Discretionary Trading Rules - The Recording

[JigsawTrading]

JigsawTrading,

You mention a few times throughout the video via using a phrase of "gut feel" and I believe you even used it on a diagram in the video.

Earlier you had used an example involving multi-tasking while driving (I skipped through a lot of the talk involving multi-tasking) and such.

Here at Elitetrader.com there's a few traders (usernames not mention because I don't want them to misunderstand and think its a put down on their trading skills...just the opposite)...

They are in fact "discretionary traders" that I suspect do a lot of what's commonly known as "intuition trading" which is equivalent to your "gut feel" statements you've used throughout the video.

Here's what I've learned from my Psycho Therapy sessions since Dec 2016 via something the PhD folks and professionals in the field that work with those in the financial markets...its something in our brain / memory (how the neurons/synapses go into action) is essentially divided in two parts called Declarative memory and Procedural memory.

Basically the declarative memory helps us to recall events in our trading that reminds us a past familiar trading situation...the what is what aspect. It's the spark into intuition trading (gut feel) that some of us discretionary traders will categorize as having trading experience in familiar price actions.

Typically intuition trading (what the video refer to as gut feel) is bad in discretionary trading...it invites the risk of ruin scenarios if proper risk management is not being used.

The procedural memory helps us to recall the "how and what" in our trading. It is in fact the unconscious memory when we're doing every day tasks including how our brain cognitively process decision making in our trade decisions...

As an example, the Psycho Therapists equate this to the story about never forgetting how to ride a bike. Their job with me for the next year after coming out of a two month coma was to show me that I've develop trading skills similar to riding a bike.

Essentially I never forgot how to trade, how to multi-task particular things I did in my trading routine even though I couldn't remember the passwords to access my computer network.

There was a guy in the group therapy (ex intuition trader from New York now living in Québec) that happens to also be very good on the violin. Although he had daily problems with simple tasks. For example, like identifying whom had been wearing glasses from a group of 5 different pictures that he had been shown 3 mins earlier and one of the pictures is the only female and she's wearing glasses...

He couldn't remember if it was a male or female that was wearing glasses nor remember how many males were among the 5 individuals in the picture. It's an example of how to test you to determine if there's been any damage to your brain after a traumatic event. It's also a way for them to test your "attention span" and "focus" via simply using similar like memory tasks but show further away as time elapses.

In example of the female with glasses from among the predominantly male pictures...they would one week later show it to you again but his time 15 mins earlier in comparison to the prior time of 3 mins earlier.

Yet, he never forgot that he can play the violin at concert level along with having excellent posture and position while playing the violin.

My point, the declarative memory and the procedural memory are flowing around (e.g. neurons and synapses) in our brain while we're trading. They do in fact have impact on our trading even when trading via a solid trade strategy with a positive expectancy.

They can be a good thing (following the trading plan) or a bad thing (intuition trading).

When its a bad thing...its one of the reasons why some as discretionary traders will repeat the same cognitive decision making errors in their trading that some just simply chalk it up as a trader that lacks discipline when its just the opposite or others say its a trader that's sabotaging their trade performance...

On the contrary, its a trader that's very discipline but the trader doesn't realize the bad trade decisions are being trigger by something very familiar in their unconscious and subconscious.

That familiarity is something that's very difficult to break and when a trader learns how to break it...they essentially do not realize that they can then teach how to unlearn to ride a bike, unlearn how to play the violin if such was possible. They say its not possible but dangerous in trying to do such.

Simply, instead of focusing on how to unlearn bad habits...we need to learn how to merge them with good habits in our trading as a way to allow the good habits to control (engulf) the bad habits.

Its a very strange game played out in the brain...a balance act that I personally believe its best to understand and learn how to use it as an advantage while trading instead of trying to learn how to eliminate it because the latter can have very dangerous consequences in cognitive decision making processes while trading.

Moral of the story, the familiar habits we do while trading...its our mind telling us its trying to stay in control even if some of those habits are bad.

Someone here at ET once stated something I've heard from Psycho Therapists...even on the dawn of the arrival of quantum computers...

