Long Winter Trading Company

We’ve all seen it.
A young couple out to dinner. Maybe a first date, maybe a second. She’s dressed up and so is he. They both look nice but something is off.

After a quick glance and moment of observation, you realize that she hasn’t said a word in the past ten minutes while he rambles on without stopping. Anything and everything that comes into his mind, he spirts out in rapid fire. His work, his hobbies, what he thinks. What he knows.

On and on and on the man carries the conversation without even giving time for a reply, let alone stepping back off the mic to offer it to his female counterparty.

Just think. What interesting conversations might take place between these two young people if the man would just shut up for a moment and open the door to some thought provoking dialog?

Not only does he squander the opportunity to enter into an interesting collaboration of thought but he also chooses to remain in the dull light of his own mind, dank and musty. So trapped in the closet of his thoughts he’s forgotten what fresh air feels like.

So it is with markets.

Most people don’t come into markets without some previous success. In most cases, we’ve “won” at the first things in our careers and are now entering markets looking to summit yet another of life’s great challenges.

This puts the default participant at a massive disadvantage.

It’s all in the approach.

The answers we get are based on the questions we ask. If we ask default questions, we get default answers. If we learn and work to ask more nuanced questions, we receive more nuanced answers.

When most people enter markets, they use the same tools they have used in their careers to get things done.

Most people come into markets, see one or two things that make some sense and then, without realizing their own arrogance, start drawing lines and assuming what the market should or shouldn’t do. Before giving it much time or attention, they are already commanding a thing that does not take orders.

The next level of this is to do the same but more advanced. Like the man on the date, there is no real connection. Just crude employment of the other to hear his words said back to him in his own head.

Every tool, chart type, bar type, color and line drawing method is employed. Maybe if you keep telling her how great you are she’ll finally understand?

But, like much of the single male population, they remain unable to woo a quality gal and are left alone with an apartment full of tools, toys and “look how great I am’s” without the company of a decent partner.

It’s not a mystery.

Markets, like people, are not a mystery.

Markets are people. Markets are one great swirling mass of people. Not one person or fund but a million. All moving in unison to some unknown melody.

If all you ever do is talk, you’ll never hear the music. You’ll never enjoy the simplicity of just watching, understanding, riding the waves it offers.

If you are too busy telling the market where it should go, what it should do, the levels it needs to hold or reject, you’ll never be able to transcend to those sweet moments where, like John Moulton said “You can ride the comet for a while”.

As a trader, you have to realize that no amount of effort can change the future actions of the market. It will move how it wants, it will go where it pleases and it is not aware of the line you just drew on your chart. It is not listening to your explanation of it’s future action. It has no sense of should or shouldn’t. It’s future is written and only it is aware of what it will do. The rest of us remain in permanent ignorance.

The Job.

So what’s the job?

The job of the trader is to slow down their thoughts, their needs and desires just long enough to hear where the market may want to go. It’s not difficult, in theory. Like any relationship where you are not the key actor, you are simply a supporting role, it takes humility. It takes patience. It takes the ability to listen first, act second and respond with grace when you guessed wrong.

Your account is not moved by your actions. Your actions, when they are directed by you, only serve to reduce you bank balance. However, when your actions align with what the market is telling you, when you allow yourself to dance as the market leads, she carries your balance higher. Often higher then you could have imagined. Certainly higher then I ever expected.

So it is in life.

To give yourself to a person, or to a moment. To serve the will of the present, without concern for self, has the ability to open us up to some of the most surprising and enjoyable experiences. So enjoyable in fact that once you’ve experienced it, little else is even interesting anymore.

This is the experience of collaboration in the moment.
A rare gift.
The only goal.

The sun set over the red desert as I bounced slowly down a dusty dirt road. There were a few old campers here and there, tucked into worn down pull outs with rutted entries and surrounded by sage brush. It looked to me like the usual crowd. A handful of dirt poor single dudes with old vans haphazardly parked into their temporary desert homes. A family with bike spread all over and a barbeque.

