At my graduation from Juror Executive Trading (JET) at Merrill Lynch, the first speaker was Donald T. Regan, CEO. The man who would become Ronald Reagan’s first treasury secretary; and who set policy to bring the US out of 20 years of stagflation. He said, “If you’re going to be a capitalist, you have to believe in a free market economy.” To this day I am a proud Capitalist.
He wanted to see a show of hands of those graduates who had chosen Merrill and the financial services industry as their life’s vocation. I raised by hand along with everyone else in the meeting hall. He went on to talk about the negative impact of stagflation on the economy and the markets.
However, he did a curious thing. He asked for another show of hands. He asks the graduates who thought of themselves as a deviate, his exact word. I raised by hand with about 10% of the class. He said that their in-house statistics showed that 90% of the graduates who did not see themselves as deviates, as non-conventional thinkers, would not be in business within ten years. Rather the graduates who thought of themselves as misfits would be in the industry and make a great success out of it.
That was back in the late 70s, and I am still an independent thinker today and debunker of industry myths, a promoter of free markets and elevating traders to stand on the shoulders of 100 plus year body of knowledge so they can beat the markets.
It never surprises me when I talk to people that they tell me about the size of their losing trading campaigns. ?Many more than $100,00 the equivalence of a four-year degree at a state university.? Other traders with losses well more than a quarter of a million dollars, what it would cost for a four-year degree at Harvard or Yale. I had a fellow try to convince me this trading systems work, and he needed up losing over $4million because of his flawed way of thinking and inability to accept he was wrong.
Here are typical rational stages of a traders experience, Thinking Mans Trader can provide you a workaround if you are willing to understand the concepts and believe what other TMTs are saying about the transparency of our business.
Your freshmen year of trading you learn that “pride of opinion precedes a fall.” In other words, to be a good trader you keep vanity out of the way, you know how to admit to yourself and accept that you are wrong. Wrong about the direction you thought the market was going to go. To do so without beating yourself up so bad that your nerve endings are so exposed you can’t accept being wrong again.
Bottom line, a forecast is all about ego and nothing more. Everyone says you can’t make them with any consistency yet everyone reads them and all the pundits do it and many with broad claims of price change. ?There end results is providing liquidity to investors and traders that have a strategy to execute.
Many traders fall into the trap of hanging on to losers too long and taking profits too quickly, and net-net you are lucky to make it through your first two semesters with any capital remaining. Remember, the average cost of going to a state university is $24,000 annually, how does that compare to your trading cost thus far?
After getting over any personal issues, you may have had, in your Sophomore year you learn strategies that will take a direction for you, many traditional ideas based on hundreds of years of priced based research. You will learn about breakouts, trend line breaks, bar chart patterns and trend following.
Most of these tried and true methods will reveal success and will make sense as to why they work. But there is no risk or opportunity management. By the time a price based systems knows it’s wrong, the account could have been clipped for 10% of its value, maybe more.
Sure there are money stop loss and money profit targets, but the market does not care about your account size, the market does not care what stop loss is good for you or what profit target fits your goals.
It’s not until the next stage – your Junior year – that you realize not all buy and sell signals are created equal, some have more meaningfulness then other no matter the time horizon you trade. ?Since you are reading this,?you likely found me through the use of my %C market condition indicator. Its objective is to let the trader know when to buy the breakout or fade the breakout.?
This idea began with me back in the late 1990s. Some traders get their head around the idea that context comes first and they understand a meaning of direction neutral trading. They know the many problems it solves and follows through.
But too many others buy into misinformation that he has to be a disciplined trader by taking all the systems signals. As if somehow the strategy was omnipotent. So they either walk into a max drawdown after watching a winning streak gain confidence to trade, or they begin to cherry pick individual trades. The Junior Trader gets caught in the trap of letting the most recent profit or loss influence his next trade. ?Some JR trader takes it a step further look into other methods. All of them are after the fact. ?Like the statistical analysis applied to the profit trail of trading systems, as if it will provide them with proper and reliable risk and opportunity management.
Some traders don’t make it to their Senior year, but the ones who do will graduate, and they will go on to meet their objectives. They will continue to be good traders, family capital managers and protect their retirement funds.
How did they do it? They stopped accepting as the gospel truth the propaganda the industry spits out to them every day, through their proxies in the financial media and their sales desk manager. They learn to think outside the box.
Thinking Man’s Trader members are provided with the tools and the understanding of how to use these tools to resolve the issues the underclassmen don’t get beyond. TMT does this with a new and straightforward model called the Technical Event Matrix, which puts market context first, which takes away directional bias, provides a higher probability to entry signals and provides an objective way control drawdowns and better manage the bigger opportunities.
TMT is hosting an online conference for new TMT candidates; seating is limited to 22. I will give an in-depth exposition of the TEM, how it looks like a set of indicators and how it affects the results of our most popular trading systems. along with me will be two TMT traders – these are real members who can share their experience with you and answer your questions.