Some traders will still outperform the computer.

There's something to think about (another outlet) instead of knitting while on lockdown unless the knitting is part of the trading routine.

wrbtrader

Glad you got better - I had a friend with a brain injury and it's a long road.

The key with any skill is repetition. Someone new to trading that tries to trade on gut isn't repeating anything. Therefore, they won't develop any skill.

With any skill, as you improve more of it becomes automatic. Trading is no different.

The premise of this session was to help people draw a line in the sand between things in trading that should remain fixed and things that can be changed with discretion, along with how to build the discretionary skills.

The parts on 'how we learn' were there to reinforce the skills development techniques I see in really good prop traders - the guys who made it big. Not the things they do now, but the things they did to get where they are now.

 

[JigsawTrading]

This was a problem for me early in my trading career.

Information Overload or Too Much Analysis during the heat of trading.

It took about 3 years to get through it or manage it.

wrbtrader

It is a problem. There is a lot to learn to be successful.

Yet there are only 2 directions.

At first, you are better off not knowing what you don't know.

As I said in the session, interns at prop firms that I know start with a very limited perspective, which expands over time. Walk before you run.

So yes, market state seems like a lot to bite off at first. But you don't get to trade 100's or 1000's of lots without a lot more skill than a 3 lot intern that's taking his first steps off sim.

 

[high-performance]

It is breaking the rules or known a deviant market behavior that is the issue or risk.

Like kids breaking the law.

1. Peer Pressure, everybody is breaking the law.
2. Greed.
3. Breaking the law and rules is 'fun' and increases risk.

 

[JigsawTrading]

It is breaking the rules or known a deviant market behavior that is the issue or risk.

Like kids breaking the law.

1. Peer Pressure, everybody is breaking the law.
2. Greed.
3. Breaking the law and rules is 'fun' and increases risk.

Some people can never stop. I've had meetings with people on a weekly basis and their only task was to follow a set or rules with no trades outside those rules.

For some people it's 3 months. It's incredible.

 

[SimpleMeLike]

I think people skip market state because it's too much like hard work. But like anything - it'll feel like juggling first time you do it but not the 1000th. It is a skill and like any skill takes time to aquire.

I rarely watch Gold - couldn't tell you if it was fast or slow. I can watch an open on ES and often tell you what sort of day it will be based on that.

This isn't a mental thing - it's a market thing.

A good example is Air France-KLM, who as at first April had hedged the entire years fuel need at around $77. They are facing a billion dollar loss. If you can understand that sometimes there's a whale like this in the market loading up or unloading, usually because of a news event - you are much better positioned to play the day out.

Whetever you do on a regular day simply won't work on a day where there's panic or FOMO.

Market state is the reason you feel like King of Trading one day and the village idiot the next. It is fundamental in selecting the correct lay-ups for the day.

This isn't too much information - it's essential.

JigsawTrading,

Please tell me what Market State means?

Thanks

 

[JigsawTrading]

JigsawTrading,

Please tell me what Market State means?

Thanks

Sure - basically it's how it's trading, how active it is, and to an extent, what's driving it.

- For a period last year, we were getting big overnight moves in indices and then terrible low range days in the day session. It was a pattern that emerged and then disappeared.
- It's knowing what time of day your market is most active (or time of year)
- It's knowing that the employment numbers can create an initial flurry and then an all day move
- It's knowing that on a Friday, after Tue, Wed, Thu all being inside days - it's probably going to be pretty slow
- It's about knowing that when a market moves up and then down in a nice move but then sits between the two churning - opportunity is low
- It's knowing what one-off announcements and press briefings there will be on a day and treading carefully around them
- And it's a lot of being able to observe your key markets and know if they are dead slow, lively or crazy volatile

Basic things so you are aware of what might impact your market and then see if it is playing out.

