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Most Trading, has irregular profits

Peter's Portfolio has a big jump up

I meet many people and get many emails from aspiring traders that have a dream of trading full time for a living. Some time ago I commented to a trading friend of mine (a full time trader) how nice it would be to get the regular peanut. We joked about monkeys and how to train one, give him/her a reward after each trick, the pattern of work for reward becomes ingrained, and you have a trained monkey. We then expanded on the philosophy, humans are like monkeys, everyday they repeat the same action, get a weekly peanut in the form of a wage, feel secure, repeat the process. For most, the security and knowledge of the regular peanut was a large part of feeling safe and happy.

Trading for a living doesn't always produce the regular peanut. I remember back around 1998 attending one of Colin Nicholsons trading courses, telling him my aspiration to be a full time trader. He gave me a look, I am still to this day unsure of the meaning behind the look, but it may well have been "you are a peanut". (I started full time in 2000) It's not impossible to get a regular steady income from the market, but it is difficult, well that's my experience and what I know from most others too. So it is difficult to maintain a level of security and always feel safe and happy when you trade, be that part time or full time.

Often multiple methods are required for the full time trader, arguably at least 3, one for an up market, one for down and one for sideways. Also different time frame methods, weekly and daily, perhaps intra day, also using different trading vehicles that are non correlated. Non correlated vehicles means markets that don't go the same direction together. So to produce regular peanuts you need monkeys doing tricks in different circuses, like currencies, commodities, shares or share indices, so that when one freaks and jumps one way, the others jump the other way. It all gets fairly complex. You need a lot of knowledge, time, commitment, study, work and technology. Its costs to learn, sometimes a lot. Often a lot. Often a very lot. When I say it costs a lot you are probably thinking money, but consider the time, physical health, relationship strains and not to mention the current crisis of mental health in our community, that traders are at high risk of suffering due to stress, often isolation and a feeling of failure.

Phew. How you feeling? I certainly do not want to discourage ambition, if you have a burning desire to trade full time then go for it! However in the meantime,  for most traders on a huge learning curve (as we all are ) and people with an already full life, in my opinion the answer is this.

Accept the Irregular peanut as a valid core strategy

You are not a monkey but human. Humans have a distinct advantage, it's called awareness. Hopefully evolved awareness that keeps evolving.

Weekly trend trading does not involve the complexity and techinical challenges described above, but it does involve psychological challenges. Being aware will help. Knowledge helps gain awareness, so here is some knowledge for you.

As an example look at the column chart below. It's a back test showing results of my system in Peters Portfolio, the one featured in last weeks newsletter, however I have removed the pyramiding (adding to existing holdings as they rise)  to make it more simple, keeping things in line with the K.I.S.S. principle. (keep it simple stupid)

Below is two years of quarterly results in a column chart, and the chart below that is a monthly results column chart. Both of the same system and time frame, the last 2 years.

 There are no regular peanuts here, but irregular ones. You have good months and not so good, and some bad months where the monkeys are freaking out, running around panicking because of a perceived threat to their safety.

In fact looking at an even closer time frame below, that of weekly results over 2 years, look at all the freaking monkey business! But the fact remains this is a profitable system averaging around 25 to 30% p.a. and doing around onetrade a fortnight. You just dont get paid the same amount every week, week in week out. Now this is where the psychology, knowledge and awareness needs to function. Also some rational choices. On your journey to being a full time trader how do you plan to get there? How do you intend to learn the complexities of different methods so you can choose your methods to provide the regular peanut? How do you intend to learn to identify trends strong and weak, stocks strong and weak, market probability, fundamental analysis, personal discipline, identify your strengths and weakness, etc etc. If you think you can U tube all that knowledge and experience for free, then in my opinion you are wrong. The best way to learn all that is to adopt a simple weekly trend trading system that suits you, and stick to it. You won't know if it suits you until you put it in the market! As I said last news letter, trading is theory and practice.  Learn and practice then review, then repeat the process.

 As a busy person with responsibilties like jobs and family, or other life priorities meaning you do not want to spend many computer hours trading, the less trades your system does the better. The payoff for less trades and work is that the stronger you will need to be psychologically, as most people over trade because they want control, wanting to control comes from being afraid, fear ruins a good system. And the fear may have nothing to do with losing money. It may be fear of facing up to something that has been avoided for years, that emotional avoidance spills over into your trading and decisions, and then makes us act like a frightened monkey. Knowing your probabilities and accepting that weekly trend trading delivers irregular peanuts but with regular probability is a good start.

Arguably it is better for your mental health as a trader to be more removed from the trading process, trade weekly rather than pouring over daily systems morning and night whilst attempting to juggle the other balls in life at the same time. That more time you create could be spent meditating, or just engaging in a mediatative process like gardening or walking, to help keep quiet the monkey on your shoulder, that we all have which is chatting away with useless and distracting gibberish. Stepping back from the market and particularly engaging in some mindfulness practice will make you see how trading IS SO MUCH about your mental health and attitude.

If you want help in creating a weekly system, there are knowledgeable humans around to help, but you will have to share with them some of your peanuts. Speaking of sharing, remember you can email me with a comment by replying to this email or ring if you prefer the personal approach. Phone 0403821523

Peter's Portfolio Update

The portfolio had a good week rising 4%, you can check it out here

http://www.easysharetradingsystems.com.au/peters-portfolio.html

Thanks for reading,

Peter

I don't think traders can follow rules for very long unless they reflect their own trading style. Eventually, a breaking point is reached and the trader has to quit or change, or find a new set of rules he can follow. This seems to be part of the process of evolution and growth of a trader. 

Ed Seykota (featured in the book Market Wizards)

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