Friday, September 17, 2010

Perfect Trade ??

Trader Quest ~ What is a perfect trade?

Plot Course Set up some simple guidelines to determine for yourself what constitutes perfect. One set of guidelines used recently with a trader amounted to the following statement, "A perfect trade is a controlled entry and a controlled exit." Another definition frequently used is, "I followed my strategy’s written entry and exit rules." What ever the definition that you come to use, make sure it’s defined enough so that you can fairly and consistently rate your trades.

Ride Wave ~ To put this into practice requires a definition as stated above, and also that you perform this review post trade. So for example, you made 15 trades today in the mini S&P. 10 trades you defined as perfect since you entered them per plan and were either stopped out or reached your positive target. The remaining 5 trades you did not count as perfect, and here comes a variety of reasons:

"I anticipated...I waited...I got out early, etc." 

Initially, it’s ok just to do the tally and score yourself 10 out of 15. The deliberative practice that will elevate your trading will be to begin to notice patterns in the non-perfect trades and analyze deeper into the conditions, emotions or biases that may have steered you away from the defined perfect trade. As coaches we strive for 80% perfect once the definition is set and 90% shortly thereafter. 100% means that you are an algo.

Keep Curious, Coach Mark

Thursday, September 16, 2010

PSYCHOLOGICAL CAPITAL - Do I have it? Is it enough? How can I get more?

As a trader, you're very familiar with the term "capital," it's money. You know, that stuff you seek on the other side of the risk you endure. You hope you win enough of it to keep you showing up in order to get more of it. Isn't that the purpose of trading, getting more and more capital?

Another kind of "capital" that I believe is foundational to the art of earning and maintaining the financial capital you seek, is PSYCHOLOGICAL CAPITAL

What is this stuff called Psychological Capital (PsyCap) anyway? Is it just a nice intellectual concept to make me sound smart, or you more secure or rich? Researchers in the field of positive psychology have come to define it as the positive and developmental state of an individual characterized by high self-efficacyoptimismhope and resiliency (Luthans et al.). 

So the next questions to consider are:

  • Do I have enough self-efficacy (confidence)?
  • Do I have enough optimism (good things are on the horizon)?
  • Do I have enough hope (I believe in positive outcomes)?
  • Do I have enough resiliency (I can endure and bounce back)?

My experience coaching traders has taught me if I'm not addressing these questions in a pragmatic and deep level, I'm not helping a trader grow their psychological capital, and thus not helping them perform optimally to sustain a successful trading career. My job is to coach traders in the art of self regulation so they earn the confidence to manage what they can influence, i.e. their internal market. Once they experience a consistency to positively influence their inner market i.e., 
emotional arousal & decision making, they begin to shift into believing that good opportunity is on the horizon. When set backs occur, which they always do, traders recognize they're entering an opportunity to practice resiliency. Bouncing back and recovering perspective is imperative to maintaining a long, stable and prosperous trading career.  

Psychological capital can fluctuate just like P&L, thus, some days you have lots of it, while other days you can't locate it at all. Growing PsyCap requires a commitment to self awareness and self regulation, two core components of emotional intelligence (EQ). Knowing what to do and when to do it, like in trading, makes all the difference between being a winner or a loser. I have been on a several year journey researching what types of actions I need to coach traders into doing to optimize their ability to grow their capital, both psychological and financial. The psychology of human performance has demonstrated there are deliberate routines that when practiced, develops a performer towards expert status. 

In future posts, I will elaborate on what kind of deliberate practice seems to make a difference in growing a traders psychological capital. Rest assured, it's not going to be a simple recipe or a one-size fits all, but more so a customized fit to the unique qualities of each trader. A trader knows that without clarifying the components of their strategy into a written and executable format, they often cannot do what they think. Similarly, without clarifying the components of how to grow your psychological capital, you likely won't produce the state of mind that supports coherent and profitable decision making.  

~Keep Growing, Coach Ken

Monday, September 13, 2010

Maintain State of Mind in Slow Markets ??

