and a suffering runner always quits. sooner or later ...
AERODYNAMIC TRADING 68
Our motivation is directly proportional to the pleasure and personal rewards we allow ourselves. Go back and re-read that last sentence . . .it is loaded. We have to allow ourselves a per
sonal reward. I'll address this in more detail as it is the source of one of our trading obstacles that we need to overcome: self
sabotage. Do you reach a certain level of profit in your trading account, and then begin to chap.ge your trading style so it leads to a major loss? This is a form of self-sabotage when you don't believe you deserve a favorable outcome or reward. We'll come back to this discussion of self-sabotage. The other factor is that our motivation is directly proportional to the pleasure we expe
rience in striving for the milestones that lead to a goal. I in
tensely disliked the field of junk bonds and had to change. I not only had to change the market I was involved with, but I also recognized I wanted to switch from the sellside to the buyside.
For those new to the financial industry, the sellside of the market requires a broker ideally to find both a seller and buyer to execute a cross trade simultaneously. In a cross transaction, settlement passes from the seller straight over to the buyer. Therefore no, or very lim
ited, capital exposure exists for the firm in the middle of these cross transactions. As a result of the lower risk, the firm can justify higher commissions for a cross transaction and thereby establishes the motivation for the broker to find both sides of the trade. On the buyside, you risk your own, or your furn 's capital. You don't go out into the market to find someone that can take the other side of your trade.
A
change does not necessarily have to be from the sellside to the buyside, or to a different discipline or market within the business. It is equally important to change your routine, give yourself a reward, or introduce new elements into yoursched-ule to keep you vigilant towards a goal. The hardest reward to give ourselves is time off. It's important. Actually, it's essen
tial ! When our trading seems to be on a hot streak we can't leave for fear the momentum will be broken. When we are in a trading slump, especially if we're on a trading desk, we can't afford to take the time off when we are down. We promise ourselves we will take time when the slump is over. Quality time is never found in such situations because there is no in between, we are either on a hot streak or in a slump. It's not often we trade on a flat line. No one can trade all of the time.
The fastest way to make many principal investors crazy is to show inactivity in their account. I've learned that for many investors
losses are more acceptable than accoun t inactivity.
This is nuts.
Another important reward is to buy ourselves an occasional gift. Go buy that speed boat that invigorates your soul. Then when you hit a slump, and we all do, you won't get caught at home wishing you had bought it when you could have, rather than having given all the money back to the market.
If after a string of trading losses you experience a drastic decline in your motivation, you are likely being affected by a specific problem - investing too much ego into the activity.
We then measure our own self-worth by the results of our trad
ing, or sport, thereby allowing the result to become a danger
ous mechanism for ego-deflation. Good coaches have many different ways of picking athletes out of the dust when this hap
pens, but their objective is always the same: to understand that excellence is achieved by improving upon an error. Without loss we would be unable to reach greater heights. We need to learn how to lose before we can learn how to win. Leaming to cope with a loss and learning to constructively use our down cycles, lays the foundation for our successes. Knowing how to lose and knowing how to cope with the loss wil l remove the fear of potentially experiencing a failure when you try. It's
go-AERODYNAMIC TRADING 70
ing to happen, it's cyclical. Coaches teach athletes to blend with these cycles of ups and downs, not to fight them. View a loss as an opportunity to improve, and it will be far less damag
ing to your ego.
Frequently we are called upon to motivate ourselves to do something that we really don't want to do. This is very differ
ent from when we want to create a motivation, or identify what our motives and goals are for doing something in the first place.
But when the task is viewed as unpleasant, the trick is to break the task into small, manageable segments. When a job seems easier to do, when we believe it is possible, motivation is more available. Analyzing government bond spreads is one area I have a hard time getting excited about. By breaking certain steps down, or integrating other aspects which are more enjoy
able, it becomes a lot more manageable. For longer tasks set up a system of rewards. Give yourself a payoff when you pass a milestone. For example, a dinner out, a live show, or my favorite ... a chocolate fudge brownie. (Government bond spreads can be very fattening.)
Be cautious about being motivated to accomplish goals sim
ply for the sake of achievement alone. This creates extreme tension and pressure. Continually being fixated on reaching a goal will actually build a serious obstacle which will prevent you from attaining that goal. The limitation is that you will put - more attention towards the future and never be able to fully live, concentrate, or immerse yourself completely in the current moment. This in turn may become the flaw that holds you back from performing to your best ability and thereby hinders your improvement.
The frrst chapter introduced the Tao mindset of the Beginner's Mind. If you believe you have all the answers, you impose a false limit on yourself. Self-improvement happens in an infi
nite number of ways - be open to them. Try to consciously see yourself as a beginner, and protect yourself from thinking
you know it all. For a period of time I designed trading models for nwnerous Foreign Exchange traders working for major firms in New York, Chicago, and Los Angeles. There were at least one hundred different models I designed for individual traders.
(Can you think of any better way of exposing yourself to a wide variety of traders from which to learn?) Some approaches the traders used were very unique applications to common prob
lems. Other traders used methods which were variations of common indicators. The top traders I encountered all seemed to have a similar trait: they were all trying to learn something new each day. The traders often posed questions to find out if I really knew my stuff. Once I was accepted, these traders be
came relentless learners. They had endless energy for trying new ideas and finding other ways to profit test their approaches.
On the other hand, I frequently found that those traders who already knew everything and were highly skeptical about being given anything new, had serious flaws within their indicator setup. They frequently used the pre-defined variables that are established as default limits by their quote vendor and discarded new approaches which could have resolved timing or reduced false market signals for them.
As a totally inexperienced greenhorn when I left Kodak, the trading room and brokers were extremely intimidating. Even
tually I caught on that by learning just one small thing a day, your abilities will soon surpass many around you. The reason is that many reach a plateau of achievement, and then they stand still, or maintain a holding pattern, thinking they have learned all there is to know. Those who have stagnated will be passed.
I gave a presentation at a conference in Las Vegas that in
volved a trading demonstration. I was setting up the overhead materials, waiting for the audience to settle in. As is normally the case, I tend to scan the audience. My eyes and heart stopped
when I recognized one individual sitting near the front. George Lane was in attendance. My presentation included a rather
AERODYNAMIC 'TRADING 72
graphic example of when his StochastiCs indicator would reli
ably fail. I had planned to include this failure as a signal for when traders of size could fade the smaller trader. It would be the smaller traders that would supply the volume for a larger order coming into the market on the other side. George Lane had created the Stochastics indicator. He is recognized as one of the best lecturers among all analysts, and is also well known for not being shy about expressing his opinion when he audits a lecture. He cheers robustly for someone presenting well crafted new research. Flaws · in logic are brought to the audience's attention with equal fervor. He also makes sure the speaker does not move on until a topic is distinctly covered for the audience. George Lane's presence is formidable. In this setting, my first reaction was mild panic. I considered skipping my examples of when to fade Stochastics, but then thought better of this flight-to-safety instinct and charged ahead with the origi
nal game plan. I was confident that I had done my homework, confident that I had done enough testing to rebut any challenges that George may have raised during my lecture. So I charged ahead. To my relief, and somewhat surprise, George Lane be
came my supporter, sharing his boisterous and warm enthusi
asm openly. He was one of the most outspoken individuals in attendance. His inquisitive comments and questions contrib
uted to everyone present. George is in his seventies, but he still has the curiosity to learn, share, and listen to new ideas. He doesn't stop learning or asking questions. He comes to the table with his teacup ready to be filled and exemplifies the Beginner's Mindset that was mentioned in the first few pages.
We need to take the time to reflect and learn from our cur
rent progress and mistakes. A client of mine, referred to in Jack Schwager 's book,
Market Wizards,
once had an unprofitable trade during a contract rollover in the S&P market. This individual has been in the business for a great deal of time and is highly respected throughout the Industry. The trade did not
lose much money, but regardless, he struggled to understand why that trade went wrong. He soon recalled an identical cir
cumstance from when the cost of carry was out of line in a similar manner. Not in the last year mind you, several years back. Longevity in this business is rare. I attribute his market success and survival to his assertive attitude to reflect upon past errors and successes and to learn from them. One day when I was moaning to him about an error I had made with a trading strategy, he asked how old I was? When I answered he told me,
"You better be making errors. How else are you going to learn?"
His commitment to learn from every winning and losing trade has made quite an impact on my trading approach.
Reflection takes time and practice. Reflect on your feelings towards trading, its patterns and rhythms as they present them
selves to you. Also work on understanding the interaction of your personal life with your trading performance. This interac
tion contributes directly to our trading performance fluctuations.
Reflection can also help you get a grip on reality. If you are physically exhausted and drained, your trading performance is going to decline. One year I took a terrible nose dive with my trading track record. Until that time it had maintained a steady growth that ranged between a 27% to 43% annual return. It was too late when I finally took the time to reflect on what contributed to this trading disaster. It boiled down to two weak
nesses actually.
I learned not to trade the last day preceding an end-of-month statement, and also never to trade when I was sick. After evalu
ating every single trade, I discovered that by removing those particular days from my bottom line would have produced a net profit of + 34% for the year, rather than a negative return. Be
fore this evaluation, I was unaware I took greater risks in front of a P/L statement and unaware of how illness caused me to lose my intuitive timing and instincts.
AERODYNAMIC TRADING 74
While I was struggling to understand the factors that con
tributed to my worst trading year, I had uncovered a beat up, old coaches' manual for track. In it was a section to help a coach try to understand why an athlete 's performance had sud
denly taken a turn for the worse . It offered this list to test if the athlete had been presented with any new distractions to account for the decline in his recent performance. My jaw dropped when I read it . . . I
could answer yes to every question
... Think back on when you have had a trading slump. How well would you fare on this list? Be honest with yourself.• Have you experienced changes in sleep patterns?
• Has there been a death or loss of a close rela
tionship,
• or major illness of a close family member?
• Have you had an increase in financial responsi-bility?
• Have you recently relocated?
• Has your social life taken on a new dimension?
• Has your interest in [trading] changed in any way?
• Have you recently been injured or excessively ill?
Answering yes to one or more of these questions was sug
gested in the manual to h�ve sufficient negative effect to inter
fere with the athlete's capabilities, attitudes, and performance ability in track. As performance in sports and trading are im
pacted by similar psychological factors, this list clearly applies to trading. If one or two are proven to have an effect, just think what happens when you can answer yes to all of them! All of these questions actually help to identify performance obstacles.
So does experiencing an equity curve change just before an
end-of-month or end-of-week statement. Each needs to be handled in a specific and different manner, which will be fully discussed in Part III, "Inner Aerodynamics: Enhanced Trading Skills Through Professional and Olympic Coaching Tech
niques."
AER ODYNAMIC TRADING 76