I kept driving. The road was wide and flat. Rolling desert hills lifted up across the horizon. A few miles more and there was no one. The few ragtag settlements I had seen were long gone and it was just me and that sweet desert silence as the sun finally gave out and the stars began to freckle the sky.

I was just barley on the Utah side of the Utah/Arizona border. There is some incredible BLM land just outside of St. George. The bouldering is excellent and mountain biking even better. I wasn’t here for either of those two things on this trip.

I had just left L.A.

I had been there for a long weekend at a trade show. I had spent the past 4 days talking to past/present and potential clients as well as customers. My small software business was getting a lot of attention along with my partner and my new venture. We did this show every year. It was fairly important to us from a business perspective but, more just an excuse to rent a house, hang out and eat too much good food.

If you’ve done a trade show, or worked to sell yourself in any way, you understand what it means to be “on”.

I had just spent the last two months preparing for this weekend. Software updates, client deliveries, organizing and communicating. All the prep had been flawless. Execution was dialed.

In the next two years, my partner and I would dissolve the venture we were there to promote because of the success of our primary businesses. Everything we were doing, and doing well, was just insurance. It was the extra mile.

That is what is required when you’re boot-strapping your own businesses. Throw out a wide net and see which one catches fish.

We got lucky.

None of that mattered now.

The work had been done and it was time for me to get some rest. I threw a sleeping bag down on the ground. Kicked off my shoes and curled up for the night.

I woke up the next morning and a thin shell of ice had formed over my sleeping bag. It had gotten fairly cold overnight, as it often does in late November.

I was happy.

Nowhere to be. The rest of the day to drive the 5 or so hours back up to Salt Lake.

Why am I telling you this story?

I am a human. I operate as a human. I am slow and inefficient. My mind can only take in so much before it reaches capacity.

Funny thing is, so are you.

In markets, we often overlook the human element. Both in our own methods and expectations as well as the methods and expectations of others.

I believe that in order to truly expand into excellence, a person must understand deeply both their ability to push, and their need to rest.

Cycles.

Markets work in cycles. People work in cycles.

Often, I see people override their rest cycle for more effort. More work, more money or more achievement. In doing so, they reduce the impact of their effort and future capacity. Their work becomes average.

In order to truly be excellent at anything, you must not only drive towards it but rest from it.

Rest.

I use the above story because it is a large part of who I am. For me, to let go of all ambition and just be a dirt bag for a while is was brings me back to life. A few days not giving a rats ass in the desert can make all the difference.

For you, this might be something else.

It’s likely not a highly produced vacation. It’s probably something that satisfies a deeper part of who you are. I would argue, the more you understand what works best to decompress your own neurosis, the more effectively you can recharge and then re-enter into that state of intensity.

When to rest:

Here are a few things I see both in myself and in others that indicate a need for a little R+R.

• Tension : Trading should flow. It should come easy. Setups you know should be hit without hesitation. If this isn’t the case, it’s time to chill.
• Tilt : Tilt is not a common trait for traders hitting their edge and compounding their accounts. It’s often normalized as an excuse to keep the addiction alive.
• Sizing Errors : Often, I see in myself and others a desire to adjust size when experiencing compound fatigue.
• Lack of Clarity : We do the same thing every day, or at least we should be. Often times an overload in data processing muddies the mental waters.
• Tunnel Vision : When the brain is taxed and not given rest, we often go into a strange fixation on solving problems. It’s a fight of flight response and it never leads to real answers.

These are just a few examples.

Over the years, I have come to accept the fact that I need to take time to be a dirt bag. There are times I just need to get away from all the superfluous caring. If I continue to trade beyond my caring limit, things go poorly.

Think about it this way…

You know that there are times you are ON.
There are times where you feel focus and dialed and the market seems to be in rhythm with your actions. Almost like you can’t miss.

Then, without warning, the tides turn. You’re off your game. The P/L begins to drop, or outright tank!

