Monthly Archives: March 2007

Something for the weekend


This interactive animation might as well be called ‘traders’.


The Chicago Tribune has an excellent piece on where the open-outcry traders go when the pits shutdown and everything turns electronic.


March 2007 trading results

I Want To Break Free

My account grew by 10% this month, and if I step back and look at the bigger picture I should be satisfied with my performance: 17 out of 21 positive weeks, with an average after-expenses profit of just over £400 a week. But comfortable I am not. I feel as if my trading performance is trapped in a range – see the shaded area in the chart – and this is producing a sense of unease. 

In the month ahead I just want to stick to my game plan, roll the dice and let them land as they may. I know the barrier may be a fiction of my own making, but if I can take my account to £14,000 I feel this would be a significant achievement because it would transform the break-even target (£18,000) from a dot on the landscape to a realistically achievable goal.

However, just as happiness is often attained by an indirect route, so I believe trading success can only be achieved if I focus on the process and not the prize.

Week 21 FX trading results


The currency markets are closed, I’ve tallied up my score, and for once I am content with my performance. My equity grew by an modest 2.3% in the week but I took very little risk for this reward. Indeed, having spent most of my trading life emotionally strung out on excessively leveraged trades, trading this week felt like going on meditative retreat to a Buddhist monastery. Most enjoyable.

I am awarding myself a score of 8 out of 10 for following my road map. There were times when it felt it like a 9 or even a 10, but I am only willing to award myself such a score when I perform valiantly in the face of adversity, a factor notable for its absence this week. After all, it’s all too easy to sing when you’re winning.

John Kay on obsessive price watching


John Kay is an economist who writes interesting thought-pieces for the Financial Times. Here is some selected text from an article published earlier this month, in which Kay discusses how watching share prices can be unhealthy.

Last week I bought shares in Royal Bank of Scotland ahead of the company’s results. These were ahead of market expectations and the stock, purchased at £20.40, ended the week at £20.75. You would expect me to be pleased, and I was – until I noticed that in last week’s volatile markets, the price between times had dipped below £20.

But regret for not buying RBS shares at £20 serves no useful purpose. The opportunity to buy at that price on Wednesday afternoon has passed. Even if the chance comes again, which it probably will, a purchase will then have to be justified on its own merits.Nassim

Nicholas Taleb, the trader and author, illustrates the curse of knowledge with the example of the investor – call him Warren Buffett – who substantially outperforms the market over the long term. If Warren looks at his portfolio only every five years, the results will almost always be encouraging. If he reviews his investments annually, he will have observed more good years than bad ones. But even a successful investor who looks at his portfolio every day can easily become depressed. Fifty one per cent good days and 49 per cent bad days will produce a good result, just as someone whose coin tosses work out 51 per cent of the time will become extremely rich. But it may not feel like that.

For those who follow events too closely, the pain of regret can far outweigh the joys of success.  Life, and markets, contain so many missed opportunities. Monitoring your portfolio every day will impose a high emotional cost for negligible financial benefit.

Many investors will have concluded that the current turmoil makes it vital to be close to the market. The opposite conclusion is true.” – noise is relative, what is noise? depends on your time horizon.

The message is clear: try to cultivate the broader outlook and don’t obsess with every fluctuation. For short-term, higher frequency traders, the message is that we shouldn’t pay too much attention to the daily swings in our equity. Indeed, in theory, if we are satisfied that we have an edge and if this is supported by our trading record, then we shouldn’t feel overly elated on a day of strong profit, because we know losses are just around the corner, and vice-versa. Imagine a company publishing it’s accounts every day. It distracts from the bigger picture.

I’ll confess that I am a long way off being emotionally neutral when faced with short-term losses and profits, but it is something I am working towards.

More insights from Daily Speculations

Here are my recent favourites from from the wonderful Daily Speculations:

– In an entertaining piece posted today, Vic Niederhoffer explains recent market events in the context of the Night of the Living Dead. I applaud Vic’s relentless optimism. It’s a much needed antidote to the endless pessimism spewed forth by the doom-mongers and perpetuators of fear.