Trader QuestHow do I remain in a state of mind where the market action seems to slow down, not speed past me where I am continually missing trades?

Plot Course ~ This frame of reference can happen for one of two reasons. First you are not getting enough trading repetitions or secondly, you are in some sort of slump; mentally burdened or emotionally off kilter. The cure lies in the quest for consistency. The more consistent you are at placing trades on each of your strategy’s signals, the more you will find that you are anticipating that next signal beginning to form.

Ride Wave ~ "That’s great" you may be saying, "I know I need to be more consistent, so does every other trader." Right, but perhaps you are experiencing some hesitancy that has morphed into anxiety and now you’re seeing set-ups late. By simplifying your trading down to its most basic components, by removing excess charts and indicators of the month, by turning off financial news feeds, you will remove the stream of distracting noise and allow yourself to “see” in real time, on one or two key charts, your trade set-ups developing right in front of you.

~ Keep Curious, Coach Mark

Tweak and Improve Current Strategy ??

Trader Quest Where do I look for ideas to tweak and improve my current trading strategy?

Plot Course ~ You can set out to look at your market’s candlestick charts, price ladders, profiles, point and figures to find setups or new observations. That sounds like a lot of unfocused work. One smarter way is to review your trades setups each day, both the ones that  you actually traded and also the ones that you missed.

Ride Wave ~ One idea to consider is the use of digital recording of your trading screens to capture and zoom into the whole trading day just prior to, during and immediately after you trade. This could give you the ability to see how prices and quotes were moving, what a chart was indicating, or perhaps even recall what you were thinking at the moment. Sounds like a lot of painstaking work at the end of a long trading day you say, you're right, it is! Guess what, there are traders doing this work and variations on the theme and this is your competition. 

In a recent article in SFO magazine, Mike Bellafiore of SMB Capital stated "Technology has accelerated this business infinitely since I started, and it has transformed training for the trading stars of tomorrow. For example, today’s traders can videotape their daily trading and play back their work, just like a football team."

These type of traders work deliberately to remove glitches, hesitancy and doubt whenever possible. If you don't want to invest in video capture software, you can use a modified process with your trade journal or execution log from your trading platform to capture exact times. Most software can go down to a tick chart or even a one minute chart can be helpful. This method can work either for swing or position type traders by just lengthening the timeframes.
~ Keep Curious, Coach Mark

Capture the Majority of a Move ??

Trader Quest How do I stay in a trade long enough to capture the majority of a move?

Plot Course ~ In order to think about this, I'd like to break the trade into two separate components. First, the reason for the entry. Second, when considering maximizing the outcome, you need to have a methodology to monitor the trade for continuation. Where many traders get caught is they trade to force the reason for the trade to give them indications to stay with the trade.

Ride Wave ~ Once the trade is placed, as far as I am concerned, the reason is gone. No one else is using your particular reason so its immaterial. Therefore, now you have a trade on with a directional bias, neutral and time decay option strategies are not included in this conversation. Your focus needs to shift to "What are the criteria that I need to see that will give me the probability for the next period of time that the trade will continue in the direction of my trade?" One real life example is using a one minute bar chart for a short trade. As long as the high for the bar in which you placed the trade is not exceeded in the following minute, you can allow your trade to continue for one more minute, and so on. A lot of times when a market spikes up to an excess or there is a big sweep, the market suddenely retreats. These events instantly cause fear and greed and uncertainty. If you already have your monitoring decided upon, you may be able to ride these moves profitably or even exit them quickly for a loss if the move is against you.

~ Keep Curious, Coach Mark

Simple End of Day Stats ??

Trader Quest ~ Other than P&L, what are some simple end of the day stats that will give me a true sense of how I am performing?

Plot CourseWe talked in an earlier blog about a "perfect trade" definition and tracking. That is one stat, the second is how many trade set-ups were available in the market while you were trading and how many did you actually trade. These two stats will provide you with a simple measure the will help you gauge the quest "Did I see the opportunities today and how did I execute?" If you focus solely on P&L you may think one way, but these two measures can help paint a fuller picture of a days actions.

Ride Wave ~ When traders first come to us, we rarely focus our end of the day dialogues on Profit and Loss. A trader who may have made $20,000 may have actually traded much more poorly than on a day when she lost $1,000. By measuring the perfect trades, we can see what composition went into $20k and $1k. The $20k day perhaps had only 5 out of 20 perfect trades, where the $1k had 13 for 14. You may say, give me the cash, but we’ve heard from other wise market sages to trade the trade well and manage your risk. In fact on the $20k day the trader missed another $15k that was right there for the taking. The other reason that we like these stats is it gives the trader the opportunity to look for and review these trades and trade set-ups for deeper insights and clues on where and how to improve. Trading is about adapting to the market flow. By giving yourself daily feedback and uncovering precise areas of where to search for new learning, a trader can refine skills and grow more profits.

~ Keep Curious, Coach Mark


Mark Paulik, MBA is 50% of the Even Keel Trading dynamic duo. He's the technical, tactical, trader half with the key role to help you better navigate the intricacies of trade opportunities. His posts will be under the heading "Wind~Tide~Currents" and will address the subtle forces that move and shape markets.

We at EKT believe that without questions, and really good ones, we rarely discover anything new or worthwhile. So each week Mark will extract a really good question that was posed by a really curious trader and take you on a short mental journey that gets your wondering mind activated.
The framework for each post will be organized as follows:
  • Trader Quest ~ a really good question to get you wondering
  • Plot Course ~ tactical considerations to bring the wondering mind into strategic action
  • Ride Wave ~ a real life example of a trader who took their wondering mind and strategy for action and put it to the test in real markets with real money
We too will maintain our own curious mind and look forward to your comments so we know we're offering perspectives that matter.
~ Your EKT Coaches

Tuesday, September 7, 2010

Deliberate Practice Shapes Performance

We apologize for our lack of deliberateness in maintaining this blog as initially promised; we've been busy coaching Chicago traders the last 2 years and learning what works and what's a waste of time. So here's a tidbit on what's caught some airplay recently in the field of high performance trading, it's the concept of  DELIBERATE PRACTICE

Deliberate practice is characterized by several elements. It is activity designed specifically to improve performance, often with a teacher’s help; it can be repeated a lot; feedback on results is continuously available; it’s highly demanding mentally, whether the activity is purely intellectual or heavily physical; and it isn’t much fun.

Two awesome reads are The Talent Code by Dan Coyle and Talent is Overrated by Geoff Colvin. We have adapted perspectives from these two books to assist traders in getting quickly up to speed with the why's and how's of that notion "practice makes perfect." Isn't it strange that in professional sports a majority of time is spent practicing performances rather than actually playing live competitions. In contrast, daily business environments spend most of their time doing performances in order to remain competitive, and spend very little, if any time practicing. What's wrong with this picture? And more so, how does one practice effectively while they work? 

We were curious to answer this question from the perspective of coaching professional traders. Our coaching process POISED 2 PERFORM is rooted in what we've learned the last several years from our research of the performance psychology literature and field application with talented professionals. The bottom line is, embrace mistakes and errors for they will bring you closer and faster to high performance than once thought possible. It's paradoxical (a.k.a. opposite) to what most think; we've been trained to prevent mistakes and avoid failure at any cost. But those courageous to face their mistakes square in the face and learn from them, rise towards the top and and become more adept at sustaing high performance. 

Key Points
  • Know how to practice deliberately
    • Lots of repetitions
    • Lots of feedback
    • Lots of focus & concentration
  • Become an expert in domain-specific knowledge
    • That is, develop insightful intuition by writing and talking about what you know over and over to someone who's interested
  • Never become complacent, keep on truckin...
  • It's really hard work...but you already figured that out

Our future posts will examine more about the art of deliberate practice and how to enhance your performance edge within both the internal and external markets or opportunity.

~Keep Deliberate, Coach Ken