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  • Nothing in life is to be feared

    Nothing in life is to be feared, only understood – Marie Curie It is no secret the Marie Curie is one of my intellectual idols – the only person to win two Nobel Prizes in different disciplines. I don’t count the Peace prize won by the likes of Linus Pauling since it is a bullshit popularity… Read more…

  • Thirty-Three-Hit Wonder

    Joel was wearing a black T-shirt tucked into black jeans, black Vans, and an Indian Motorcycle ball cap. The back of his head, where hair might be, was freshly shorn, and his features, which in dark or obscure moods can appear mottled and knotted, were at rest, projecting benevolent bemusement. To prepare for the flight,… Read more…

  • Risk & Volatility Index Dashboard

    I regularly get emailed things from S&P Dow Jones Indices – most it relates to index structure, performance or changes. Some of it is data for data sakes with no real use, but some bits are interesting from a summary perspective. I have always had mixed views about volatility and have spoken about it a… Read more…

  • How To Become An Equity Fund Manager

    So you want to be a fund manager, sit on a pile of money, move it from here to there and from there to here. Wear a suit everyday to work, a silk tie and maybe have one of those heavy Swiss watches on your wrist. Sounds nice, right? Well I have good news for you.… Read more…

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Nothing in life is to be feared

Nothing in life is to be feared, only understood – Marie Curie

It is no secret the Marie Curie is one of my intellectual idols – the only person to win two Nobel Prizes in different disciplines. I don’t count the Peace prize won by the likes of Linus Pauling since it is a bullshit popularity contest and he was a nut job obsessed with Vitamin C. He would fit right in with the Facebook crowd there is nothing like ruining your reputation by being a loon.

The above quote resonates because to me it speaks about trading. The events of the past few weeks have set the cat among the pigeons and caused the usual amount of hand wringing and panic. The distress that is felt by investors during such times seems to me to be a consequence of simply not understanding the investing/trading process and refusing to understand that markets do have a natural rhythm to them that at times involves going down. Sometimes they go down very fast – sometimes they just drift.

Whilst, optimism is undoubtedly a positive evolutionary survival trait (at times) it is also the cause of immense difficulty for traders. In part there is an unrealistic expectation with market participants that markets will never go down and that when they do this is somehow an aberration that needs to be fixed. This is a fear response brought about by a lack of understanding.

Let me use an analogy – at present the world seems to be gripped by Ebola fever – no pun intended. This panic has been brought about a lack of understanding. A lack of understanding brings fear. For some groups in society fear is a good thing since it promotes control. The simplest example is the majority of religions – do what we say or go to hell or its equivalent. Fear is the stick and there really is no carrot, just less stick.

A little bit of education goes a long way. Domestically we have had no cases of Ebola yet it dominates the news. In the past week as it has dominated the news. The following has occurred in Australia.

Approximately 385 people died from ischeamic heart diseases.

Approximately 207 people died from cerebrovascular diseases.

Approximately 199 people died from dementia related diseases.

Approximately 81 people died from diabetes.

Approximately 54 people died from prostate cancer.

Approximately 52 people died from influenza.

These are average figures so this pattern repeats itself week after week after week. The same pattern is true for all Western nations that are currently panicking about a disease that seems to be confined to certain parts of East Africa.

Knowledge is power – it is a hackneyed old cliché but it is true. The more you know the more power you have. The same is true with markets, the more you know the more power you have and the more you know about yourself the closer you get to ultimate power.

As an example consider the table below.

Screen Shot 2014-10-25 at 5.08.11 pm

This is the table of results for a new system that we will go public with next year. I have been trading it as an ordinary trader would with a nominal amount of capital in a live account. You will note that the system generated a loss for the first month. My observation is that even a small loss in the first month of trading causes traders to go to water. This occurs due to a lack of understanding of themselves and an inability to accpet that all new systems generare drawdowns in their first trading periods. Trend following systems have to do this because they take their losses first and profits and not closed for some time.

I understand and accept this process, therefore, I dont fear it. I also don’t run my life on what could be called a noise based nano scale where if something doesn’t happen instantly I throw my toys out of the pram and go and sulk. Trading is a long game, not a short one and whilst impulsive behaviour does seem to becoming the norm it is not part of my trading repertoire.

I view trading as a profession of stillness and patience not activity and I need to repeat myself here because I believe it is so important to ones success.  As a quick recap, the first principle is known as Mushin or no mindedness. The closest western concept is that of unconscious competence. It is a mind that is free from extraneous considerations. As such it is free to act unencumbered by emotion. Mushin is also firmly rooted in the present. Notions of past and future are irrelevant, and by extension fear and worry are not present. What has occurred with past trades is irrelevant, as is what might happen with any future trades.

