Hey Traders,

I did another piece on Core Finance last week and thought it was interesting enough to enlarge upon here.

Achieving consistent success in trading comes only once we learn to trade in line with our individual personality, character and beliefs. It is garnering this self-knowledge that becomes the real treasure on your trading journey. This series of articles will help you raise your awareness, develop self-knowledge and improve your approach to your trading business as you gain clarity on what type of trader you are.

 
There are plenty of ways to define what type of trader you are but for this instalment let us look at a simple yet immensely effective exercise regarding our emotions.

 
Fear & Greed are the dominant emotions expressed in the markets on a day-to day basis. (Whilst some may claim we could go deeper for the sake of this post we’ll keep it simple).

 
Fear & Greed influence every part of our lives but they are particularly evident when trading financial markets. The author would challenge anyone who told him that they had never experienced such emotions when placing and managing trades. There are many out there who would have you believe that trading can be an emotionless activity. The author would love to believe that, but his experience as a Trader and a coach to traders dispels that idea. We are human beings, a constant bag of emotions and it’s by accepting that and trying to use it to our advantage that we can learn, grow and succeed as both traders and human-beings.

 
With regards to Fear & Greed you as a human-being and trader will be predisposed to favouring one over the other but you will certainly experience both emotions during your trading adventures. So let us take a very brief look at the types of trader:

 
Greed Based Traders (GBT) tend to be hunting for action. GBT’s love the process of buying and selling and will take a trade on the flimsiest of evidence if they think they can turn a quick profit. GBT’s will trade anything and will always be searching for big profits. GBT’s tend to fail to treat the market with the respect it deserves. GBT’s will be almost addicted to intra day-trading and believe that using high leverage is a good thing!

They are predisposed to overtrading and over- leveraging their accounts.
Whilst they will enter the market in a heartbeat they are less reluctant to leave a trade quickly, even after every indicator tells them to get out as they want to hang on for the last drop of profit.

 
Fear Based Traders (FBT) occupy the opposite end of the spectrum. FBT’s can take an age to take a trade and quite often need everything to line up before they will take a position in the market. They will often miss opportunities because they’re waiting for the perfect set-up. They struggle to pull the trigger and invariably will use little or no leverage. Their money management is good but definitely on the conservative side.
Whereas a GBT gets in fast and gets out slowly a FBT gets in slowly and tends to get out quickly at the first sign of a possible loss or a possible win. They tend to take small losses….but they also cut their winners short which has an overall impact on their equity curve. Remember there’s a good chance that 90% of your profits will come from 10% of your trades but a FBT will often miss out on those 10% trades as they’ll snatch at profits far too quickly.

 
GBT’s are the ones who make the great fortunes……if they can last long enough as they are also more disposed to blow up their accounts! FBT’s tend to plod along.
As we mentioned earlier you will experience both emotions as a trader but which side of the fence do you predominantly sit on? It shouldn’t be too hard to work out. When coaching traders it’s one of the first questions the author looks to answer. Very often by active listening the trader will display their bias merely by the language they use.

 
The best traders are able to recognise their strengths and weaknesses and steer a steady course between both the FBT and GBT within them. There are plenty of simple tactics you can use to help support you with your bias. Within the limited confines of this article you could sum up a solution in two words: simplicity & structure. GBTs need a simple Risk Management structure that they can follow. This allows them to operate to their strengths without over-leveraging and over-trading in order to avoid a blow-up.

 
FBT’s need a simple yet precise trading structure that leaves them certain in their entry & exit points allowing no time for hesitation or doubt when the time comes to place a trade or exit a trade.

 
To paraphrase a line from a great coach, Robin Sharma, ‘Remember awareness precedes clarity, which precedes choice, which precedes action, which precedes success!’ If you can raise your awareness of what type of trader you are then you can make changes to your trading approach in order to avoid the pitfalls of either type of trader.

Trade well!

Q3 Online Traders Forum Ticket

Ticket for the Q3 Online Traders Forum - which also includes access to the recordings post event.

£20.00

Traders,

For several years now I’ve run the London and Dublin Traders Forum – a once-a-year all-day event for Traders to come together, learn and socialise with each other.

