Speculative attacks on markets have been thwarted repeatedly by the various interventions of governm...
Relaxed Trading and the Side Effect of Not Losing Money
05/23/2013 11:00 am EST
Rob Booker talks with special guest, Matt LaCoco, a currency trader from Colorado Springs, who Rob says is his idol because Matt is the most relaxed trader that he has ever met. So, Rob asks his relaxed trader friend for some advice on how to chill out and why being a zen trader is so important to his trading. Matt describes how getting emotionally distraught can be expensive. Matt also talks about the concept of being happy with what's offered, versus trying to shake down the market. Rob talks about the odd tendency to seek after drama or conflict, and Rob asks Matt to identify the kinds of things that affect his trading zen. Matt talks about an exercise that he does, which he calls "a practice in patience," that he says is vital to avoiding the loss of money. And Matt says he doesn't "play to win," instead, he "plays not to lose." He says that making just enough money to get by is nothing more than a side effect of not losing money. Matt also talks about the practice of letting the first trade of the day go by (without taking it).
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Rob Booker: I had a terrible week of trading back from my trip, and this morning Jennifer just essentially told me what to trade and then I traded it and because I'm so smart I tripled my trade size to make back my money and because it was Jennifer's idea and not my idea everything worked out, so I am in a great mood this morning. I lost probably $10,000 the first few days of this week. I mean I could not possibly have been more disappointed, but it all goes back to just doing what somebody else tells me to do and things seem to work out just fine.
Matt LaCoco: Yeah, sometimes when you just do something without thinking about it, things make a little bit more sense when you think about them less.
Rob Booker: After every single trade I took this week that was awful, I probably lost brain molecules by the dozens, literally by the dozens, thinking and wasting time. I only have 100 brain cells left, but the ones I had I was expending them at this rapid pace overthinking everything that I did from the very beginning of the week and I hate that, I hate it.
Matt LaCoco: Oh Rob. See, the key is you should have traded like you were still on the road.
Rob Booker: I know. I actually am thinking about tomorrow going out and driving my car and sitting in a parking lot somewhere in the dark in the morning and just trading from my car.
Matt LaCoco: You know what, Rob? I do that. I actually do that. I park my car in this parking lot up at the Garden of the Gods and I sit there on my phone and trade.
Rob Booker: That's so awesome.
Matt LaCoco: It's the office, the trading desk.
Rob Booker: Exactly and I'm the assistant to the regional manager and that's you. I'm Rob Booker and I'm on the phone right now with Matt LaCoco from Colorado Springs, Colorado. One of the reasons that you are my idol, amongst many of the reasons, is that you are probably the most relaxed trader I've ever met in my life and that comes off—that just doesn't give you the credit that you deserve because that doesn't put you in the pantheon of hardworking suit-and-tie-type traders. Are you offended when I say that you're the most relaxed trader that I've ever met?
NEXT PAGE: Why Relaxing is Important to His Trading|pagebreak|
Matt LaCoco: No not at all, not at all. Honestly, I work really hard at it.
Rob Booker: I work so hard to be relaxed. When I come home I just want to relax. I work so hard. Why is relaxation or chilling out, why is that important to your trading?
Matt LaCoco: Well because a trade is going to go a certain way no matter what. Your ability to navigate that trade successfully depends on your ability to make decisions, to make fast decisions and focused decisions, and if I'm worried about what's going on two hours ago and what's going to happen an hour from now, I completely miss what happens right in front of me, so when I'm totally relaxed, that allows me to see something happening and just trade it, exactly what I'm seeing and a lot less of what I'm thinking. That made all the difference in the world for me in trading; to just get relaxed and to take proactive measures to avoid situations that were damaging to my relaxation, damaging to my state of zen because those situations cost money. When I get unseated emotionally it's very expensive for me. I don't deal with it well, so I have to work really hard. I just take it as it comes, being happy with what's offered rather than trying to shake the market down.
Rob Booker: What kinds of things mess with your emotional zen. You just said it so perfectly. What was it? What did he say, Jason? Did you catch it?
Jason Pyles: That was the impression I got was emotional zen. I had that.
Matt LaCoco: That's it.
Rob Booker: You said you take proactive measures to make sure that your state of emotional zen is disrupted as little as possible, whereas I'm the opposite. I look for opportunities all day long to disrupt my life horribly. I have a friend who tells me that I seek after drama and that's true. It's true. I even watch TNT. It's even when I'm not thinking about it, I know drama, so I want some advice from Matt, my relaxed trader friend. What kinds of things do you identify as kinds of stuff that messes with your zen.
Matt LaCoco: The number one thing that messes with my zen is losing money. Losing money, even when it's not officially lost yet, you know drawdown. I can't stand it. It drives me crazy because I don't make—I'm not going to get rich doing this the way that I do it right now, and so I just can't afford the losses, emotionally or financially, and so if I lose more than a pip or two over the spread on a trade you know that's damaging to my zen and so I just don't do it anymore. It makes me be a lot more selective about what I actually take.