The second stage is Zanshin. This is a state of mind that enables you to retain control of both your conscious and unconscious mind whilst engaged in a course of action. It is the ability to engage the market while being aware of the impact of your engagement upon your subconscious mind. Zanshin is activity based and you are aware of the trade and all the possible consequences of that trade. Yet the notion of Mushin still permeates this transition since both states of mind are fully present in the moment. Worry cannot seep into the trading system if it is set in the present.

The final phase is Jikishin or the taking of opportunity without fear or hesitation. Consider these moments within the context of a given trade. Trading systems consist of a generic set of principles with a set up followed by a trigger leading to an eventual exit. Mushin is our set up phase and it is our point of stillness where we wait. Zanshin is the movement out of Mushin into an active phase. We have taken our trigger and are aware of all the things that could happen. The notion of Jikishin floats between entry and exit since both require action without fear. However, it is important to note that these are actions of unconscious competency – such competency is brought about confidence in your own knowledge. There are reactionary – you react in response to the market but you do so on your own terms not on those dictated by noise.

Trading is an internal endeavour since our trading only takes place in our minds. Too often traders look outwards for what is essentially an internal problem. The ability to create a calm, still mind solves a myriad of trading problems, as does the creation of safe metaphors. Whilst notions such as Mushin are difficult for those who are first exposed to them, it is possible to build metaphors that are calm. Other traders have told me that they regard trading as surfing, sailing or skiing, all endeavours they find pleasant, safe and most importantly peaceful.

Nothing in life is to be feared, only understood and if you understand yourself you have a quiet place from which to understand the world. Unfortunately, most people do not understand themselves so as Thoreau stated they lead lives of quiet desperation, which causes them to bounce from one panic state to the next. The same is undoubtedly true of the majority of people in markets – they have no platform from which to view the markets and themselves in an objective fashion. Without objectivity then there is fear and with fear comes a lack of reason.

 

Thirty-Three-Hit Wonder

Joel was wearing a black T-shirt tucked into black jeans, black Vans, and an Indian Motorcycle ball cap. The back of his head, where hair might be, was freshly shorn, and his features, which in dark or obscure moods can appear mottled and knotted, were at rest, projecting benevolent bemusement. To prepare for the flight, he’d put on a necklace of good-luck medallions—pendants of various saints. The atavism of Long Island is peculiar. Though Jewish, and an atheist, he had, as a boy in a predominantly Catholic part of Hicksville, attended Mass, and even tried confession. His mother took him and his sister to Protestant services at a local church; he was baptized there. Still, a girl across the street said he’d grow horns, and a neighborhood kid named Vinny told him, “Yo, Joel, you killed Jesus. I’m gonna beat your ass.” Vinny did, repeatedly. Joel took up boxing to defend himself. The nose still shows it.

There was a rumble in the distance. “That’s my guy,” Joel said. “He’s early.” A helicopter zipped in over the oystermen and landed down by the water, at the hem of a great sloping lawn, where Joel had converted the property’s tennis court to a helipad. He’d recently had to resurface it, after Hurricane Sandy. Joel often attempts to inoculate himself with self-mockery. “Oh, my helipad got flooded,” he says, with the lockjaw of Thurston Howell III.

He got up to go. He has the short, wide, halting gait of an old lineman—two fake hips. He called through the screen door leading to the kitchen: “A-Rod!” A-Rod was his girlfriend, Alexis Roderick, from Northport, a thirty-three-year-old former risk manager at Morgan Stanley. They met five years ago at a restaurant in Huntington, where they’d both gone with friends. He introduced himself, got her number, and, when he was done eating, called her on the phone from across the restaurant and asked if she would give him a ride home. “I always try to go out with North Shore girls,” he likes to say. “They usually have a car.” She drove him back to Centre Island. He asked her if she wanted to hear him play. She said no. He played anyway—Rachmaninoff, on the living-room grand, a move he got from “The Seven Year Itch.” She says, “It was like he couldn’t not be ‘Billy Joel’ at that moment.”

More here – The New Yorker

Risk & Volatility Index Dashboard

I regularly get emailed things from S&P Dow Jones Indices – most it relates to index structure, performance or changes. Some of it is data for data sakes with no real use, but some bits are interesting from a summary perspective. I have always had mixed views about volatility and have spoken about it a few times see here and here My views are mixed because it is perennially misunderstood and it is used as an attempt to predict where markets are going. Both are irritating mistakes made by amateurs who claim to be professional.

The interesting thing about volatility is that it displays wonderful mean reversion and this is a point made tangentially by S&P when they talk about volatility returning to markets.

The VIX® returned to levels not seen in several years, breaking through 30 intraday on October 15th before falling back to close yesterday at 17.87. Both rise and fall in the VIX were precipitous and, despite returning to more normal levels, the market remains skittish.

