Voices in my Head

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  • on October 15th, 2011

“The goal for the trader is to develop a system with which he is compatible”  Ed Seykota

Every trader has a different definition of noise.  I dropped CNBC in favor of music long ago, but I still have days where noise gets to me in the form of staring at price.  Waiting for a better entry.  Hoping for a better exit.  Wondering if I’m going to get my price, and if not, will I cave and accept a not-as-great price?

This is the noise that applies to me when I see the subtitle “Eliminate the noise, and profit from the strategies that are right for you”.  In his book The Inner Voice of Trading, Michael Martin shares ways in which we can tune out the noise and tune in the insight.  New indicators won’t do it, as he lays out in the following passage:

“Each indicator that you add to your trading system tries to preclude you from your feelings about loss and uncertainty.  If nothing else, you may find yourself using the technical indicators as little emotional bandages to cover up your true feelings about uncertainty.”

A description by Martin in Chapter 2 does the best job I’ve seen in explaining how most of us evolve to this state of wanting to be “right”, a state completely incompatible with successful trading.  The following talks about the way we’re educated:

“From an early age, we attend a school system that rewards us for accuracy.  The teacher lectures, assigns reading material and homework, and then quizzes and tests on how much of it we’ve retained.  Accuracy and precision are rewarded.  Imprecision and inexactness are not only bad, but they are considered failures…and that’s where your self-esteem takes its first shot to the chin.  You avoid failure at all costs, especially when it concerns the potential for public incorrectness.” 

This is great, and reminds me why Steve Jobs was able to act with fearlessness at $AAPL.  I heard an interview with Steve Wozniak about how he dropped him off at Reed College, and Jobs was upset he had to take these “irrelevant” classes when there were so many fascinating books to read.  It wasn’t that he didn’t want to learn; it was that his desire to progress far outweighed his desire to score well by someone else’s standards.  As Martin shares in this interview, trading legends like Paul Tudor Jones and George Soros and “Trader Vic” Sperandeo had incredible appetites for reading…I’m guessing they never had to take a test on what they read.

I share that passion for trading and education, but have to work hard to avoid getting bogged down in watching prices tick.  I agree with Peter Brandt when he says that the sum of his intraday trades has been a net detriment rather than benefit.  I do just fine when I stick to my core strength…aligning myself with the essence of trend.  The wild swings of recent months have me adding back a couple of things that used to be part of my routine.

First, the midday workout; if something major happens at lunch there’s no reason I can’t get properly positioned in the final hour with fresh energy.  Second, after doing my prep, exiting positions, and assessing the opening range, I stay away from new trades until we’ve reached either a full ATR of movement or the final hour is here.  My wiring is best suited for daily decision making, but with the right amount of connectedness on Day Zero can gain a huge edge over the trader who can only study at night and place orders for tomorrow.  I’ve wasted countless hours and energy anticipating moves long before their moment had arrived.  To keep that fearlessness Mark Douglas describes, I need to save that energy for when it’s most needed.

In the current market, the voices seem to be shouting at me.  The devil on my long-term shoulder says bear, the angel on my swing shoulder says bull, and watching ticks simply magnifies the conflict by making my brain filter more inputs.  There are so many important things to interpret; shame on me for letting useless info cloud the useful stuff.  Like every other move I’ve seen in the past decade, those voices will get in alignment and my job is to be aggressive when they do.  The voice that matters is the one that says “wait for your pitch, then swing hard.”

* The book is now released, but Mr. Martin was gracious enough to give me an advance read in feeding my curiosity about Marcus & Seykota & the success of Commodities Corp.  Take a look at an excerpt on rogue traders shared by Josh Brown.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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