Posted by: Bevan | May 13, 2009

Stick With It

“I don’t trade for excitement; I trade to win.” – Larry Hite

One of the key discoveries I made when I did my self assessment on my return to trading was that one of my major problems is a desire for excitement and for action.  I think its quite common.  A great trader Ed Seytoka said that you get what you want out of the markets, and I think one of the things I love is getting stuck in, using my superior decision making skills to make some quick decisions and sit on the edge of my seat observing the results.  I succumbed to this urge twice this year.  Once was one day at work where I tried some daytrading, always a recipe for trouble.  I managed to lose a packet of money that I shouldn’t have, and set myself back.  The second time was when I undid some of my good work in following my strategy by experimenting with a different style (very briefly).

The last time I updated this blog I was bemoning the lack of trends, and success in the markets due to a lack of money in my account meaning that I had to trade “non trending” markets such as Interest Rate futures.  A lack of money is one of the classic excuses of the unsuccessful.  Although I believe that a bigger stake can be a psychological benefit, and is certainly necessary when either trading futures or a mechanical trend following system, it certainly is not a pre-requisite for success.  Fortunately with effective position sizing it is possible to trade a small account using a vehicle like spreadbetting.  Although I am serious about growing the account through both compounded profits and cash injections I am realistic and realise that I am still a beginner, and that this account has to be seen as a project in the ‘University of Trading’ degree I’m undertaking.

One thing I am proud of is that I did stick with my simple strategy.  My goal was to focus on avoiding my weakness for seeking action, by consistently trading my method without deviation or breaks of discipline.  I did achieve this and despite my lack of belief in the ability of my strategy to produce yields in the markets I was trading I have actually been able to produce a decent return by sticking at it and not second guessing the markets.  I think my primary edge is in:

  • Contrarian thinking – trading in the direction of the long term trend when the short term trend seems to indicate that everyone should be on the other side of the trade

  • Buying strength, apparently buying at the top instead of selling like everyone else

  • Strict position sizing to maintain a consistent, and small level of risk on each trade

  • Holding onto each trade and giving it room to run producing large R Multiple returns, whilst trailing my stop to reduce 1R losses

I’m cautiously proud of what I’ve achieved.  The returns I’ve made are only over a relatively short period (I’m in this for the long haul) but the lessons I’ve learned are:

  • Consistency is the most important thing, sticking at a proven method without ‘experimenting’

  • The best trades usually seem to come on the trades that I force myself to put on because I’m trying to be consistent but that look rubbish, rather than the ones that look like they’re going to go to the moon

  • That trading with the long term trend more often than not will produce great returns

  • That good money can be made from the least likely situations

  • To be humble and accept that I’m just a beginner, that I don’t know much and that I certainly can’t predict the future

Something I find that really helps my focus is to read good trading books, and I really haven’t found anything better than Alexander Elder’s book Come into My Trading Room: A Complete Guide to Trading (Wiley Trading).  It gives such a good balanced overview of the three key facets of trading, as well as being beautifully written.  It really is written by a genuinely successful trader, and as I gain more and more experience I recognise the value of the sometimes challenging advice.  If you’re only going to buy one book (and most of them are rubbish or of little value) this is it.

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