While this may be caused by a market condition change you were unaware of, it may more likely be because have run yourself into the ground without taking that required rest.

Growth

In markets and muscles, growth happens when we rest.

I have been working to increase my trading size over the past 4-6 months. It’s gone fairly well. However, it has also made this reality more and more clear. If one day, I strap 60lb’s on and do 30 pullups, I cannot expect my arms to be willing to do this again tomorrow.

By increasing intentional rest, with purpose, you increase your ability to deliver mentally and physically when the time is right.

Trade less. Trade with more purpose and realize that you too, are human.

Trading is a craft.
Trading is a skill.

Trading requires that you not only develop a way to view people and markets but that you develop the skill to take advantage of them. The great majority of traders may develop a view but never a skill. There are nuances and the need for finesse.

In the compounding complexity of markets, how can we isolate the correct tasks and improve our view and our ability to act on it in line with our strategy?

The difficulty isn’t knowing to isolate. It’s knowing how to isolate.

Before you go further…

Trading is a true craft. If you struggle to manage your impulses, take your stops or respect your daily risk, this post is not for you. You have other issues, generally self control issues that need to be addressed before you can enter into the work of real trading. If any of these remain issues, you and I both know that the work described below will not help.

For those serious about the work, let’s continue.

I break it up like this:

Market View :

When you sit down in the morning and start to build out an idea of what you might see, either in setups, action, etc, does this come to pass and how do you know you are wrong?

If that means you have levels, how can you give them more meaning for your next action? How can you make your work more quantitative? Simply meaning, how can you draw more accurate conclusions from the bigger picture?

A lot of folks have a bigger view they use from time to time but it’s all lip service. If you look at a bigger timeframe chart but don’t do anything with it, there is serious edge missing from your system. Keep it loose but, even as a day trader, you can grow in your ability to read the bigger picture and handle the larger timeframes.

Personal Prep :

“Am I able to get myself into the trading mindset I need for the day?”

This might mean you have a pre-trade routine. I do. It’s very simple but it gets me in the frame of mind. If you have family or work, you may need to really figure out a way that trading fits into that.

I personally need to create space for the work I do in markets. It’s short and intense and if I do it wrong, I am unhappy about it. Therefor, I need to build a real and proper space to “set myself” for the work or trading.

First identify what qualities you need to exhibit. Then find a way to enter into those qualities before the market opens.

Do you need to calm down? Do you need a little boost?
Do you need patience or do you feel some fomo?
If you have a prep process, does it help? Do you need to improve it?

This can take some work as you need to sort through who you are and what might be making decisions for you. Doing this work is what makes trading easy.

Setup Selection :

There are a lot of setups on offer each day. Are you getting the best ones?

Are you trading the trades you want to trade? Are you finding yourself in the best trades on offer in the time or, are you fighting for your points?

We choose each day what we want to trade and how we want to trade. You can always be more selective, more patient, more dialed into the nuances of your work.

There may be a need, esp if leveling up, to hunt for different setups. You are not married to your setups. You can find new ones on new timeframes that may fit your goals better in this moment.

Correct Action :

You could call this a lot of things. The real question however is “Did I do what I was supposed to do?”.

This item is least valued when winning but, exposed intensely when markets shift. First, understand that we all make bad trades. We all deviate from our method. The trick here is just to be able to track it. No need to hammer yourself with criticism. Just track if you were on point or off.

When the time comes and the market shifts, you want to be able to say “I lost but I did my job”. It’s the trader who enters into a drawdown and doesn’t know why they are in drawdown that is likely to spiral.

Ratings :

A great way to spot weakness here is to give yourself a daily rating.

1-5, did the way I do this step help me today?

Why or why not. What can I improve?

The idea here isn’t that you have to be brilliant or perfectly controlled. It’s that you have to have a process for iterating on your work while operating inside of a dynamic environment. A simple feedback loop.

