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As Soon as I Open a Trade, I Become an Idiot
12/05/2013 11:00 am EST
Your host Rob Booker spends more time exploring the subject of “process,” an approach to trading where goals don’t really matter; all that matters is having a process. Also in this episode, you’ll hear about how Shonn Campbell directed Rob’s attention to an article in the Wall Street Journal by Scott Adams titled Secret of Success: Failure. Rob uses this article and his memory of a breakfast he had with Shonn Campbell, Matt LaCoco, and Bradley Fried in April 2013, to ultimately talk about spending less time trading while making more money, struggling less—and winning more.
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Rob Booker: I can't get off this subject about process. I just can't get it out of my system. I want to talk to you just briefly today, maybe not the longest podcast ever, about process again. It's just this subject that I can't ever let go of, and I know you're tired of hearing me talk about it, but I'm absolutely positive it's going to make you a better trader, and we're right on the tail end of publishing a small little book called How to Grow Any Trading Account, The Secret of the Process-Driven Life, and I stumbled across an article from the Wall Street Journal directed to my attention. My attention was directed to, from, from whom? From Shonn Campbell, plateautrader on Twitter, and Scott Adams wrote this article called The Secret of Success is Failure, what's the best way to climb to the top? Be a failure. Awesome article. You can Google it, just Google Scott Adams, Secret of Success, click on the link, read the article, have your mind blown.
It comes at the same time that it was just wrapping up a little book, like, I don't know how long it is, like a 10,000-word little book about being a process-driven trader, and once again, how goals don't make any difference and how all that really matters is having a process.
Well, I want to tell you a couple of stories, and it all stems from this memory of having breakfast with Shonn Campbell and Matt LaCoco and Bradley Fried in Colorado Springs, Colorado, on April 9, 2013. I'm going to remind you who Matt LaCoco is. He's got this short little scraggy beard and a thin frame, but he's buoyant, like he's bobbing just above the surface of the water, just like a fishing line's bobber with a hook deep underneath doing all the work while he enjoys floating through life. Who's going to argue with that approach? That's Matt. Matt, who told me that his trading privileges are revoked the moment he enters a trade and who ordered a Denver omelet in Colorado the way that someone orders the first thing they see on the menu because they've got the munchies and they need to grab some grub right away, pronto, as fast as possible, but that's where speeding through things ends for Matt, just ordering breakfast, that was it. Everything else that he does is deliberate, thoughtful, insightful, just like a man who's been smoking a little bit of something and he can see things more clearly now and closer up, and he's not in it to get a rush out of it or to get through it really quickly, but to enjoy every moment.
NEXT PAGE: How Not to Mess Up a Trade in Progress|pagebreak|
He doesn't really have any urgency to get anywhere really quickly or accomplish anything in particular, which sounds like a terrible idea if you're a trader, but he does want to have a good time so I guess that's a goal, and he does want to have a great conversation. I guess that's another goal, but trading for Matt has become something, well, less about trading and more about this idea of process. He really embodies along with Shonn Campbell and definitely Bradley Fried, this approach that we talked about in episode 202 of the Trader's Podcast.
Shonn Campbell, Bradley Fried, Matt LaCoco and I ate pancakes and fruits and eggs and a bunch of other stuff together with a giant pot of coffee in between us at a Village Inn Restaurant just off the freeway right before Brad and I left for Santa Fe, New Mexico, on April 9; tiny little flakes of snow wisped in circles outside the window and I was wondering, scratching my beard, are we going to die on the way to Santa Fe? Can we drive through this in my little Toyota Prius? The snow was dusting the ground at first like powdered sugar but soon enough it looked just like a coating of vanilla frosting that had been spread across the parking lot, and you know that sugar is dangerous for you, so is sugar coated frosting looking vanilla flavored batch of snow on the ground on the road as you drive over the pass on the way to New Mexico.
Yeah, we had to drive through the mountains ahead. I wondered if I could steal a little bit of Matt's Zen to get us through the drive. I asked Matt what he meant by having his trading privileges revoked as soon as he opened a trade, and here's what he had to say. You might remember this from a video on TFL365.com or from a podcast back in the one-hundreds. He said, as soon as I open a trade I become an idiot. I don't know if that's exactly what he said, but it's pretty close. In other words, I'm useless, I make mistakes. I move my stop loss, change my plan, and get everything messed up. I really can't be trusted with an open trade.
How true that is. I think of the times when I open a trade with a reasonably specific plan in mind for managing it, but then because the trade is open and I'm watching it, my brain falls out my ears, and my capacity for rational thought is depleted to zero levels. Rather than fall prey to this human condition otherwise known as fear of anything to do with money, it's best to get everything set up ahead of time and walk away. Just set the damn stop, set the profit target, and go walk the dog. If you don't have a dog, go get a dog. I can't even have a dog. I want a dog, I really want a dog, I want a Labradoodle or I want a Pekingese Poodle, or just have both. I wonder what kind of dog they would make together.
Anyway, when your trade is open, go check the mail. Go see a movie. Practice your guitar. Anything. Many traders explain to me that it's nearly impossible for them to wrestle themselves away from the screen while a trade is open. What happens if the trade starts to move against them? What about moving my stop to break even, a trader asks. I need to be at the computer to make sure I can do that. The answer is to automate everything you can, and if you can't automate the way that you trade or the way that you move your stops, then at least get up and only come back every hour or two. Coming back every hour or two, that's even too much.