Stuff that allows you to decide
- if you should quit after 3 losers 'cause there's no follow-through
- if it's just a regular day with good sweeps up and down - more technical
- whether volatility is up and stops need to be wider - same setups, played differently
- whether you are just going to have to 'pick up your balls' and scale into a news-driven potentially big move

Have as many states as you want as long as you can recognize them effortlessly. I still can't remember the Market Profile Theory open types. Have your own. Call them Albert, Marie and Nikola if it helps you recognize them

 

[SimpleMeLike]

Sure - basically it's how it's trading, how active it is, and to an extent, what's driving it.

- For a period last year, we were getting big overnight moves in indices and then terrible low range days in the day session. It was a pattern that emerged and then disappeared.
- It's knowing what time of day your market is most active (or time of year)
- It's knowing that the employment numbers can create an initial flurry and then an all day move
- It's knowing that on a Friday, after Tue, Wed, Thu all being inside days - it's probably going to be pretty slow
- It's about knowing that when a market moves up and then down in a nice move but then sits between the two churning - opportunity is low
- It's knowing what one-off announcements and press briefings there will be on a day and treading carefully around them
- And it's a lot of being able to observe your key markets and know if they are dead slow, lively or crazy volatile

Basic things so you are aware of what might impact your market and then see if it is playing out.

Stuff that allows you to decide
- if you should quit after 3 losers 'cause there's no follow-through
- if it's just a regular day with good sweeps up and down - more technical
- whether volatility is up and stops need to be wider - same setups, played differently
- whether you are just going to have to 'pick up your balls' and scale into a news-driven potentially big move

Have as many states as you want as long as you can recognize them effortlessly. I still can't remember the Market Profile Theory open types. Have your own. Call them Albert, Marie and Nikola if it helps you recognize them

Thank you Peter Davies,

Thank you for explaining to me. I understand what you mean. Not as detailed as you but after trading crude oil for 3 years everyday, I kinda see what you mean.

 

[SimpleMeLike]

It is a problem. There is a lot to learn to be successful.

Yet there are only 2 directions.

At first, you are better off not knowing what you don't know.

As I said in the session, interns at prop firms that I know start with a very limited perspective, which expands over time. Walk before you run.

So yes, market state seems like a lot to bite off at first. But you don't get to trade 100's or 1000's of lots without a lot more skill than a 3 lot intern that's taking his first steps off sim.

Peter,

Do your newbie or intern start with 1 or 3 lots? I am trading 1 lot, and it can be challenging.

 

[wrbtrader]

Glad you got better - I had a friend with a brain injury and it's a long road.

The key with any skill is repetition. Someone new to trading that tries to trade on gut isn't repeating anything. Therefore, they won't develop any skill.

With any skill, as you improve more of it becomes automatic. Trading is no different.

The premise of this session was to help people draw a line in the sand between things in trading that should remain fixed and things that can be changed with discretion, along with how to build the discretionary skills.

The parts on 'how we learn' were there to reinforce the skills development techniques I see in really good prop traders - the guys who made it big. Not the things they do now, but the things they did to get where they are now.

Thanks.

Survived it which a ton of gratitude to the medical people and team of doctors. Came away with a girlfriend (nurse), private psycho therapist, new friend that's an ex-institutional trader from N.Y. and an extreme appreciation of medical insurance.

Fully recovered now...back to extreme winter camping/hiking, rowing with new grey hair. Didn't have grey hair prior to the coma...started getting it within days after the coma plus a loss sense of smell (took about 2 years for the taste to return...not there yet for the smell).

The mind is an incredible thing...repetition builds new proteins at the synapses of your neurons and strengthens the connections between the neurons.

http://gretchenschmelzer.com/blog-1...ing-and-memory-the-neuroscience-of-repetition

wrbtrader

 

[traderslair]

A good example is Air France-KLM, who as at first April had hedged the entire years fuel need at around $77. They are facing a billion dollar loss. If you can understand that sometimes there's a whale like this in the market loading up or unloading, usually because of a news event - you are much better positioned to play the day out.

Yeah, these trades are done OTC and I'm extremely disappointed that you, living in the UK, where London is the world center of such trades have no idea about how Air-France-KLM is trading their hedges. It does not show up at all on the CL contract.

I'm sorry to say, but you are a bullshitter.