What I have found :

I’ve been through a few periods where what I was doing well stopped working. We’ve all been there. The market catches a bid and everything gets easy. Even selling is easier in a bull trend. Then, things turn and we’re upside down for a minute.

The trick here isn’t to avoid being off our game. That will happen. The idea is that we have a process in place to understand what is wrong, work to understand the issue and then find a solution.

My recent drawdown.

I went through a bit of a slump there for a few weeks. Long story short, I had been scalping rotations inside smaller timeframes. It’s easy to do, my system was locked down and it fit my busy schedule. I would scalp for the fist 2 hours of the day and close up shop.

However, when vol picked up, I dinged my daily loss limit a few times and had to take a step back and ask myself, “what has gone wrong?”

Was it my read?
Was it my discipline?
Was it market conditions?

What I found was that it was all three, really. Discipline was the least problematic but still a concern. My read was loose and I had assumed the action would continue as it had. I had not intentionally made this decision, I had just gotten into a routine.

Don’t get me wrong here, I was not just mindlessly BTFD. I was playing both sides as you do in a late cycle bull market. The real miss match was in my read + conditions.

Knowing that I can execute well and have control over my click, it was just about adjusting my read and finding new setups or methods for the current environment.

I had long wanted to make these adjustments but, as you do, I had put off re-evaluating since what I was doing was working. It was as good a time as any to step back from active trading for a moment, make my adjustments and re-enter the market with a new intention.

What did this lead to?

Because I have this process setup, I was able to adjust over a 14 day period. Two weeks to adjust for the new read and slightly new method and begin to take advantage of it. This means I was able to backrest a couple new ideas, re-visit 9 months of journals and images of charts I’ve saved that seemed relevant and really dig into my strengths and weaknesses.

Build yourself for change

Nothing stays the same. Not in life and not in markets.

Most people come in and look for that one perfect edge that will allow them to leave their day job or whatever. Don’t be that guy. Instead, build a process that allows you to be molded by the moment. Something robust but specific. Something that will open you up to whatever the market has next.

Great traders throw away more quality edges then most traders even know exist.

The Dad Move :

"Any action or actions where a person (usually a Dad), being unconcerned with appearance or perceptions,  uses their experience and skill to position themselves for inevitable victory. "

I don’t think about adding to winners the way I used to.

In the beginning, I traded like a nervous teenager. Unable to really commit to anything meaningful. Always in and out, trying to find the next hot idea or trade. I would enter a trade, take some off, let some ride but never long enough. I would fight the trend like it was my parents forcing me to go to grandma’s 75th birthday party on a Friday night.

Over time, the youthful optimism and eagerness gives way to experience. Disappointment turns into resolve.

Now, I trade like a Dad.

I’ve been here a while. I’ve paid my dues. I’ve seen eager young bucks laid to waste on the sidelines. I know what one side needs to do and where they need to do it in order for them to continue.

I know what happens when they fail…

Now, I think of adding to winners as a way of taking advantage of my experience. I’ve been here before, I’ve seen this game play out. In many cases, I know the counter position is wrong, if not outright wrong, they are deeply disadvantaged. We are going against them. When you are in a position that is correct, it is the other side’s job to fix it and run you back over. Until they do, stay in Dad mode.

Dad is invincible. Dad knows everything. Dad is never embarrassed. Dad doesn’t care if it hurts. Dad also doesn’t waste his time with nonsense. Dad takes his stops.

This is Dad Mode. The Dad Move?

The Dad Move is pressing those winners. Let the youth scramble to find their “right answer”, to get what they need. Dad just sits and waits. Dad will press them into the ground. My goal is to press that advantage until capitulation of the other side. I have clear metrics for that this looks like and when it might happen. As a Dad, I am happy to do it.

Finding The Dad Move

Last fall, I was on a weekend outing with a bunch of fellas. We had rented a cabin and the first night, as fellas do, got to a little bravado based antagonizing. I challenged a 22 year old dude, fresh out of college, to an arm wrestle.