NEXT PAGE: Trading Rules Keep You Focused|pagebreak|
The next thing that many of these same traders tell me is that they can't automate or even partially automate those elements of the trade, so now they're stuck. They know they can't get themselves to get up and walk away from the computer, but they also know, in quotation marks, that their trading system can't be automated. If you want a 100% certain way to lose a ton of money, you should try your best to know these two things at the same time. I know I don't do well when I watch it, and I know I don't know how to automate it so I don't have to watch it, so I'm going to watch it and I'm not going to do well, hmm-umm, that doesn't work.
What these traders are telling me is that they actually have no rules. If they have rules, they could at least set up the trade to exit when they know they want to exit, or let a computer do it, or they could at least know when they should come back to the computer if they're actually going to get up and walk away. A small number, however, of the successful traders that I've met do the following. They just decide that they'll spend no more than X hours in front of the computer.
Do you remember Dwayne Hope from Colorado? Denver? Yeah, that guy. People like Dwayne do those hours in front of the computer and then they're done. Bradley Fried is working on a book called The Four-Hour Trading Week. He trades for four hours a week. He's made 2400 pips since we came home from our trip across America. He makes most traders look, well, me, he makes everybody look silly and he's only working at it for one hour a day, and he does it live in front of all of his Japanese customers. He does it in Japanese even, so he's talking Japanese and trading and in front of everybody, and he made 2400 pips. That guy rocks solid, so people like Brad and Dwayne know that they can get their work done, their trading is finished, and then they can get up and really get up and really go away and really do something else.
Usually traders tell me it's as few as two or three hours and as many as five at the most that they could get away with. Setting a time limit on your screen time is a great idea. It forces you to focus your effort during a very small window; 30 minutes, one hour, two hours in the morning. Because you're focused during that time and you know it's coming to a close, you're less sloppy, you're on your best behavior, you're up. Brad trades this way, like I said, for an hour a day four times a week. That's pretty awesome. I think his approach is somewhat inspired by Tim Ferriss' pretty cool book, The Four-Hour Workweek. That's a book about not making it so damn difficult, delegating responsibilities to others, automating as much as you can. That's all pretty good advice.
Brad's made, like I said, 2400 pips and a 24% or more gain in his trading account just in the last six months since we got home from our trip. To Brad, I'm sure, that feels like hard work. I'm sure that it wasn't like easy for Brad to do all of this, especially since he's talking to people while he's doing it, but to the rest of us that can end up spending many, many more hours than that in front of the screen, this whole idea can feel like redemption; redemption from the difficult, redemption from complexity. This is Matt's approach as well, and it's Matt's most favorite subject; making things easier. Matt ought to be on the podcast today but Matt's been here and I can speak for Matt and I'm sure he's not going to get angry at me. Matt's pretty much a huge fan of just allowing things to happen. Boy do I wish Matt would write a blog post about allowing.
NEXT PAGE: Get Paid for Your Time|pagebreak|
Matt, are you listening?
I don't know one trader in the world who refers to trading as easy. I don't think Matt even says that. Well, maybe he does. The guy is convinced that it doesn't have to be so hard. He's in a perpetual state of, don't worry about that, and don't do things the hard way anymore. The attitude is positively contagious. Instead of forcing himself to do a bunch of difficult things to make trading seem like a real job, Matt does everything in his power to spend the least amount of time in his job as a trader. We're so used to getting paid for our time that this can seem like a very difficult thing to do.
Instead of thinking about getting paid for your time, think about getting paid for what you know and consider that you don't need to know very much to make this work. Maybe trading isn't fair. Maybe we're not fully or fairly compensated for what we do compared to teachers or something else like that, some noble profession where people work hard and deal with jerkholes all day long. Maybe we make way too much money as traders in exchange for the amount of time we need to spend in front of the computer, but trading is tough, I'll grant you that, and it does drive you nuts some days, and it can tear you apart emotionally, and it can break your marriage apart, and it does make you doubt your dreams and your hopes, yourself, and your abilities. Trading can eat you from the inside out starting with a losing trade that turns into a bigger loser which turns into a mission to get that money back which turns into a margin call. I've been there.
Most people don't make it. The pressure is too much, and I think it all starts with believing that you get paid for your time when that isn't the case at all. If you're a trader and you want to get paid for your time in front of the charts, one day you're going to wake up and realize that you have to pay for the right to sit in front of the charts. You'll end up paying the market for that time and you'll pay it out of your profits, or out of your starting account balance. You'll just give money away by the hour. That's not the way we want to do it.
Instead, I want you to consider that the reason most traders fail is that they do exactly that. They sit in front of the screen and pay the market, instead of walking away from the screen and letting the market pay them. Remember Dwayne, Dwayne from Denver, Colorado, who traded for just a few hours a day and allowed himself to take only two trades per day. Remember Brad who trades for an hour a day from the one-minute charts, four hours of trading a week; getting what he wants from a small amount of time. Remember these things.
Remember that you don't get paid for your time, and if you did we'd all be sitting here in front of our computers all day long. Wait, that's right, we are sitting in front of our computers all day long, so I implore you, I beg you, spend less time in front of the charts just for maybe a week or two weeks to make the experience really useful, and see how you do when you have to walk away, setting your profit target, setting your stop loss, and letting the market pay you.
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