Trading Coach: When the shadow boxes back

Wed Aug 29, 2012

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Denise Shull on leaving the ring.


DEAR DENISE:

For 25 years now I have either been trading on a bank desk or at a hedge fund. I am successful but I could be much more successful if I didn't always fight the trend. Within a global macro portfolio, I trade the financial futures intraday, and somehow I am always fighting the intraday moves. It's like I'm sabotaging myself or just need the excitement. I don't know. Have you ever known anyone who can't stop trying to fight the market?

-The Boxer

Dear Boxer:

Let me guess: Your father was an engineer, or a mathematician, or maybe a doctor, right?

Now that you are asking how the heck I knew that, I'll tell you. Every single time I work with a PM or trader who fights the trend, we deduce that what they are really up to is trying to be the first to find the bottom or the top…the first to find the turn. And why, oh why, do they do this? They know they lose boatloads of money. They have told themselves to stop 10,000 times. But, alas, the machine somehow acquired a big short (again) smack in the face of the banks and the techs all being up and an advance/decline line at +1850 and climbing-at 2pm no less.

But let me ask you, what if you were right? What if you nailed that last ES contract at the very tippy top of the day? At a minimum, you would slap your desk and let out a whoop, right? Yeah yeah, I know. But what's the FEELING? I'll bet you your next vacation that you feel brilliant and it feels good.

See, the gig with fighting the trend is really about being the first to see the end, and being the first to see the end is really about being smart. And being smart is about getting Dad to be proud of you. That's always a tough thing to get out of men who became engineers and doctors in the 1960s and 1970s.

Believe me, I already know you are smart. And so do most women. Dad is also duly impressed. Actually, he's probably jealous, so save the money you're losing every day and send him on a vacation instead.

-Denise

Readers are invited to write to trading coach Denise Shull, a recognized expert in risk psychology and author of Market Mind Games. Send questions to editorial@absolutereturn.net.

See also: Newly-minted PM asks "What's the point?"  Avoiding afternoon impotence