The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Put Bad Trading Habits Under Arrest
07/04/2011 8:30 am EST
Renowned trader (and ex-cop) Rob Hoffman explains that blocking "noise" or external developments and following standard procedures are just two skills that serve traders and officers well.
We all know that trading can relate to other industries very well, and people come from all kinds of backgrounds to come into trading. Our guest today is Rob Hoffman, who came from being a police officer into trading.
So Rob, how did being a cop translate into helping you become a good trader as well?
Well Tim, I think that in part, the disciplined approach (for) filtering out exterior noise. A lot of times you found yourself in a situation where there'd be a lot of external sensory things taking place when you walk up into a scene.
If there was an issue, a circumstance, people are crying, people are screaming, people are yelling, people are pushing you. A lot of different situations; a lot of external, sensory things taking place.
Yet in the end, what I needed to focus on was what was the actual situation? What were the threats? Who's the aggressor? Where are the threats? What is the problem at hand? Are things really what they seem?
In the real world of trading, things aren't always what they seem. The most perfect and most obvious buy or sell set-up turns out to be a terrible reversal point for many traders.
So taking a look at what's going on around you, filtering out things such as certain news media. People like to turn on the news during the day and they have that in the background, and then they let that take over their buy or sell decisions.
So I like to tune out that sensory observation—the news, the media, for instance. Breaking news is important to understand, and that's fine. But even breaking news is often found first in the price action on the charts, and then subsequently a few minutes later, the news comes out and reports what went wrong.
So really having that focus on the price range, that's the real aggressor that I need to focus on. That's the task at hand.
So there's a correlation there between managing external things. Indicators, for instance, price action; all things that need to be analyzed and assessed before going ahead and making a trading decision.
Like in police work, you've got to make quick decisions sometimes with imperfect information.
I think new traders are always looking for the perfect set-up or to know everything there is before they make a decision, and in trading and law enforcement that's just not possible.
And of course we refer to that as “analysis paralysis.” I need these 50 things to be in line to make sure that I have the absolute most confident decision I can possibly make, and that's just not the real world in trading, and it's certainly not the real world in law enforcement.
How about rules, too? Cops have rules; they can't shoot unarmed people. There are rules in trading, too; are there some similarities there?
Well certainly, if you're following your trading plan. In law enforcement, you'd have your standard operating procedures, things that you must do.
As you mention, the use of force, but just a lot of different things: Your car, your daily checklist, your squad, checking out the squad, making sure all the equipment is in shape, procedures. That's what I would equate to my trading plan.
Look, you know what, this is what my sergeant, my lieutenant said I had to get done each day. It's part of my job. Well, this trading plan is part of what I must follow to be a more successful trader.
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