In a week of heightened volatility in the financial markets – when opportunity for profit came hand in hand with increased potential for loss – I thought it would be interesting to collect the thoughts from a handful of trading blogs:
A conflicted Tyro Trader opted for the cautious route:
‘I just wish I had the skills & confidence to trade more actively.’ He later commented ‘I’m telling myself that sitting on the sidelines is a sign of caution and experience, not cowardice.’
There is a fine line between courage and stupidity. I find the decision not to trade a difficult one to make, but the when I trade just because the market is moving, I feel I am handing over control of my destiny to the market; reflecting after the event, this type of speculation usually feels more like roulette than trading. I think Tyro made the right choice.
Jason at Estocastica made the same decision on Black Tuesday:
‘… I choose to stay on the sidelines today and did not make any trades.’
Uglytrader suffered a 7.7% loss with his automated system, but was glad for being emotionally removed from the decision making process:
‘One thing that is great about an ATS, though, is that your ego is not nearly as involved as with trading on your own. At least for me. The ATS lost money today, but whatever – I didn’t lose money. The computer did. Now if I had traded as poorly as the ATS today, it would have hurt a lot more. I guess I would feel more responsible or something. Sure, there are a lot of subtle advantages a human trader has over a computer today. But I see a lot of potential with using a program to trade. It more clearly separates the ego from one day’s results. It also is consistent – and this gives you a much more clear understanding of how the system works and how well it performs. And what to tweak.’
JC at NYSE Trader was also side-lined, not through choice but due to technical glitches. He gave his thoughts as he persevered through a tough trading patch, adapting his style along the way:
‘I’m shutdown and I can’t trade. This is the kind day I’ve been waiting for and I’m out on the sidelines.’
Later in the week:
‘After a rough and bloody week so far, all I wanted to do today was just end the day with some profits and to stop the bleeding. I had losing days on Monday, Tuesday and Wednesday of this week….the first time I’ve had back-to-back-to-back losing days since…well…since I started as a trainee almost two years ago. I don’t know what I would be thinking right now had I lost money again today (I’d probably throw in the towel and call it quits).
I understand that volatility has gone way up the last few trading days and that it’s probably not the best suited for the kind of trading I do. But I think what I failed to do this week was to adapt to these changes.Today I gave many of my trades plenty of room to move and I also gave them plenty of time to work themselves out (longer than I usually would give them). I also tried to keep most of my positions small, just until I can adjust to this volatility and just until I can get myself back on the right track.’
It looks like JC had to ask some pretty tough questions this week, but he is a professional and profitable trader and I believe he stands better a better chance of success than most. When he realised his previous approach was no longer delivering he adapted by giving the trades more breathing room. Importantly, he also reduced risk, feeling his way through the new environment. I believe this kind of adaptability is absolutely key to staying alive over the long-term because conditions change and approaches fall in and out of profitability. Simply assuming that what worked before will continue to work is deadly.
And what of my story? The currency markets certainly played a role in adding to the turmoil in the financial markets this week, with the high yielding currencies falling like stones versus the funding currencies. Previously, large moves like this would have drawn me in to the game as a trend follower, but this time around I tried stick to my trading script, taking the advice of Steve Leslie over at Daily Speculations, who said: ‘Be your own man. Make decisions based on your beliefs and your philosophy for better or for worse. If you had a good plan going into today, chances are it will be a good plan going forward’. He also said ‘Focus on what you have control of. Manage the trade; don’t let it manage you’, a phrase which really stuck with me through the week. So, even though I spent many hours glued to the screens, I didn’t allow myself to get suckered in and trade for the sake of trading. I just had to admit that I don’t really have a clear strategy for this type of event.
Readers are welcome to share their own trading experiences.