Episode 130: Friends Don’t Let Friends Trade Drunk

by robbooker on March 6, 2013

Play

A few episodes ago ( Episode 126 ), your host Rob Booker recorded a popular episode in response to a listener named Lisa. Having received a great outpouring of responses from our friends who heard that podcast, Rob and Jason dip into the listener mailbag again, where they encounter comments from Derek, who has a tremendous attitude and a story similar to Lisa’s. We also get a noteworthy comment from Brian, who also has some great insights. Finally, Rob wraps up this episode by talking about some of the ongoing conversation he’s had with Greg K., the trader who discussed his study of “intuitive trading” and remote viewing in Episode 128. Tune it, it’s fun!

Links for this episode:

TFL365.com

Rob on Twitter: @RobBooker

The Traders Podcast on Twitter: @TradersPodcast

E-mail us! Producer@TradersPodcast.com

{ 2 comments… read them below or add one }

Brian March 10, 2013 at 10:54 am

Good podcast with a wide range of topics. I’d like to discuss one of the comments made at the end of the episode, the one pertaining to intuition, and ask your opinion about the topic.

I think intuition works both ways, it can help you but it can also undermine your trading. Intuition works both ways because our brains are pattern recognition machines. That’s why we can find faces in wood grain, or shapes in the clouds. Those are easy to see as just noise, because even though a cloud looks like a ship, we are not dealing with limited information. We have access to enough information to tell a cloud is just a cloud, regardless of its shape. Not so with the market. A pattern can be just noise or it can be a legitimate setup for a profitable trade, the limited information contained on the chart doesn’t tell us which is which. And that’s my point about intuition, because we have limited information, and most of it is just noise, intuition is a double edged sword, and it’s easy to trick ourselves into thinking we have any intuition at all when we don’t.

So let me get to the point and my question. Traders seem to think that a 5 minute chart is a snapshot of 5 minute trading. It’s not, it’s a slice of the end result of everybody’s trading, all the bulls and all the bears shouting at each other on every time frame, from HFT machines to buy and hold traders. That creates a lot of noise. I do believe in intuition, however I believe in bad hunches a lot more than good hunches. Our minds are real good at screaming “danger” when something is out of place that we just can’t place our finger on. So my practice has been to ignore my good hunches and listen to my bad hunches. Don’t get me wrong, I do believe intuition about good trades can be developed by building up screen time and expertise, but there is just too much opportunity for new traders to damage themselves due to the noise in the chart for them to pursue it.

Listening to my bad intuition has cost me some great trades, but it’s also kept me out of trouble. More importantly, not listening to my good intuition has cost me some great trades too, but the practice has kept me alive to trade another day.

Well, that’s my 2 cents Rob. What do you think, and if you agree, how long did it take you to develop your bad and good hunches to the point that they helped your trading (for a given type of trading)?

Reply

Brian March 10, 2013 at 11:31 am

Since you mentioned Lisa, I have another observation. I made a comment to episode 126 which discussed Lisa’s progression as a trader. My comment regarded how we can’t expect smooth profits from our trading, but we can aim to achieve smooth losses. In doing so, I forgot to comment on Lisa’s approach to building her account, an approach which I think is logical, but misguided. Lisa wrote:

“I started trading with one thin dime per pip, and have been doubling every week or two. I had a bad week at $2 per pip, but ….”

I think trading is about patience and doing things the right way. Doubling your position size every week or two is utterly insane. It guarantees that, on an ongoing basis, you will suffer a loss that is double the size of any loss you have suffered in your whole life. Worse, if you successfully trade one week without any big losses, you end up doubling your size yet again, and the next big loss is therefore 4x bigger than you have ever experienced.

Lisa mentions she had a bad week at $2, apparently bad enough that she felt it worth mentioning. How’s she going to feel when that happens at $50 per pip and sees $20k fly out the window? The psychological scarring that can happen to you from those kinds of losses aren’t easy to remove. I know one trader who blew out in a limit down pork belly market, and he has never recovered. I know her approach is logical, but unfortunately our brains are not logical and we have to protect our minds.

What would you recommend for account progression? I never increase my position size until I have lost at my current position size and have proven to myself that I can handle it. Self recrimination, smashed keyboards, getting even with the market, any of those danger signs, in my opinion, tell me I’m trading too large and I’m not ready yet.

Brian

Reply

Leave a Comment

Previous post:

Next post: