Friday, 27 April 2012

Cracking Trading

This time last year, I was experiencing my best period of trading up to that point. I'd just come out of my worst period (where I almost gave up following 2 shocking months) and had made a few changes to my money management which were immediately paying dividends. But as the profit started rolling in, I became horribly over-confident. Looking back over some of my posts from April 2011 makes me cringe. The stuff I was writing is an embarrassment now. I thought I'd genuinely cracked trading and that I didn't need to put in any more hard work. I even decided to stop blogging regularly because I felt there was no more I could add of interest - I was THAT cocky. It's this kind of mentality that I am positive ends the trading lives of many, many people.

We convince ourselves that we have a 'gift' and are now invincible. This is the worst mistake that any trader can make, to think that the hard work is over and it will all be plain sailing from now on. We end up becoming too complacent, which in turn causes us to stop learning or trying so hard, which makes us stop analysing our trades, which can lead to us not spotting when we make mistakes or when the system is not working anymore. As soon as you take the foot off the gas, your focus will not be as sharp and you may even find it hard to concentrate because you no longer feel challenged. Once boredom sets in, you are done for, in my opinion. Once you get the idea in your head that you've cracked it and don't need to do anything but repeat ad infinitum, it's surely only a matter of time before your mind wanders, mistakes creep in and you are back to square one. If you trade with the attitude that you always want to do better, to achieve more, to keep an eye on changes in the market, to find new ideas and to remain challenged and entertained, then you have  a much better chance of sustaining your performance levels.

Last summer, I found myself unable to get my focus for weeks. Every time I sat at the PC for a session, my mind would wander to anything but the match I was supposed to be trading. No matter how hard I tried to force myself to concentrate, I couldn't manage it for long. I now realise that there were two reasons for this - burn-out and over-confidence. I eventually fixed the burn-out by having a few days off but I was too late with the over-confidence and I started to lose all the money I'd won during Spring without even realising. I took my eye off the ball so much that I stopped taking notes, stopped analysing my P&L in depth and stopped working on improving my trading completely. When I eventually got back to analysing my trades, I found that over a 3 month spell, I'd lost over £3000 purely because I'd let trades run, without using my stop-loss point. A pretty simple thing to prevent, especially considering how good a trader I thought I was, yet I hadn't realised how often I'd been doing it because I'd become so lazy. I assumed I was doing well because the greens were rolling in and I was in profit but had no idea just how much I could've been making, if only I'd been as sharp and motivated as I had been when I was doing badly.

I am now in the exact same position, a year later. The difference being that this time, I know not to make the same mistake twice. I am taking more notes than ever before and they are more detailed than I used to do, almost like a diary in fact. So I have a record of exactly when I start to feel even slightly over-confident (and it does still happen!) and so can nip it in the bud much quicker. One of the keys to trading is to find stable confidence - a middle ground between over-confidence and under-confidence. This is something I wrote about last year:

Under & Over-Confidence

It also features heavily in the brilliant 'The Mental Game of Poker', which I posted about recently. It's a tough balancing act but I'm just starting to get the hang of it. One thing is for sure though - I'll never think that I've cracked trading ever again!

OFF-COURT BEAUTY World Number 130, Yaroslava Shvedova of Kazakhstan:



Tuesday, 24 April 2012

Trading Turn-Around Timeline

The following list shows how my trading has turned around since I started this blog. As you'll see, there is a direct correlation between my up-turn in form and the work I put into trading psychology:

Red = losing month by a significant amount

Green = winning month by a significant amount

Break Even = a winning or losing month by a relatively small amount, that could have gone either way



2011

February - red

March - red

April - green (implemented proper money management)

May - green

June - break even (lost focus / got over-confident)

July - red

August - red

September - break even (started to change strategy)

October - break even (started to work on psychology)

November - break even

December - green

2012

January - break even

February - green

March - green

April - green (so far!)


Coincidence? I think not! April is already on course to be my best ever month and things continue to improve on an almost weekly basis. Check out my 5 Psychology School Sessions if you want to know how I achieved this and for some info that could change your trading mind for the better.