This years London Traders Forum will be on Saturday 6th October 2018 in Central London. Put the date in your diary and keep your eyes peeled for details and early-bird opportunities.

In the meantime the next event will be the Q3 Online Traders Forum on Saturday 7th July.

This is a new initiative from traders, for traders. The idea is for it to be a short, intensive 3 hour online seminar that covers various aspects of the 4M’s of Trading: Markets, Method, Money and Myself. The idea is for you to be able to learn some new trading ideas, whilst in the comfort of your own home, and without sacrificing your entire weekend.

The plan is for there to be one Online Traders Forum the first Saturday of Q1, Q2 & Q3 with the London Traders Forum at the start of Q4 the main all day event.

For the Q3 Event we’ll have the following speakers:

Paul Wallace from FXTraderPaul.com and the London Traders Network will deliver the market analysis section focusing on FX, Indices, Commodities (and perhaps some Crypto) and look at where to focus for possible Q3 Trading Opportunities.

Martin Walker of ForexTradingLondon.com will take a deeper look at Price Action, what are its constituent parts, and how to identify and read it on your charts. He will show you how to use this knowledge in your trading. Understanding and being able to read Price Action is key to identifying Trends, Breakouts and False Breakouts, Market Turns and much more.

From Dublin, Ian McFadden from the Symmetry Trading FB page will talk about his way of intra-day trading Oil using the CL Futures contract. Ian has traded using Fibs for over 10 years and he will explain how he uses them to analyse Oil and find intra-day trade set-ups.

There is a charge for £20 to attend. Why? Because we’re not selling anything. Its proper educational content rather than a slick pitch in the hope to up-sell you something. Furthermore the sessions will be recorded, and as an attendee you’ll have access to them afterwards.

You can get your ticket here: Q3 Online Traders Forum
It promises to be an enjoyable session that will help you grasp the opportunities that Q3 2018 will present.
Trade well!

Hello Traders,
Great to chat with some of you at the recent LTN Social – the next one is Wednesday 18th July.

As people with an interest in markets and FX you may have seen this morning article on BBC regarding currency: The hidden cost of currency fees.
If you’ve ever traded FX then, like me, you’ve probably spat the dummy out when you see what Travel Shops try and offer you for currency conversion. Furthermore along with a crappy exchange rate they may charge you a commission on top for the pleasure of doing business!
It’s rare that I recommend any product or service – and I only do so if I love it and use it myself. With regards to Foreign Exchange payments I use Transferwise and heartily recommend them. Cheap, fast, and at a rate v close to the wholesale.
Furthermore they have recently released a Transferwise borderless debit account that allows you to hold bank accounts in the UK, Europe, US & Australia – along with approx. 60 currencies all on one card. I use it myself, I think it’s wonderful. It has enabled me to hold my money in USD these last 2 months during this period of Dollar strength (more on how to do that in the future!)
As I said I very rarely recommend anything unless I use it and like it myself – and Transferwise meets that criteria.
Trade well,
Paul

Hello Traders,

Yeah I know I haven’t posted as much as I normally do – shock horror – I’ve been busy trading these glorious markets.

However now and then I do get away from the desk and indulge in normal people’s behaviour. And so last Thursday I found myself in Liverpool for the day and decided to visit the Tate Liverpool Art Gallery in the Albert Docks. Now I have an admission: I am quite the ignorant, Neanderthal, philistine ( I suspect most of my readers had already worked that out.) I find most modern art a bit self-indulgent, in the same vein as jazz, namely more likely to be enjoyed by the artist than the viewer. That’s not to say there aren’t some stunning, spectacular, moving, thought-provoking pieces – it’s just that I end up shaking my head and shrugging my shoulders at a lot of it thinking to myself, “How many drugs did the artist have to take to think that would be a good idea?” 

My view was only hardened after I walked into one side-room to find a arty film showing a grown mature man, dressed as a baby, hitting himself with toys in what looked like a child’s bedroom. I was told that this was art. Personally I thought it was a big bag of tosh – from a clearly disturbed man – and walked away muttering under my breath that it’s no surprise that the art world is full of sex-abusers and paedophiles. Anyway I digress.

The reason I chose to pop in was because I was intrigued to see that there was a Roy Lichtenstein exhibition on, and one of his famous pieces was there (see below).

The piece is called “Whaam!” its from 1963 and depicts aerial combat in pop-art form. I have it as a fridge magnet (see I told you I was a philistine)What can I say? The former Air Defender in me is still alive and well and takes pleasure in scenes of aircraft getting shot down! (As an aside I learnt that Lichtenstein served in the US Army during the Second World War and in particular focused on anti-aircraft drills and operations and lots of his early work consisted of drawings of aircraft – so maybe he too derived pleasure from scenes of aerial combat?)

However I was pleasantly surprised to find the piece below – and I would love to have it on my office wall! It’s by Andrew Gursky and is a double exposed photo of the trading floor at the Chicago Board Of Trade from 1999. I thought it was fantastic and ended up having to explain to my date and several others what it was representing. It’s a huge piece and sadly my photo doesn’t do it justice.

I loved it so much that I went to the shop and tried to buy a copy (see, even Philistines can support the arts, now and then.) Sadly they had none. Boo.

In a weird world of coincidence just a couple of days later I got a text from my friend and colleague Malte Kaub (Twitter: @SE_1Trading) who sent me a similar photo. It turns out that Gursky has an exhibition on at the Haywards Gallery in the Southbank Centre until 22nd April. It’s not free but if you’re a trader then maybe pop along and see his work – I loved the photo – I now have visions of a large copy of it filling the wall of my trading office. To many people looking at it would give them a headache. To me, it’s just a great insight into the frenzy of a world no longer with us.

Even cooler was when I tweeted the photo a guy on twitter actually spotted himself in the photo. How cool is that?

Here’s an interesting aside for the traders within us. I was today interviewing a former trader who started up as a floor trader on Liffe and then made the transition across to electronic trading. I asked him about how the transition went – he said it was extremely hard, and most floor traders did not make the transition. We talked about it and came to the conclusion that in the old days you saw your enemy – he was the guy on the other side of the pit – you could see the whites of his eyes, and get a picture of whether he was confident or sweating about his position. That was an edge. Whereas when you look at a screen you don’t get the same sense of the other participants sentiment. It may explain why there is an increased interest in trading psychology / performance coaching within the electronic trading community. Instead of taking cues from the guys around you, now the only feedback you get is from yourself – and so you need to know how you think, operate and behave far more intimately than ever before. Food for thought? (Be sure to disagree with me if you think so – I’ll happily listen to opposing views.)

Anyway I’ll finish up with a joke about artists from my good Irish trading pal Ian.

“Why do artists always look happy?”

“Because they get to party on other peoples money!”

Da-dum-tsch!

“Regrets, I’ve had a few, but then again too few to mention…” so sang the late great Frank Sinatra. Whilst an undoubtedly great song I have always struggled with that line. You see I’ve never understood people who say “I have no regrets….” for when I look back at my life I have plenty of regrets. That’s not to imply I’m unhappy, or ungrateful, or that I’m seething with resentment, for I am not. I just know that there’s lots of things that if I had the chance again I would do differently. I’m well aware that I cannot change the past, just my attitude towards it, and that what’s done is done. Perhaps it’s just my perfectionist streak that doesn’t let up on me about past mistakes. Always driving me on to learn from them and improve against a bar/standard that I’ll never achieve. Make of that what you will. Which leads us onto this blog piece and the review of my own year.

Welcome to 2018 traders – I hope you enjoyed the break and that you’re ready for an interesting year ahead.

As for myself I closed down shop over the Christmas period. Apart from an occasional glance at a chart of Ripple I stayed away from all markets and trading. For me, it was the right choice.

As part of my downtime I like to conduct a review not only of my data but also of my behaviour and my decisions, along with planning my year ahead. This blog post is part of that. I apologise for the length and the rambling nature of it. You don’t actually have to read this yourselves if you don’t want to – it’s more a missive to myself about mistakes I made and lessons to learn (or even re-learn). Perhaps some of it will resonate with your own experience, perhaps some of it will make no sense, perhaps some of it will offend you – I can’t control how people interpret my words so I don’t bother trying. It is what it is.