Markets have experienced periods of extended low volatility which would eventually end. The image below is of a selection of world indices with 30 HV and a 250 day MA plotted. The 250 day MA approximates the long term average volatility of each market. As you can see the rise in volatility was not universal with some markets continued to trend but doing so with only a minor increase in volatility.

Screen Shot 2014-10-24 at 12.13.51 pm

(Click image for a large version)

There does however remain a central question with such data – what do you do with it and how does it affect your trading decision? For me it actually has little relevance outside of academic interest. That is not to say that I regard volatility as an irrelevancy in trading because it isn’t. I use volatility for bet sizing and for trade selection. Beyond that I feel its actual utility is limited for the majority of traders.

How To Become An Equity Fund Manager

So you want to be a fund manager, sit on a pile of money, move it from here to there and from there to here. Wear a suit everyday to work, a silk tie and maybe have one of those heavy Swiss watches on your wrist. Sounds nice, right? 

Well I have good news for you. Being an equity fund manager is the easiest job on the planet. You don’t even need a college degree, all you need is to read this article and you will be ready to manage millions and millions of other people’s money.

Ready?

Of course you are. Let’s get started. 

More here – The Bankers Umbrella

Comedians In Cars Getting Coffee – Chris Rock

Something different for the day and my favourite web series. Click image for the redirect to the video.

Screen Shot 2014-10-23 at 8.31.04 am

 

Your Perfect Day

perfectWhat would be your perfect day? How would you look, feel, and what would you be doing?

Strangely, when I’ve asked this to civilians (people outside our close-knit trading community), they don’t even know the answer. But I’ll bet you, if you think about it, you’ll know what you perfect day looks like.

You know who you want to be with and where you want to be.

Some people have never really clarified what their ideal day would feel like for them. Or, they’ve kept their standards so high, that they can only live it once … like their wedding day. What I’m talking about is more of a lifestyle day, that you could create at will.

To pursue your bliss in life, it means stringing together day upon day of your perfect day.

Either you’re moving closer to having more of your ideal days, or you’re not.

Are you designing your current life around your image of your perfect day? If not, then why not?

Should You Quit?

bliss3I was talking to my friend, Alan Furlong, on the phone the other day. He’s a loyal follower of the positive psychology movement. I asked him “Alan – what should someone do if they really don’t like their job?”

Without hesitation, he said “Quit”.

I have to admit, his answer freaked me out. But the more we talked about it, the more it made sense.

Sometimes your busy-work is not your ‘life’s work’.

So many people have a big stigma about quitting. They’re going through their day with dread, but they feel like they have to keep doing it. At some point it becomes miserable. The treadmill is of their own making.

Staying in a job, a relationship, or a role that isn’t healthy, and won’t lead you to your dreams will bring you right into the ‘zombie zone’. This is a zone where everyone around you is half dead, and you’re fast on your way to joining them.

If you’re waiting for a sign that things aren’t on track in your life, maybe the sign is that you’re waiting for a sign!

You’ve really got two choices. Either you change your attitude about the thing you want to quit, OR, you actually QUIT.

Sometimes, quitting isn’t a bad thing.

Yes, I know I’m the one to say focus, and persevere, but if what you’re doing isn’t bringing you joy – it might be time to re-think what you’re doing.

If what you’re doing is dragging down your soul, it will block you off from seeing the opportunities around you.

What does your internal intuition say? What does your body tell you?

No knight in shining armour will swoop in to save you. If what you’re doing isn’t congruent with who you are, and what your dreams are driving you to achieve… why are you hanging around?
If you’re starting to feel the frustration build up, perhaps you’re living a life that’s not in alignment with your bliss.

Maybe, just maybe, you are living your life… but it’s not your own.

Beginning sooner than you are probably ready for is a hall-mark of courage. Trust in your ability to figure things out. The perfect timing is never going to come.

Set a D-Day. That’s the day you quit. In the meantime, you do everything you can to channel your education and your resources into achieving what you need by that date. Without that D-Day, it’s wishful thinking.

Your D-day is the day you leave the thing that’s not satisfying, not healthy, or not nurturing your soul’s desire. Stop marching to the beat of your miserable drum.

If your D-Day is more than 2 years into the future …. it’s too long to wait.

The vast majority can change almost any aspect of their life within 6 months. I’ve seen it with my own eyes with members of our Mentor Program.

Set your date. Work towards it with passion and focus.

Good traders hustle. They move fast.

So move fast.

General Advice Warning

Trading Game Unit Trust © 2002 – 2014 (ABN: 18 418 996 042) is an Authorised Representative of Weather Pro Pty Ltd, Rep No. 418664, AFSL 419155. The Trust is affiliated with The Trading Game © (ACN: 099 576 253), Louise Bedford, Chris Tate, Art of Trading Pty Ltd, Trading Secrets Pty Ltd and Trading Game Pty Ltd. This information is correct at the time of publishing and may be not be reproduced without formal permission. It is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs.