities these days.

However, it's polar opposite characteristics that are required for sound decision-making in trading. Instead of being highly assertive, it's best to take a step back and be more of an observer. Instead of charging ahead with a concept, it's best to tread carefully. Instead of trying every new trading strategy that comes your way, it's best to identify ones that fit into your existing trading strengths and style.

Your one-sided, loud opinions may get you tons of impassioned followers online, but they'll take you to the cleaners in trading. Imagine only going long on early-stage pharmaceuticals; it won't be long before one FDA rejection destroys your portfolio. If you are always doom-and-gloom, you'll never benefit from upward market moves, even it is due to the immediate relief from the closure of a grueling presidential election that may ultimately prove your apocalyptic view right one day.

The ability to actually circumspect an issue, to look at things from different angles and perspectives of opposite sides of the trade, and to weigh statistical probabilities and translate them to "color-blind" (i.e. unbiased) decisions are critical to success in trading.

Finally, the ability to actually detach yourself from being married to an idea or position is equally as critical. This comes into play during trade execution, which occurs from the very moment you decide to buy something until you decide to sell. Note that I used the word "decide." Simply deciding on something doesn't guarantee that you'll push that button to execute the trade, especially at the right time ("I'll just wait until it reaches a lower level...oh wait, dammit, it's going up! Too late to buy now"). In addition, consistency in trade management (to allow your strategy to actually manifest itself) and not over-reacting to any individual trade outcome does require a very balanced mentality. This requires the trader to actually develop the right temperament over time, something that doesn't necessarily come naturally, especially if one's general personality is always "on" (or never on), in-your-face (or alway hiding), or ego-laced (or no sense of self).

One thing I've done in my quest for trading success is to "allow the stars to align." To the observer, this may sound like a passive effort, equated to waiting for the stars to align. Instead, it's an active effort of developing personality traits and mental fortitude that will allow for sound decision-making. The path to achieving this isn't very clear-cut, and involves tweaking, self-observation, and lots of patience. You might better equate of the process of allowing the stars to align to finally "getting it," a simple phrase that captures that "ah-hah!" moment when it comes to finally mastering a task or finally understanding a subject matter in its entirety after much effort spent in understanding components of the task or subject. It may have taken a lot of effort and pain to get to that point, but you wind up much better off and robust afterwards (or even "anti-fragile" as Nassim Taleb puts it).

As I wrote about in the summer in The Anatomy of a trading cycle breakdown, I had a few things to work on before my next phase of active trading. I'm happy to say that taking this stance over the past several months appears to have been productive. Oddly enough, a recent big trading loss has reaffirmed this. In a surprise to myself, I was able to handle the loss very objectively, without a hint of that typical sinking feeling (as I've noted before, studies show we're more negatively impacted by losses than positively impacted by gains). I was able to see exactly what caused it, concluded that the reasoning behind the trade was actually pretty good but that I just put on too much size (and it wasn't driven by impatience/boredom), and moved on to newer trades with the same trade thesis in mind (having confidence in my original idea) but in smaller increments.

In correcting for the size issue and viewing it from the perspective of risk tolerance when tempted to do so again, I've thankfully recovered nicely from that debacle and hope to be blogging about my further progress over the coming months. Funny how I'm excited about not being too excited by P&L outcomes, but rather by the underlying processes responsible for my ultimate P&L (driven by both the markets and personal traits).