I’m always happy to talk about my mistakes, misses, the woulda, coulda, shoulda’s. I figure people can learn more from my mistakes than my successes. Furthermore it shows that none of us are exempt from the human condition or perfect in our trading.  None of us are beyond reproach – we are all striving, and evolving, towards being the best trader that we can be.

So lets see what shall I start with? How about the markets and the correction that never came.

What, no crash? I wrote 2 blog pieces at the start of summer about how I sensed that we may have reached the highs and be due a healthy correction, if not a crash. The summer came, and went, and so did my plan. I was wrong. Dead wrong. Completely wrong. For which I apologise.  Markets looked like they may roll-over but in reality they just took a breather before resuming their upwards, unstoppable momentum. Even though I had a suspicion that markets may roll over that was not an indication to sell everything but I did have a few short trades on the NASDAQ which were profitable but never truly followed through.  I remember reading an interview with (I believe) Stanley Druckenmiller  who talked about how when he worked for Soros that if George wanted to short a market the first thing he would do…is buy it. If it kept going up then it was not ready to roll-over and he would stay away. Wise advice – if you can afford it. And it’s exactly what I should have done. When my NASDAQ shorts ran out of energy that was my first warning sign. The next was once price had traded back up to previous highs, and then broke them, I should have bought the market. That was remiss of me. The market is always communicating to us – it had told me that it wasn’t ready to go down, it wanted to carry on up…..and I did not leverage that information accordingly. Shame on you Paul.

Lesson for Paul:  I’m actually coming round to the idea that we’ll continue grinding north – which was helped by some excellent insight from a client – experienced traders are fearful, they’re like a cat on a hot tin roof, but that’s rarely when crashes happen. They happen when fear has left the market and everyone is complacent – and we’re not at that point yet. So we grind north, we maybe have a good melt-up, and then it all goes ‘Pete Tong’ – but that could be 6-18 months in the future. For the moment you have to trade what you see – and markets have been continuing North. I’m always reminded of this quote:

“Citigroup CEO Chuck Prince told the Financial Times in July 2007: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

You can have all the opinions you want Paul….but the music is still playing.

(He actually said this in Nov 2007 when people may suggest that the music had already stopped playing. If it had not stopped, the markets were certainly at that quarter-to-2 in the Disco time when you did a quick prowl of the dance floor to pull a girl for the last dance. I believe they call it ‘bin-raking’ these days. Charming. You get what I mean. The end was nigh.)

Crypto – Too late to the party. Simple as that. I had always treated it as a bit of a fad. I also think it’s a culture / generational thing. I remember very clearly the Dot-Com bubble. There are many differences (for me at least). During all the dot-com hype I could actually see and understand the implications of the new companies and technologies. A company that you could buy pretty much any book in the world at cheaper prices than the book store and have it delivered? Yes, I’ll have a bit of Amazon thank-you. Having all your Music downloaded into one cool looking gadget the size of a cigarette packet? Yes, I’ll have some Apple. Being able to buy your Waitrose Groceries online and have them delivered? Yes, I’ll have a bit of Occado thank-you. Even Lastminute.Com (the straw that broke the camels back) I could understand that here was a website that offered a one-stop shop for all your last minute holiday getaways.  Furthermore the Tech companies that underpinned the internet infrastructure I could understand (which was a good job as I was working in Telco and Internet Tech at the time.)

Whereas Bitcoin seemed a bit of a fad for me. And my experiences just reinforced that. Last summer I was in a coffee shop in Ballsbridge, South Dublin minding my own business reading the FT when the guy at the table next to me started blathering on at me about how he was the ‘chief imagineer’ (no, I have no idea what one of those is either) for the HSE (the Irish equivalent of the NHS) and that he was asking would I invest in his idea for a ‘health bitcoin’ where people’s health records would be allocated bitcoin and the more healthy your lifestyle was the more of these coins you’d be allocated.  I couldn’t help but think that this guy’s time and effort would be better spent sorting out the present-day HSE (which in many cases is in a worse state than the NHS) rather than being paid top dollar to think up hare-brained ideas like that.

