In Trading Routine and Psychology

“Busy” is an overused word for “average life in 2016” and as I too, am “busy”, can find an easy-to-follow list of advice therapeutic at times.

There are cliches, and there are ideas that spawn some really wonderful things. Cliches usually get us inspired and up and moving for about 5 minutes, until our phones notify us that a guy we went to high school with just posted a picture of his food on Facebook.

So with risk of sounding like a Nicholas Sparks / Investment Advisor hybrid, I present you with an educated list of observations I've made over the years from the beige-colored wall / florescent light trenches. Enjoy.

  • Think in terms of probable outcomes, not 100% accuracy. You will be 6 feet under before you achieve the latter.
  • Fester over turning points that produce yield. A market turning point or inflection zone is worthless to most people unless it is followed by a price movement that pays off relative to your risk.
  • Work in numbers, not aesthetics. Save the cute charts for the powerpoint team.
  • Good value propositions are found in all markets. The best investors on planet earth have learned to identify significant value and take advantage when it is present.
  • Wait until reality slaps you in the face prior to thinking you are the smartest person in the room.
  • Until it's proven, it's just a hypothesis.
  • No, you shouldn't be taking that trade ahead of the data release.
  • Analysts and economists risk nothing but their reputations.
  • Beware of the people that always have a strong opinion. Unwavering systems of belief are far more susceptible to loss than those willing to accept alternative outcomes.
  • What is plain-to-see rarely works in the real world.
  • You are passing on all the good trades and taking all the bad ones because your strategy lacks a winning percentage in alignment with your expectations.
  • Markets are primarily driven by the expectation or surprise of fundamental news and data. And governments.
  • Conspiracy theorists get stopped out 99.99999999% of the time. Subjects of “The Big Short” entertain us because they are as rare as a total solar eclipse.
  • Build your strategy by working backwards. This industry significantly lacks emphasis on exit strategies. A strong price magnet relives concerns about risk and pressures on pinpointing entries.
  • Governments are oftentimes poor judges, giving passes to those big enough to pay a legal settlement. Do your homework and make sure your money is in good hands.
  • The best trading strategy ideas are on websites that lack images of Ferraris, sailboats, beaches or mountains.
  • If you're afraid to use it, don't. Your brain has already pronounced the outcome.
  • People that instantly make you feel good usually aren't the ones taking you to the next level.
  • In all cases, people, thus prices, are drawn to heavy order flow like bees to a hive.
  • When someone asks you, “what's the trade logic”? You should be able to answer in under 30 seconds.
  • Just because an entry looks good doesn't mean everything that follows is going to be good, too. Trading for one or two ticks on a retail platform is the ultimate waste of time and money.
  • Always work with the end in mind. The best portfolio managers fester over performance metrics first, because that's all that matters in the end.
  • If you stink at managing risk, you will always lose until you figure this out.
  • Drawdown is another way of saying “you were wrong”. Focus on what's right about the situation, not where you went wrong. Look at your valleys and and see what's going on there, not your flawed points of entry.
  • Avoid money-making buzzwords in the same way you would a psychopath who's foaming at the mouth and running after you with a chainsaw.
  • Commissions, spreads and fees should be treated like a chronic disease. Learn to live with them but don't let them stop you from moving forward.
  • Writing a trading plan in your early career is the equivalent of a toddler drawing a stick figure. Realize it will get better in time but by no means treat it as an end result.
  • Trading plans should be renamed Risk plans. Because that's all that matters in the end.
  • Your strategy should consist of a parameters that produce a clean return distribution, with the peak being as long as possible, and the valleys keeping the strategy afloat during various trading environments.
  • It doesn't matter what you trade or how you trade it. If it works, it works.
  • If you can't get a favorable result with plain Jane parameters, odds are the exotic ones are going to blow up down the line. This is the epitome of over-optimization. Parameters need to fall with in a group with specific ones producing better outcomes than others, but all keeping the ship afloat.
  • All instruments consist of different levels of liquidity. Liquidity drives more market versus limit orders being used. These have a direct effect on the types of price movements they exhibit. Treat them all differently, because they are.
  • None of us are born dumb. Society makes us that way.
  • Funnel your dopamine addiction to something that adds value, like actionable research. Clicking buy and sell buttons should not be your “rush”.
  • Find a broker that sucks the least.
  • Find a wealth manager for your passive portfolio that sucks the least.
  • Find an attorney that sucks the least.
  • Find a vacation spot that is excellent.
  • Liquidity and slippage will always affect performance. If you're going to trade it, trade it like you mean it. Hesitate, and these two will come back to haunt you.
  • Frequently go through your performance metrics. If you're short-term trading, do it every day.
  • Don't trade any concept that's new to you for at least a month, up to a year, depending on its complexity and level of outcomes, contingent on volatility.
  • Yes, you're overthinking it.
  • Trading environments effect the performance of all strategies. Over-optimized strategies are primed for one environment but not the next.
  • People get drunk and look terrible when they do. Your strategy is no different. Treat it like a temple.
  • High frequency for retail is hyper-mythology. Those claiming it are usually using some form of latency arbitrage or spoofing. #1 will get you banned by your brokers and #2 will get you thrown in jail.
  • The most complaints come from people who have no solid reason to complain about anything.
  • Brokers have the easiest jobs in the industry unless they're getting sued.
  • Even when everything looks perfect, there is still going to be an unseen flaw in the strategy. Don't pretend to be surprised when it happens.
  • Yes, you're probably wasting your time on that idea.
  • Exercise. Because blood flow is important.
  • Trading is a skill that is learned, and needs to be done methodically. Those who swing for the fences usually end up throwing the bat at it instead.
  • Trading is not war, a neurological battle, a sport or a reality TV show. Its a job.
  • The blind lead the blind because people want to hang around others they feel comfortable with.
  • You don't need a PhD or have the ability to write a complex algo to work successfully. This may not be the case if you're preparing for corporate war.
  • Stop worrying about finding anomalies or the trading definition of an ego boost. Nobody in the real world cares unless you put the turkey on the table.
  • Your gut is the best barometer for wise decision-making in all aspects of life. Performing regular gut checks, and following through on the result, is one of the best tools for success anyone can ever have.

