In Trading Routine and Psychology, Uncategorized

I feel as though I can never take in enough when it comes to execution. Had I known years ago what I know now, I would have made this a much higher priority in my early days. There is a bit of a problem with this, however, as most of what we know nowadays was barely existent even 20 years ago. Our general approach to the execution problem has evolved from dialogue sounding like a stereotyped motivational speaker to more scientific / pragmatic.

One of the largest issues any trader will ever face boils down to getting things done when they need to be done. After all, prep work is largely in vain if we are never able to follow through on the very thing for which we prepare so long. And still, this topic takes a huge backseat in the educational part of this world, with (seemingly) few people realizing the magnitude of the issue itself.

“Psychology” is a common go-to when it comes to the blame game of losing trades. And while we want think “psychology” is a huge component I find far too often that it is improperly placed or simply overused for things that can, usually easily, explained. Not knowing that a rush of orders and lack of movement in price shows accumulation, not follow-through is a mechanical problem and has nothing to do with psychology, although one might blame psychology for buying into highs at an improper time.

Like them on the whole or not, with all of these books, I find value. Almost all the time, I find at least one sentence/paragraph/chapter that speaks to me, helping me in some way, shape or form. So they are never a waste of my time, as I see it.

Over the course of the past year I have delved through a number of books, all surrounding this topic, coming from a discretionary angle. I didn't enjoy writing book reviews in school any more than the next kid, so here they are, with brief commentary and (likely most relevant) how I see they relate to the business of trading:

The Hour Between Dog and Wolf (link)

This book speaks to traders as it was written purely from this angle (frequently referencing the experience of numerous former bank traders), but applies to just about any discipline in life, not just this one. When it was first released, it received a lot of praise, as it does to this day.

It dives deep into the science behind why we do what we do when taking certain types of risks. Understanding how all of this ties together gave me an incredible

One of the more satisfying things the author does is “proof” his writing with studies. There is little discussed by Coates in the way of opinion and if it appears it is, is backed by a study.

But as far as application, this is where the book explains less (to be clear, this was not the intent of the author, but rather a personal wish of mine, as we are all looking for solutions to common problems). Oftentimes, however, the solutions present themselves when all the facts are known. And this book does an incredibly thorough job of outlining the facts.

Our body and minds are tied together in many, many ways, and this book explains (from a non-Platonic perspective) why this is so important when taking risks.

Biggest Take Home:

Our bodies feedback our minds just as much as our minds over body, if not more. So get on a treadmill more often and understand that what we feel is often associated with other things. Fears and other reactions are oftentimes caused by human instincts (eg fight or flight) intended for other purposes, but serve us poorly as traders. What we refer to as “instincts” are deeply programmed patterns realized through continual observation and action to similar circumstances.

Thinking in Bets, Annie Duke (link)

I almost skipped over this one due to a couple Amazon reviews, and I am very happy I chose to ignore them.

This book proved to be hands down the most applicable of the bunch, albeit took a big dip in my opinion towards the center of the book (starting strong and ending less strong but still decent).  For those of you who don't know the author, Annie Duke, she is a championship poker player and knows a thing or two about pulling the trigger in high pressure scenarios.

One of the most memorable items in this book were the continued discussion around skill and luck. We have a common tendency to mix these two, improperly labeling things out of our control a result of our skill, and vice versa. Like trading, poker is a game involving a component of luck, which can be mitigated (sometimes a great deal) through skill. And while we don't like to make comparisons to a game like poker in the trading world, winning the two have a great in common.

Biggest Take Home:

Skill versus luck, and sheer importance and future ramifications of properly labeling each. Acting without haste, reinforced by concepts discussed in Coates' The Hour Between Dog and Wolf.

Annie has a great blog, and no doubt her tactfulness as a writer has only gotten better over time. Worth your time.

It might also be worth nothing that Daniel Kahneman's best selling Thinking and Fast and Slow was referenced in both of these books. Also worth your time.

Algorithms to Live By (link)

I took a chance on this one, hoping for ideas along the lines of organization and strategy assembly.

The book itself is by all means very well thought out / contrived / written, but one which I had a hard time relating. I found myself taking the point of the context and just modifying it in a way which I knew it would stand a chance when it came to application, which I just assume is rather typical. Obviously, this book is not geared towards traders, but neither are most when it comes to getting things done.

The biggest comparison I found myself making while reading it was Ray Dalio's “Principles”, where Ray essentially creates his own rules by which to live, whereas this book applies common preexisting theory found in economics, statistics, etc. applied to the purpose of living your life.

Frankly, I have a hard time with these kinds of materials. For me at least, they fall in the category of short-term interesting, fleeting thereafter. It really takes a great deal of effort to implement practices such as these if you are not naturally inclined to do so. And few people are, in my humble opinion.

But we love soaking it in as we are thought to have a lot of “ah ha” moments along the way.

Biggest Take Home:

The power of optimization and more specifically constrained optimization – we are seeking far too specific parameters. “Waiting for the perfect trade” until we metaphorically die from it. We do this a lot when seeking highly rigid parameters for trade entry and exit.

To be clear, there are many other concepts in here which newer traders are likely to have a good amount of interest (eg overfitting, game theory, sorting and caching etc.). It could be that at this point in my life I am also well accustomed to many of these theories. Ultimately, this is a book about making decisions and offering (perhaps too many for my personal taste) ways to do it.

5/5 (2)

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