Long & Wrong

I am sat here in the pre-dawn gloom feeling gloomy.  The only real source of light is from these monitors but they only add to that gloominess.  I am reading the virtual morning papers and feeling depressed.  Conflict on The Korean Peninsula, mine deaths in New Zealand, cholera in Haiti and  a car bomb in Yemen.

As I glance at Bloomberg TV I am told that Socgen notes that the shelling in Korea is a huge buying opportunity.

So I am thinking about how comfortable I am with profiting from bad news.  If, for example, there was a large-scale terrorist attack would I be sat here watching the rolling news coverage and feeling shock and compassion  or  would I be selling index futures? Or would I be doing both and would it be morally acceptable?

I don’t have an answer.  Perhaps I should decide before it happens, although it happens on a smaller scale every day. Trading provides too much time for thinking and those thoughts are sometimes the start of unpleasant journeys. I was about to apologise for sharing this one with you, but perhaps I shouldn’t.

Updated: After further thought, and contemplation of your comments, I think there are probably 3 cases of making money from bad news. The worst, e.g. the arms merchants, make the problem worse. The best, e.g. the drugs companies, make the problem better and in the middle, where I think we are, there is only a neutral influence. I’m not saying if that is right or wrong, it  could though be worse or it could be better.

Just like Shaggy sang, admittedly in a slightly different(!) context, it wasn’t me.  We should all be singing this to ourselves every time a trade closes, whether it wins or loses.

I’m  quite capable of throwing the mouse against the wall in extremis but I am  amazed by the emotional roller-coaster that some traders subject themselves to based on the result of each and every trade.   Having an emotional response to the outcome of an individual trade is logically flawed.

You went short because <insert your own brand of reasoning here, even if it involves lunar cycles> and 40 minutes later your profit target is reached.  It was reached because of an especially large sell-order by a fund manager, it was reached because of a rumour about a Spanish bank, it was reached because the unforeseeable news event that will cause the market to rally by 120 pips doesn’t happen for another 19 minutes, it was reached… You get the idea by now – It wasn’t me.

The outcome of a particular trade is  out of our control, only the probability is able to be manipulated in our favour and our success at that will only become apparent over a (surprisingly) large number of trades.  So neither congratulate yourself about the winners or beat yourself up over the losers, it’s a much nicer way to spend the day and those around you will probably appreciate it as well.

So after a trade, it wasn’t me. After 20 trades, it probably wasn’t me. After 50 trades, it might have been me but to be honest it is hard to tell without a proper statistical analysis (which, bizarrely, was the original title of the Shaggy hit)†

I know I can sound preachy, but it is my heart-felt opinion that divorcing emotions from the outcome of individual trades might be the most important lesson I ever learnt. Once you don’t respond emotionally, you can enter the next trade in a neutral state of mind.  It’s exactly that state of mind which makes much better decisions and better decisions tend to be profitable ones (over the long term average!).

†Not true. Obviously.

… I’d tweet a link to this…

It’s a fun run, not a bank run.

… but I haven’t, so I can’t, which is a shame because it is quite funny.

I got up late, I got up very late. I had missed all of the fun at the London open, it was obviously going to be one of those days.

If I am going to make a serious point, and not just show off my brilliance, it is that it is never too late to start making money.  There is also an eur/jpy chart that shows it is never too late to start losing money, but that makes neither a useful point or provides me with a warm, smug glow.

I ended last week lazily regurgitating something (potentially!)  interesting that I had just read, and I start this new week doing exactly the same.

I think as traders we spend a lot of time seeing patterns that aren’t really there, we are after all desperate (and financially motivated) to find some exploitable order in the price-noise. Unfortunately for us, our brains may be predisposed to do exactly that,

A proximate cause is the priming effect, in which our brain and senses are prepared to interpret stimuli according to an expected model. UFOlogists see a face on Mars. Religionists see the Virgin Mary on the side of a building. Paranormalists hear dead people speaking to them through a radio receiver

… and traders see all kinds of weird and wonderful patterns.