Usually what I'll do is when I first open a chart, if I see something happening, if it's the first time I've looked for the day, I'll find a trade and then I won't take it. I'll just let it go. It's a practice in patience, which I've found to be vital to not losing money and that's what I trade too. There are a lot of people that say you got to play to win and that sort of thing. I really don't. I play not to lose and I've found that making just enough to get by is nothing more than a side effect of not losing money, so I have a lot of breakeven trades, I do, but I can handle that a million times in a row and then come back and trade the next day, so I never feel bad. I never see it as a missed opportunity. One of the first things that I learned was that there's always another one. It's just at first there's always just another—at first it was another opportunity to lose more.
NEXT PAGE: How He Handles His First Trade of the Day|pagebreak|
Rob Booker: Yeah right. Describe to me what it's like the first time you let the first trade of the day go by.
Matt LaCoco: It's a coffee break.
Rob Booker: So it didn't bother you?
Matt LaCoco: No, it doesn't bother me at all. I only trade on pair at a time and for me it's really important to get in tune with the rhythm, how it's moving, and letting that first trade go by of the day. It allows me to get a sense as to what type of mood the instruments are in that day, how it's breathing, because that's what I catch. I catch a breath. You know I shoot for 10 pips at a time and it works out great when your losses are breakevens or one or two or three pips. Letting the first one go by sometimes lets me feel like I get it out of the way, because more often than not, the one that I let go by wouldn't have worked out in the first place.
Rob Booker: It's the trade, perhaps, that you would have rushed.
Matt LaCoco: Exactly, exactly.
Rob Booker: Or even thought too much about.
Matt LaCoco: Thought too much about. You were asking for other steps that I take to proactively avoid the situations. I don't do a lot of analysis on the pair that I'm trading.
Rob Booker: So you're a currency trader, and currency traders are besieged by economic reports, fundamental analysis, technical analysis that is particular to the currency market. Perhaps more than any other profession, currency trading tempts a person to do analysis by paralysis because you can't look at 5,000 financial instruments in the currency market. You're stuck with looking outside the actual financial instrument you trade for mental stimulation, and what you're saying here is that you don't want additional mental stimulation.
Matt LaCoco: Yeah, no I want as little as possible where my money is concerned because the more mental stimulation that I put into the decision-making processes where my money is involved, my focus becomes effected. When I do my analysis, it's generally on pairs that I don't trade or that I'm not trading. It keeps my mind open that any one of these pairs can do anything at any given time. It keeps me looking at fresh things on the chart instead of exactly what I'm trading. If I stare at what I'm trading too much, my eyes will start playing tricks on me. I'll start putting patterns on the chart that aren't really there and it becomes expensive, so I like to look at other pairs to keep that trading mentality.
Rob Booker: I don't know if I heard you correctly. I think you said that you actually do analysis on currency pairs or financial instruments that you don't trade as a means for calming down.
Matt LaCoco: Yeah. Now that you put it that way, that's exactly what it is. It satisfies my emotional need to go after it. I'll put all that emotion and hard work and thought into stuff where my money is not concerned because emotion, hard work, and thought have proven to not make me money in the past.
Rob Booker: It sounds a lot like a friend of mine that used to go a strip club and then he would tell his wife he went to the strip club because it got him excited to see her.
Matt LaCoco: Wow.
NEXT PAGE: Why Reviewing Your Trades Is Important|pagebreak|
Rob Booker: He's like I don't do anything there. It gets me excited to come to you and she was like that's a lot of temptation and it sounds to me, Matt, that's a lot of temptation, the pound dollar's dancing in front of you and it's doing its moves or whatever and you're not going to touch it, not going to touch it, but you almost seem undistracted or unimpressed with the curves and the movements of these other financial instruments. They really seem to you to be just the appetizer or I don't know. It's just something that passes the time.
Matt LaCoco: Well, yeah, exactly. It fulfills that want-to-trade and sticking-to-something analysis wise that I'm not trading. Sometimes I will take a trade on some of these other pairs, but I will do it on a demo account or something just to see how things are playing out. I have to continually take my temperature. Am I on this week, and if I am, then take full advantage of it because next week might be an off week.
Rob Booker: Describe to me an off week. What's the definition of an off week? Are you off? Is the market off?