Another example was just before Christmas we had an electrician in to fix some lights and he was telling me about his Bitcoin holdings. Now fair play to him, he’d bought in at approx. $300 so when the price was hitting 15-16,000 USD just before Christmas he was cock-a-hoop with excitement. I am chuffed that he has made money – but when your electrician is giving you investment advice an old cynic like me starts to get a bit grizzly.

My grizzliness was extended by not backing myself on Ripple / XRP earlier. I had monitored it for the last 2-3 months but it had already sailed past my ideal entry point. I was forced to join the party at 25 cents..only for it to have gone past 48 cents by the time I bought. Woulda, coulda, shoulda.  It is what it is.

So I do have some Crypto exposure, but no-where near as much as I would have liked. Woulda, coulda, shoulda. Furthermore in the interests of full disclosure I have not made much personal gain from my Crypto holdings. However, my 8 nieces, nephews and god-children on the other hand have done very well. The Jammy Bastards. (When I was a kid I used to be happy if I got a Subbuteo set and a model Spitfire! Times have changed.)

Lesson for Paul: Overcome your own bias and get back to being an early adopter. My experience of the Dot-Com boom (even though I did well out of it) had made me overly cautious. There’s money to be made in the run-up, the inevitable crash, and the aftermath if you plan it right.

2018 FX – Normally at the end of each year I have an idea about where my focus should be in terms of a particular FX pair for Q1-2 of the next year. There’s normally one FX pair that stands out as a ripe target for my focus. Last year was USD – and the price action in January just confirmed that. For the first time in a good few years I have no particular bias for any particular FX pair going into this year. I shall wait and see what the markets offer up.

Lesson for Paul: Watch and Shoot – watch and shoot! The Comdolls have started well so far this year.

Intra-day trading. I used to do it a lot. Then, not so much. Over the last 2 years I have done a little bit but on a purely opportunistic basis i.e. if i was at my desk for a few days then I’d look at what was available.  And in the second half of 2017 I found myself returning to it. Partly because of market conditions but also partly because my schedule allowed me to structure my time better to focus upon it.  Furthermore I found myself re-visiting the 1 minute chart – in particular on the DAX. (Most of my previous intraday trades were made on 15 & 5 min charts).

I have avoided the 1 minute for a long time. Some of you may know why. When I first started trading FX many years ago my mentor encouraged me to trade 1 minute charts. It turned out at the time that I was not very good at it. Why? Firstly I found that it tapped into the hyper-aggressive side of me. It brought out my killer instinct, and not always in a good way. Secondly I found the 1 minute charts were too slow for me. How so? When I sat down and reflected upon it I realised that when I’d been a Fighter Controller I used to watch radar screens update 6 times a minute. So every 10 seconds I would have a new picture and need to make a decision: climb, descend, turn, accelerate, interrogate, engage etc. So waiting 60 seconds for a candle to complete seemed like an absolute life-time. So on one hand I had hyper-aggressiveness rearing its head (the part of Paul that wants to kill everything) and on the other hand I was applying the brakes as I waited for the chart to update. This meant i was getting into trades too soon, and also getting out of them too quickly, if it wasn’t doing what I wanted it to do swiftly then I’d pull the plug on the trade, and was therefore cutting myself off from profits and opportunity. So I decided to give 1 minute charts a miss many years ago.

However recently I had noticed that a lot of my intra-day trades upon reflection were offering earlier opportunities to get on board at better prices thereby reducing my trade risk, and offering a more handsome reward-to-risk potential (see later point below). So I decided to investigate, learn some new ideas and concepts, and see if they could be applied to my intra-day trading. Furthermore I’m a slow old duffer these days, with far more patience and less desire to shoot everything down in front of me (though that desire never really fully leaves you)so trading 1 minute charts doesn’t create the problems it used to.

Lesson for Paul: Get in the fight and start attacking the charts – (ok, maybe that hyper-aggressiveness is returning) anyway there are some great opportunities out there. I have a good trade plan, some great set-ups and the ability to deliver.

Risk-to-Reward Ratio (3R) I had noticed that my risk-to-reward- ratio had diminished over the last 18 months. It was still healthy, and still on the happy side of asymmetric, but no-where near as good as it used to be. Why was that? Is it a case of lack of volatility? Perhaps.