If you have any others, don't be shy and post them in the comments below.

Feel free to repost, but please link back when you do.

Thx as always,


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Showing 12 comments
  • Paul

    An affirming read. These struck a cord – it’s a risk management plan, not a trading plan; trade it like you mean it; if it works, it works; performance metrics is all that counts; don’t be surprised when your strategy shows a flaw; perform regular gut checks; and exercise (I’m out the door now!)

    • Steve W.

      Exercise is the one I always need an invisible hand to drag me by the collar to go and do. You would think it would be easier after all these years

  • Joe

    Great collection Steve!!!…You need one more to make it of the Heinz 57 variety…Paul, you are right my friend on what I also saw as the key points. Risk Management….if you can’t handle the truth…get out of the business because you will waste your time and money and the Market will eat you up. Speaking of food…I need to post what I ate today…NOT!!!….Thanks Steve for another AWESOME read.

    • Steve W.

      Thx Joe and please let me know if you do I’m currently thinking about lunch options

  • Jan

    “Work in numbers, not aesthetics. Save the cute charts for the powerpoint team.”

    I know that guy, and his inner (trading) child just got very very sick.

    Also, any performance metrics beyond P&L you find essential?

    Good read as always, thanks!

  • Antony Young

    Hi Steve, go to hear you are alive. Hope all is ok. Be fine, Antony

    • Steve W.

      Hey there Antony – yes, still trucking along and thanks. Hope all is well on your end, too

  • Steve

    Patience has to be up there. The best trades happen while sitting on your hands, trading is meant to be boring and repetitive.

  • Andrew Deakins

    Hi Steve, inspired reading thanks. just starting on the trading side of things, I have a long, long way to go ! Thank you for the website, seems to be one of the only places where there is an honest opinion !

  • Charles Leworthy

    Great list Steve! I really enjoyed that you’ve started with: “Think in terms of probable outcomes, not 100% accuracy. You will be 6 feet under before you achieve the latter.” This is one of the golden rules of trading. If one does not fully understand this rule, his whole strategy will collapse. I firmly believe that trading isn’t a hobby and it should be treated like a full-time job, for it to become profitable.

  • Brian

    How do you keep your gut in check?

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