“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