– In What I’ve Learned from Losses,  Scott Brooks stresses the integral importance of losing:

One of the tenets of my life is that I want to be known as the guy with the most losses. I want to be the guy that lost the most. My reason for this is simple: the guy with the most losses is also the guy with the most victories.

I recommend reading the full entry.

Steve Leslie finds an excellent quote by Vic Sperandeo (author of Methods of a Wall Street Master):

“The more the victim struggles the more the alligator gets. Imagine an alligator has you by the leg: it clamps your leg in its mouth and waits while you struggle. If you put one of your arms in the vicinity of its mouth while fighting to get your leg free, it lunges and then has your arm and leg in its clutches. The more you struggle, the more the alligator takes you in.

So if an alligator ever gets you by the leg, remember that your only chance to survive is to sacrifice the leg and drag yourself away. Translated to market terms, the principle is when you know you are wrong, close your position!”

Having been dragged down by the alligator several times in the past, I know I would do well to keep this in mind.

– Even though it sometimes feels like the world is against me, with my my stops being ruthlessly hunted down before the market turns in the other direction, I have to agree with Larry Williams

I do not believe there is a night crew, specialists, floor traders, et al., going out after my stops or my positions.

I think that is a sophomoric concept. If you are getting stopped out a lot it simply means your stops are too close and market randomness is doing it to you — not some cabal that meets in secret prior to the opening every day.

– Bruno Ombreux writes an excellent piece about his efforts at timing the market and how calling the exact top and the exact bottom of a market isn’t a guarantee of success:

…my market timing allowed me to sell at all the intermediate tops in 1997, in 1998, and in March 2000. It allowed me to avoid the bulk of the bear market in 2000-2002. I came back too early in August 2002, sold in September, came back at the exact bottom in March 2003!

… It is incredible that even though I caught most major tops and bottoms in 10 years, I only over-performed by 2%

First, I caught all the actual tops, but also about 10 of them which never turned out to be tops. The market continued higher and I missed part of the move. Second, even when the top was an actual top and I was flat, it created the problem of knowing when to get back in, which in most cases occurred a bit too late. Third, buying and selling too much is created a lot of friction in the form of commissions.

Based on this I decided to be always 100% long. I am not timing the market, styles, or anything any longer. I still hope to continue beating the market by a couple percent a year from stock-picking (probably more beta than alpha). I don’t care if the results are more volatile. This is largely compensated by a huge decrease in workload and worry. Freed time can be dedicated to more useful pursuits, ….

– And lastly, James Tar provides an excellent quote by Roger Federer on losing as a fact of life:

“That’s not the way it is. A guy put me away when he had to. He played a perfect match in the end. He didn’t give me any more chances. He served well. He didn’t give me any unforced errors and I was just playing too poorly in the end to come back. So the right guy won today. That’s just a fact.”

Week 20 FX trading results

I started the week with a non-trading related expense of around £400 and while my trading started off on strong footing, things deteriorated from Wednesday onward and I ended the week with an after-expenses loss of just over £500 (-4.1%). 

I’m giving myself a road-map scoring of just 4 out of 10 because I ended up chasing a loss and this sent my trading behaviour in to a negative spiral, which hasn’t happened in a while. I’m just fortunate I didn’t lose more and I’m glad the loss wasn’t due to a fundamental flaw in my trading approach, because this gives me reason to keep pressing forward. You can see from my equity line that I’ve been struggling to break well north of the 12,000 level for a while now. My break-even target remains some way away at £18,000.


Here’s how it feels: 



I cannot outperform my mum. She only trades in UK bank stocks. For information, she uses teletext (a free, text based service that broadcasts off the television signal in the UK), which gives nothing more than the price of a stock along with the high and low for day. She doesn’t use the internet, she doesn’t read the financial newspapers, and she’s learned not to listen to analysts on the business channels. She will ask me for advice at times, but I refuse to give a view; I just emphasise that she shouldn’t risk more than she is willing to lose, because she is very close to retirement. She buys 500 shares at a time, with no regard for the price of the stock, and she thinks June will be a good time to buy. 

Every year, my mum turns a profit on these stocks and she is also treated to healthy dividends. She has a knack for timing that I struggle to comprehend, and an approach that flies in the face of rationality. Long may it continue.

The chart below shows my mum’s most recent purchase of Barclays shares.