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HomeThe Problem Is Not the Market, The Problem is You
Posted by Larry Doyle on November 19th, 2009 12:14 PM |
Trading on Wall Street is fascinating. Picture yourself surrounded by individuals within three to four feet on every side, a manager at the end of the trading row, and salespeople screaming to get your attention. In what may appear to be bedlam, one must be able to properly manage significant levels of risk.
What are the key character traits necessary to manage risk? The ability to calculate quickly while maintaining exceptional levels of poise, focus, and discipline. Why do so many competitive athletes make their way to Wall Street? These trading floors are the equivalent of locker rooms and athletic fields.
As with any athletic atmosphere, there are also some very healthy egos on Wall Street trading desks. The very nature of the enterprise attracts those who have strong belief in their own abilities. Competition promotes ego. That said, throughout my career I witnessed varied levels of success inflate individual egos to the point where the ego became unmanageable, the risk outsized, and the subsequent losses fatal. That scenario repeated itself at every shop on Wall Street.
Having witnessed it, I kept a short cutout from a trader’s magazine. The magazine item addressed the topic of losses. I wish that I saved this clip, but I distinctly recall its message. In so many words, it said ‘the problem is not the market, the problem is you, the trader. You need to accept that the market and its participants are not wrong, but that you and your ego are not willing to accept initial losses so they grow to the point where the losses become fatal.’ (more…)
LD’s ‘Rules of Trading’
Posted by Larry Doyle on September 2nd, 2009 3:17 PM |
I loved my 15 years worth of trading experience on Wall Street. I thrived on the energy, competitiveness, and discipline critically important to generating long term profitability.
While many media outlets focus on the energy and competitiveness involved in trading, rest assured the real key to successful trading and investing is discipline. In my opinion, this characteristic receives far less focus and attention than it deserves.
I believe discipline is both an intrinsic and acquired trait. In fact, often the real benefits from a disciplined approach are the lessons learned from being undisciplined. Believe me, I learned many of these lessons early on and throughout my career on Wall Street. I accrued plenty of losses in the process.
How did I develop and maintain a disciplined approach during my 23 year Wall Street career? Very simply, I kept a written list of ‘trading rules’ on a piece of paper typically taped to my computer terminal.
High five to AS with whom I developed these rules back in the mid 1980s. These rules not only helped me generate profits, but more importantly kept me from making trading mistakes and thus avert losses.
Let’s review the rules that I applied to trading mortgage-backed securities in the 1980s and 1990s. In many respects, I continue to apply a semblance of these rules today.
LD’s Rules of Trading
1. Market Goes in the Direction Which Hurts the Most People
I would check the stochastics regularly to monitor when the bond market (typically the government bond market) was approaching an overbought or oversold condition. Assessing this measure is decidedly more challenging currently given the presence of Uncle Sam in the marketplace.
2. Never Short a Specified Bond
How often I would see traders short specified bonds without any appreciation for the available float. Initial short sales may appear to be profitable only to turn into nightmares when the trader had to find the bond for delivery to the buyer.
3. Never Set Up for a Trade
This rule specifically addresses a trader’s inclination to establish a trading position based upon color from a client that the client himself planned to enter into the trade. Experience taught me that often the client would find a reason not to execute the trade and now the trader was stuck with the position. (more…)