Upon some reflection I realised that I have spent too much time around new traders who are too scared to go for anything more than small gains – those who jump out of a trade after its hit 1:1. I have allowed this to influence my thinking – shame on me!

Lesson for Paul: Push myself to get back to bigger asymmetric reward-to-risk ratios

I’m still shit at trading Swiss Franc: I don’t know why this is – but historically I always have my worst performance on the CHF pairs – why is that? I have no idea. Bunch of cuckoo-clock making, toblerone eating chumps, pissing around with their multi-use (and admittedly very handy) knives

Lesson for Paul: Keep CHF pairs exposure very small. No-one trusts the SNB.

I don’t take enough holidays: that’s just a lesson I’ve realised this last 24 months. There have been some extenuating circumstances with family members health, however I don’t take enough holidays. I take lots of long weekends, and have always worked on the premise that a change is as good as a rest. So spending time in Cheshire, Dublin, London and elsewhere is refreshing for me – and I enjoy being around other traders.  What I realised is that at my age all my friends and relatives are married with kids. They’re going on holiday with their families (even though they’d secretly love to go to the Buenos Aires Rugby 7’s instead) 😉  I get bored with going on holiday on my own – I just end up doing some work…..or getting in trouble. Which tends to be why I avoid holiday invites from other traders – there’s no escape. Anyway I need to get over that and sort out something.

(Also I have a real wanderlust and I’m secretly scared that if I go walkabout….I’ll just never come back! This probably explains why I have resisted buying motorbikes or VW Camper Vans – you’ll never see me again – I’ll just put a satcom on the top of the Van to give me good connectivity and then clear off to the Algarve driving around surf beaches, learning to surf, and spending my nights reading great literature, drinking Port and eating cheese. And then when I’m bored I’ll just drive down through Africa to Cape Town and go surfing there. Actually, upon reflection, this sounds fucking brilliant. It’s a plan. Sign me up.)

Lesson for Paul: book some holidays. Get your girlfriends involved to plan holiday time away from work / markets etc. Get a life you saddo.

Recency Bias, and anchoring effect: For those unaware Recency bias is the tendency to think that trends and patterns we observe in the recent past will continue in the future. (Wikipedia)

As for anchoring its a cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered when making decisions. Once an anchor is set, other judgments are made by adjusting away from that anchor, and there is a bias toward interpreting other information around the anchor. (Wikipedia)

We all experience them but I have noticed that I have a real challenge with it.  Maybe its a new thing, or maybe its something I always had but have just raised my awareness of it recently. I’ve noticed them in both my trading and my personal life (particularly with buying/renting a place in South Dublin – but that’s another story. I realise that the trader in me only wants to buy at my price – not at what the market is demanding from me – because I believe it be overvalued. I am anchored to prices from 2012 when I first moved there and looking at the recent patterns of rising prices (for rental and purchase) leaves me feeling like I’m buying into a parabolic move and that I am chasing price – something I religiously refuse to do in my trading.) I’ve fallen prey to one of the oldest tricks in the book. Shame on you Paul!

Lesson for Paul: Learn from this raised awareness. Those two biases rarely help you. Put up or shut-up. Preferably both.

Trading Challenge: I have decided based on the points above to give myself a trading challenge. I often talk to intra-day traders about how in an ideal world you should be trading the Triple Three: Three hours a day, Three days a week for Three weeks a month, otherwise it becomes very easy to burn out as an intra-day trader. Based on the lessons learnt above I decided to do my own version of this from the end of January. Regardless of my other trading activities I will prioritise my own Triple Three challenge: Three hours a day of intra-day trading, Three days a week, for Three ‘R’ a session. This will either go spectacularly well…or horrifically wrong. We shall wait and see.

There you go – if you’ve made it this far and haven’t cut your own wrists then you deserve a big strong glass of whisky! (I did say you didn’t have to read it – its more a note to myself than anything else.)

I’m sure you have your own views on my failings this year – feel free to present your own thoughts, or your own learning points – we can all benefit from them.

Regardless I wish you all the very best of success in your trading endeavours.

Trade well!

Paul