Off-Court Beauty World Number 71, Johanna Larsson of Sweden:


Thursday, 5 April 2012

5 Key Trading Factors

Things are going pretty well right now, so I thought I'd write today about the key factors with my trading that have improved my profitability this year. The 5 most influential are as follows:

1. Value. Yeah I know, I'm banging on about value again but whether you want to hear it or not, the fact is, my trading started to improve exponentially as soon as I introduced value. I used to trade by watching the match and attempting to guess what would happen next on the court. That is an extremely difficult thing to do because sport is very unpredictable. Trying to guess what will happen in a match is a pure gamble but the beauty of trading is that to make money on sports, we don't NEED to predict accurately what will happen. You CAN predict far more accurately what will happen next in the market. As long as you have an idea of what is likely to happen, then you have a chance of being able to spot when the patterns in the market are out of line with the norm and that's where you find value. Of course, being able to read a match to some degree is still a skill and will still help you but without taking value into account as well, you are going to eventually get caught out by the laws of probability and variance. Good trading is not about picking winners or guessing correctly what will happen during a match; it's about taking good prices. I saw a comment from someone recently stating that they were 'Fed up of people going on about value' and that trading is about 'making money, nothing else'. Yes and in the long run, the way you make money IS by taking value! Some people don't want to acknowledge the importance of value because they either don't understand it or they are worried that if value is important, then what they've been doing for so long is wrong and will not produce results long term. Value is not just a vague concept, value is your edge and knowing that was probably the biggest leap I made towards improvement last year.

2. Mindset. Strange how probably the most important aspect in trading is usually the most over-looked, certainly by the vast majority of new traders. If you don't understand trading psychology, you will never crack trading but even if you do understand it, that's often not enough. You need to work at it. Getting the correct mindset is a skill, more so than being able to read the market or have in-depth knowledge of the sport. I knew all this for ages but only in the last 6 months did I do some serious study and work based just on this aspect. I always thought it would just naturally happen eventually, that one day I would wake up et voila! - I had the perfect, steely, unflappable, emotionless mind required for trading and it would never falter again. I was wrong. Trading doesn't work like that - the human mind doesn't work like that! I'll be writing more on this subject very soon.

3. Low stakes. I've mentioned before that my stakes are 5 times lower now, than they were a year ago, yet my profit is higher. Why? Because low stakes = lower anxiety. If you have any sort of pressure weighing down your mind, it will affect your trading - full stop. My stakes have gradually gotten lower and lower every few months over the past year and I don't intend on upping them for a good while yet. I've made that mistake too many times; over-confidence + under-testing = over-staking. With less at risk, I've had more freedom to experiment and learn at my own pace and this has enabled me to fine tune my strategy without the need for paper-trading (which never gives an accurate representation of real trading anyway).

4. Suitable strategy. I've written many times that I switched 6 months ago to a strategy that I felt was more suited to my personality. I now have something that not only is more profitable but is more enjoyable. And that is the key; you are unlikely to make money if you find trading boring or a chore. Maybe in the short-term you can push past that fact but in the long-run, I don't see how you can remain focused, day in, day out, if you don't like what you are doing.

5. Records. When we first hear about how keeping notes of all our trades is vital, I'm certain that most of us think 'Sounds like too much hard work'. Well, it is extra work and it's not exactly fun but I don't know anyone who is successful who doesn't keep records of each and every trade. I'm not talking about a P&L spreadsheet of numbers, I mean written notes about what you did, how you did it and your thoughts on how everything went, including your mental state. Every single time I've stopped taking notes for a period of time (either through boredom or complacency) I've regretted it. This is because I've had to back-track through P&L sheets without notes on them and try and remember what I did, in order to work out where I'd been going wrong. I've even thrown notes in the bin, (either through anger and wanting to purge myself of all evidence or through arrogance that I wouldn't need them) and then been gutted weeks later when I needed to see details of past trades. These details have each and every time, provided answers to where I was going wrong or indeed, going right. Sometimes when we trade, we don't see the patterns of behaviour we exhibit every day because we are so focused on the end product - how much did we win or lose. Without notes, we don't get to see those patterns and I have often been shocked at how much I've been repeating the same mistakes without even realising. Notes are the key factor in rectifying issues and improving my trading and I now realise I need to do them EVERY DAY.

My improved results have not just happened over-night. They are a culmination of 6 months of hard graft, where I turned my whole way of trading upside-down and began the slow process of rebuilding a shattered bank and confidence. It's possible that they are just short-term and that variance is yet to really kick-in but I very much doubt that it is a run of pure luck. Only time will tell though.

My next post will be expanding upon what I feel is the most important of all these factors - mindset.

OFF-COURT BEAUTY World number 98, Urszula Radwanska of Poland:


Monday, 2 April 2012

The Truth

Well I'm sure most of you will have realised by now that my last post was an April Fool's joke, though I suppose it's not beyond the realms of possibility that I did actually do all that I wrote about! There is a lot of truth in what I wrote, as pretty much everything that is written is something I've thought or done during my trading journey. So it's not entirely lies! Which is good because all the replies I've had have been very nice and I was starting to feel a bit bad about duping people! It was fun writing something with a bit more creative license but it's time to get back down to business and the cold, hard facts of what actually happened in March.

With far less tournaments to trade (4, as opposed to 20 in February, although they were 4 large ones) I was never expecting to hit the heights of last month, especially as the 2nd week of both Miami and Indian Wells are amongst the quietest of the year. So I'm very pleased with my overall profit, despite not hitting 4 figures again. In most respects, March has actually been a better month than February because I have improved my trading in many ways. I started to become a bit more aggressive as my confidence has built. Basically, I proved in February to myself, that I know what I'm doing and therefore, I started to trust myself more. During March, whenever I had a strong instinct over something, I took it on, whereas in the past, I would've paused, ruminated, deliberated and eventually done nothing in most situations. With the green figures from February giving me greater self-belief, I've been less cautious in my approach whilst at the same time, putting in place better safety options, slightly restructuring some of my exit points to balance this up.

The key to stopping fear of the market and fear of  being aggressive is to have no uncertainty - if you are always certain of what you will do and what will happen in every situation, you have nothing to worry about. As long as you execute properly, nothing really bad can happen. Now that I have certainty in all that I'm doing, it has freed me up to do what I do best - go with my gut and take on the value, aiming for those bigger greens. And it is paying off.

OFF COURT BEAUTY World Number 129, Britain's Heather Watson:





As with February, these profits were acheived with a maximum liability of £50 and that will not be changing in April. The tour moves over to the outdoor clay of Europe now, which I don't expect to have any great bearing on my strategy but I want to be sure of that before deciding to up stakes. April and May of last year were my best ever months of tennis trading (until this year) but I started to get very over-confident and it really cost me eventually. I am determined not to let that happen this time around, so I won't be changing a winning formula just yet.

Sunday, 1 April 2012

I Quit

After yet another calamitous week of desperate chasing, I've decided that I can no longer put myself through this mental torture anymore - as of today, I quit trading forever. Just as it seemed I was starting to get somewhere, after a solid January and marvellous February, I capitulated in the final week of March. I was so desperate to at least match what I did in February (my best ever month) that I started trying to force wins to bump up my profit. I was doing OK but was a few hundred short of hitting 4 figures for a consecutive month. I completely lost sight of the fact that I still had a good total because March only has 4 tournaments (WTA and ATP events for both Miami and Indian Wells) whilst February had 20 events (10 WTA and 10 ATP). I became completely blinkered towards making a grand and started placing bets and getting involved in matches that I didn't need to. After a few smaller reds mounted up, I panicked and tried to recoup on the set betting markets but this ended in catastrophe as I over-staked and lost a whole week's profit in one go. I was now so consumed with rage that I lost the plot, reverting to the lunatic that I was exactly a year ago. It seems I have learnt nothing. A whole year of slow progress became decimated in just a few days, as I chased on the football, something I've not done for many months. The reds just kept piling up and even though I knew I'd hit the self-destruct button, I couldn't stop my reckless risk taking. After a week of almost entirely all-red screens, I was suddenly staring at my worst month for over a year and I snapped. Seething with rage, I whipped out the credit card and emptied what I had left into my account, not as the start of a new bank but as the final spin of the roulette wheel, a final 'all-in' at the poker table - everything on Sharapova to win the Miami WTA final. She was duly pulped.

As I write this, I am just about sobering up. I glugged Jack Daniels down my neck all night to blunt the pain and fired up the blog for one last outpouring. It's been emotional, to say the very least, this year of Centre Court Trading. But I have to face the truth and the truth is that I've not been able to handle the truth - I don't have the mindset for trading and I never will have. Most of us who try trading will have to admit that at some point. Those who don't will go one of two ways; to great success or to their doom as a gambling addict or a failure, ruining their life because they are too stubborn to admit they have failed. I don't want to end up the latter, stuck in a never-ending spiral of debt, emotional turmoil and no social life. I must've aged 10 years in the last 2 years and I want my life back. I want to be in the sunshine, smelling the roses, hanging out with friends in the fresh air, enjoying lazy evenings with the girlfriend, gazing at sunsets and taking moonlit strolls - not bent over a keyboard for 10 hours in a darkened room till 3am, sweating over a Ukranian 17 year old in some back-water South American coastal resort, as she shanks yet another easy forehand into the bottom of the net, causing me to smash my foot into the nearest piece of upholstery for the umpteenth time, roaring with primeval rancour. I've tried my best but my nerves are shot, my head is numb and I'm drained of all emotion. It's time to admit that trading is not for me and end the dream. Goodbye all and thank you for following. I'll leave you with my final ever OFF-COURT BEAUTY, my home country's own Laura Robson:


The Sultan