The guy was confident, as he should be. A bit of a surprise to me, before we fired up, he said, “Ah man, you’ve got that old man strength!”. I laughed, I don’t consider myself old.

I did win that match. I won it with Devon Larratt’s “Dad Move”. I knew I could hold him as long as I needed. Plenty patient. It was just a matter of letting his youthful intensity wear off a while before I would reveal my clear advantage.

A lightbulb went off in my head. I thought “This is exactly what trading is like”.
This is what it feels like to press your winners.

Some technical items you need to do the Dad Move

First, you need to have full confidence in what you are able to do, what your system can produce.

Second, you need resolve. You need to be able to sit there and hold the intensity. As long as it takes.

Third, You need to have a way of adding and “auto managing” your positions. My entry determines my stop, simple as that. My target, when I feel like I’ve got them pined.

Building the Dad Path

Another important lesson for me in adding to winners came from a simple Coin Flip game.

One evening, I grabbed a kid (I have three), we drew out a graph and played this game on paper.

The Rules: If the coin flips heads, bet 10. If you win, bet 20.
This is a reverse martingale betting structure and, if timing works out and you catch a trend, can have serious implications to your PnL.

We did this a few nights and I ran this above linked simulator a while. This build a habit of adding to winning positions but also getting used to the consequences of the method. It’s not for everyone. You can take some big slaps. I might even say, it’s for Dad’s only. This game created an action path or habit where, once in a trade, I was able to open up the same path and add (even aggressively) to my positions.

The Bigger Lesson

Yes, this has been important for my trading. Maybe more important however is the idea that being a Dad isn’t in conflict with my work. In fact, it feeds my work, makes me better with my time and demands a higher standard for my efforts.

Many traders out there need perfect conditions to trade.

I do not. I am a Dad after all.

There are times where other things take priority and trading is on the back burner. More importantly, allowing the human elements of life work their way into my every day flow has slowed me down, made me more thoughtful and come up with some very interesting solutions.

So next time you find yourself in a trade where you clearly have the advantage, do the Dad thing and really stick it to ’em.

In January, my focus was consistent wins. Base hits if you will. Show up and continue to be a CPT. February however, my goal was different. There have been three times in my trading career where I’ve been able to take small steady returns and turn them into much bigger returns. There have been a few other times when it hasn’t worked and I start back over at zero.

Below is a graph of my January P/L. Trading NQ as a scalper. I was willing to risk my January returns for higher February returns. Worse case, I start March at zero and have most of the year to still produce.

Get a Piece, Take the Whole.
January, as you can see went well. Each bar is a day. Focused on base hits and capital protection.

February, as you can see turned out a winner. I increased each trade sequentially. No other adjustments than size and aggression.

As you can see, The first few days were a struggle. I kept hitting foul balls. The trick here is just to stay the course, don’t let it in your head. Then things started to break my way a bit. When this happens, I don’t ask why, no different then with the foul balls. I stay the course. The only job is to stay committed to the plan.

The most CRITICAL thing I can pass on from this : Execute with razor focus.

Each trade consequence is measured. It’s in line with the end intentions of maximizing potential returns without increasing consequence beyond what is tolerable.

This is why a nuanced sense of risk is so important in this game.

Now, mid month. I am done trading.

I did what I came to do and I have earned the ability to watch and plan for march. This allows me time to cool down and return to my CPT mindset. Stack bricks without expectations.

I wanted to take a minute, as I cool down, to write out how I made this work. What mindset it took. I don’t know that this will be helpful to anyone but myself. I share it simply to solidify the process for myself honestly. (it’s all very self serving)

Risk v Consequence

I’ve written about this a bit here. The way I think about Risk is not in a single trade but, overall what am I exposed to. By interacting in the way that I am, what potential adverse effects may it have over time. Consequence is more direct. What are the direct consequences of my actions. With consequence, it’s not that I want them to be low, in fact, I often want them to be high. They are a knob I can adjust depending on the situation and my intentions with the action. I want to understand and accept them before I take the action. I also want to be sure that the consequences of my actions do not accept too much overall risk.

