2016: Lead by Example
“One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity.” — Bruce Lee
What do you need to do differently this year? How are you going to accomplish it? As active traders, these two questions are perennially on our minds this time of year. We have just wrapped up the year past and look forward to the coming year with always higher expectations. The expectations are fun and empowering. Every year we feel as if this year this is the one, the one in which we reach the lofty goals we have set for ourselves as traders. The reality is very few of us attain or surpass these expectations. Why? I can’t answer for you, but I will give you the answer for me, in one word…Focus.
In 2016, Focus is my answer to both of the above questions. Actually, Focus is the answer to many questions I have asked myself lately. So for myself and the traders, I coach and mentor I am going to focus on leading by example. I am a day trader first and foremost. My strengths lie firmly in that time frame. Dr. Brett Steenbarger, @steenbab, has written about this many times. Focusing on our strengths, in my opinion, is the foundation from where we have to start. I know we have all read this more times than we can count, but what do we actually do about it? Yeah, what do we actually do about it? I know for myself that even though day trading is my time frame and my domain I tend to wander off into reading and conversing about time frames other than where I make money. As Jack Litle has written Most of this is a straight-up WASTE OF TIME. If a line of inquiry has no direct or indirect bearing on your P&L (profit and loss) — i.e. if an information pursuit does not inform your practical process in some way, or lead back to a P&L enhancing course of action in your trading account — then why are you expending energy and effort? Are you bored and looking for entertainment? Truth be told that sums up why so many never attain the goals they set each year. In 2016, I won’t waste any time talking macro, or oil or any finance related topic that doesn't impact me taking a trade and taking it with size. Forget Yellen, forget CNBC, forget all that time wasting.Focus.
Now that I just freed up a bunch of extra time in the day what am I going to do with it, I am going to focus on my edge. The Bruce Lee quote above is where I want to get to and need to get to in order to accomplish my goals for this year. Let’s look at the first part of it, One does not accumulate but eliminate. It is not daily increase but daily decrease. Not accumulate but eliminate, not increase but decrease. That sounds to me a lot like narrowing. So where can I narrow stuff? Or should I ask..where can’t I narrow stuff? Everywhere and nowhere are my answers in that order. I need to focus everywhere and leave out nowhere. Hmm.. a pretty big list.. routine, screens, tools, possible distractions, and biases come to mind right off. So let’s see where I can eliminate and decrease in these areas.
“Do less. And do the things that you ARE doing better and with higher quality. You don’t need to be hot. You need to be successful and those are two different things. Success often comes from doing a few things extraordinarily well and noticeably better than the competition.” from @99U
Routine. My morning routine I don't consider overloaded but can still be narrowed. What matters? Since my edge and strategy is traded in the $SPY and E-mini’s knowing what the overnight looked like in the futures is needed. Knowing the economic calendar is next. Then I calculate a few proprietary levels that through backtesting and experience have demonstrated edge. Lastly, read from just a few sources which have relevance to my time frame and turn on CNBC for the only 4 minutes of the day worth listening to, Art Cashin. I enjoy his wisdom and commentary and know it won't last forever so that stays. Besides, as being known to marinate an ice cube every once in awhile, we have something in common.
Screens. I know many in the trading world will argue against elimination and are always thinking of increase and accumulate when it comes to screens. Besides are you really a pro trader if you don't have a picture of yourself in front of many screens? So I am not going to worry how many you need or don’t need but just focus on what I need. Stealing from Dr. Brett again here, I want to determine information vs. distraction. My goal here is to reduce or eliminate distractions. So no email open, twitter closed etc. I only leave what matters directly to me putting on a trade. I get that with only two screens.
Tools. Tools as in charting programs, news feeds etc. I have always been minimalist in this regard. So not much pruning needed here. I only have at most two charts open at any time. I am a firm believer in that once a tool becomes widely available the chance of finding edge in it is very small unless you figure a way to use/view it different than the masses. This mindset has kept me from chasing all the bells and whistles available.
Biases. A hard one here. Since most of my biases are personality defects which I can only quarantine and never completely remove like some virus. My goal here is to double check and make sure I am not allowing anything that may trigger those defects to seep in. Removing all finance or market-related discussion that isn’t directly correlated with my strategy goes a long way in containing biases. Focus.
Strategy. Focus on my strategy. I shared a declaration with @Vader7x since his declaration inspired mine. I will now share it with you. Future posts will expand on this.
- Model 2 high probability day trades — that present 2R+ risk/reward ratio of average loss. Only take trades that follow strategy which allows the confidence to push trade size.
- Patient Discipline — majority of my time should be spent waiting for the trade to meet MY set up criteria.
- Only scale in high volatility, always full size in normal volatility. I need to get paid on the RISK I am taking. Execute strategy no bailing out. I have done the work allow it to pay.
- Losses are just a cost of doing business. No perfection in this game. Stick to strategy! There is no room for revenge trading or marginal executions.
- Respect Stops — enough said.
- Plan for Variance — entries won't be perfect so allow for this in strategy.
- Adjust size and/or stops for volatility, — Execute strategy relentlessly.
- Let probabilities of strategy play out don’t fiddle. Know market structure that is or isn’t ideal for strategy and adjust.