Matt LaCoco: Yeah, the market's always off. It's looney. It's crazy. It will do whatever it wants to do. An off week for me is not filled with a whole lot of trading. It's a lot of exactly that, an off week, like time off. If I find myself trying too hard I know I'm about to lose money. I know that I'm going to make bad decisions where a different decision—there are even some times when I get to thinking, God, if I would just go the opposite direction of every trade I decide to actually take. If I would just switch the buttons, the buy and sell labels, I would do a little bit better. You know if I have a couple of days in a row where I end up six, eight, ten pips down for the day, you know if that happens a couple a days in a row, I'll stop trading and then I'll wait for what I see is about as close as I can to a sure thing and I'll take it and it's just easy to walk away from me now. It didn't used to be.
You know when you do something like print out all your trades for a month and then start playing around with that list of trades, and what if you could erase all the losses or change all the losses to minus five or to minus two or to breakeven, what does the net look like at the end of that, so logic dictated at that point in time. How much I lose is the only thing I actually have any control over.
Rob Booker: Right. The truth is powerful isn't it, Matt? Truth is powerful.
Matt LaCoco: Absolutely, and if you ignore it, it has a way of really smacking you in the face.
Rob Booker: Yeah, the market will have humble traders and you will either humble yourself or you will be humbled by the market is what I have to constantly remind myself and you mentioned printing out the account statement or looking at those past trades. I learned so much by watching myself in retrospect make mistakes that were completely avoidable or that I should have cut off earlier, and if those don't become rules or if those don't become lessons to me everything goes wrong.
NEXT PAGE: Don't Overthink Your Trading|pagebreak|
Rob Booker: At the beginning of my trading career, I started making rules about how to make a lot of money. I started making rules about how to catch the big move. I would design trading systems that were specifically designed from the very beginning to catch the big move or make a lot of money, and as time went on I realized that I could screw up any trading system. Because my specific talent was a super margin call trader that I could margin call any size account within 72 hours when I first started. You could give me any amount of money and I could do it. I realized that what was important to me was to avoid the kryptonite. It wasn't important to me to lift weights. I mean, who thinks that superman needs to lift weights?
None of us think of ourselves as naturally gifted traders, but we are. If you look at brand-new traders trading a demo account or a paper trading account, most of them do quite well and we've all had experiences where nothing was on the line. It was our natural abilities. We didn't know very much about the markets and we stumbled into greatness and then later on we're like well I'm going to reconstruct that from the beginning. I'm going to think deeply about that. The next thing we know we're just like dumping kryptonite out onto the countertop and playing with it when we should just have forgotten about the books that were available for sale to tell us how to do it better or different or whatever. I have found myself writing rules about how badly I can screw things up when. and those rules have become more important to me than anything else I've ever done in the currency market and it sounds like it's the same for you that you just want to avoid making stupid mistakes and the rest of it is going to take care of itself. That's a really zen approach.
Matt LaCoco: Yeah, and that's exactly the way it worked for me. I had a rough introduction to myself through trading when I started and it wasn't that I lost huge amounts of money because when I started out I didn't have a whole lot to lose. It was emotionally draining and I found a little bit of success. I was swing trading and trend following and I was making it work but it was hard. Not hard in the traditional sense of the word, but it was hard to do things like go to bed and it was even harder to wake up and then look and see where I was and what happened in the overnight.
NEXT PAGE: Look at Charts with Fresh Eyes|pagebreak|
Matt LaCoco: Those guys in London, man, I just don't like putting my money in their hands, so really, I actually read strategy 101 and it was just a light bulb kind of moment. I got back to thinking when I was one of the new traders trading that demo account, and like most of them I found immediate and just ludicrous success on a demo account when I first started trading. You open up a $50,000 demo account and on your first trade, you use $43,000 in margin and it works out. I just got to thinking when you were doing that, when you first looked at charts and it was all new to you, try to look at things through those same eyes because something made you buy or sell at a given point and I don't consider myself even a very good trader right now. I'm more of a market bully in that I'll kick it when it's down and take its lunch money, but the moment that it stands up, and turns around and faces me, I will run away like a little girl.
Rob Booker: The market bully. I love that attitude. I love that. That's just amazing.
Matt LaCoco: I'll just take the lunch money, though. I'm not after the bank account number or any of that. I'm not trying to mug it. I just want lunch money. Usually, that's pretty easy to get and usually I can run away fast enough to where I don't get hit in the teeth. Every time I've faced the market, though, it hits me in the teeth and knocks me out, so I don't face the market anymore. I just sneak up behind it, grab a few pips here and there, and leave. That's what I was doing when I first started, on my very first demo account and it works. That's what I think is key to every trader's success is they find something that works for them and then those of us that are smart enough to just stick with that and take the greatest advantage of what we know to work instead of trying to get a little bit more out of it and leverage up and things like that when it's appropriate. Every trading system I think is viable even if it's got no historical support in that it actually works. If you believe in it, you can make it work and that's the key is finding something that you believe to work usually, and then you just bet the farm on it every time and usually it works out.
Rob Booker: My guest today has been Matt LaCoco from Colorado Springs.