Primary Colors

I go into more detail on this idea here. This is another simple and clear way of thinking through my execution. I operate with the following three colors.

Control : Who has the ball, where do they fumble, where do they drive it home?

Positional Advantage : Where am I located on relation to my opponent as well as my cohorts?

Trade Impact : How meaningful is this trade to my overall curve?

With these three concepts in my mind while I execute a trade, I am able to override all other desires that lead many traders to failure. The “fight” for advantage puts me in the best headspace to both cover my downside and increase my upside. The only metric I changed in my trading was Trade Impact. I did this by adding aggressively when trades were working. I also looked for more “waterfall” type moves and capitulations. Lucky for me, Feb was full of them.

That’s the beauty of it. This time, for whatever reason, the market was supportive of my idea. There have been times and there will be times when this isn’t the case and these trades come back in my face. I can live with that.

As I lace these concepts together, I am able to get a three dimensional view of how I want to handle my bets. I can ignore the noise that most people get lost in and simply manage my own bankroll.

It’s critical to understand that in this action, I accept zero “new risk”. I am only risking what has been given to me by the market. This creates an ideal situation. You can call it “playing with house money”. What makes this possible however is the ability to “gamble” it all and, if you end up back at zero, you walk away. No drama, no trauma.

Most likely, I won’t do another one of these until later in the year. They are very stressful and require focus that can be hard to pull off. It’s honestly my preference to simply trade a solid EV system day in and day out and tack consistent wins. That takes almost no effort at this point.

March

March starts at zero. My base position size has increased but I will return to a smaller size than I traded in Feb. I will have to build my curve back up again from nothing. For me, this is the best part. To start back at ground zero. Time to fully prove out the edge again over time. Forget what you did, forget what happened, time to do it again.

This keeps me sharp. Keeps me constantly on my best. Ultimately, that is what we are here for.

Onward and upward.

Hidden in plain sight.

Have you ever looked back at a chart and said to yourself, “why the hell did I trade that chart that way? Why didn’t I see what was really going on and join?”

We all have. That’s the reality of trading, to some degree. We have to accept some misalignment. The other fact of the matter is that I don’t believe an “edge” has to be complex of even perfect because of the massive amount of information humans tend to miss simply due to bias.

There is no need to race your competition when you can simply put a stick in their spokes

I don’t believe that people understand the degree they, and others, block out information because it makes them uncomfortable. This is why my actual “trading edge” is not complex nor does it consider many factors. The reality is, we don’t need to see everything to see what others don’t, what others can’t. What others won’t allow themselves to see.

It doesn’t stop there either. It’s not just that we omit certain information. The information we intake get’s processed subconsciously before it hits our conscious mind. We assume we are getting the “real data” but in fact, we are getting it through a bias filter.

The following is simple a block of text output by ChatGPT in a conversation about cognitive bias and how it effects our mental filter. I wanted to post it here in order to refer back to it in future posts. To take advantage of the following, read it and consider what things people may not see because of bias. Also consider what you might do to disengage from some of these biases. What ways can you disincentivize your mind from moving towards some of these bias’.

Trading is a daily battle between our rational minds and our own bias and impatience.

It seems like people are able to be fairly blind to these qualities in themselves. 

I wonder how they may have these qualities but not notice and what kinds of actions that might produce. 

Response:

Indeed, the phenomenon you’ve highlighted is known as cognitive bias, where individuals exhibit systematic patterns of deviation from rationality in judgment and decision-making. People often have these qualities of risk aversion, loss aversion, and other biases without fully recognizing them. Several factors contribute to this phenomenon:

1. Subconscious Processing: Many cognitive biases operate at a subconscious level, influencing individuals’ thoughts, perceptions, and behaviors without their awareness. These biases are ingrained in human cognition and can shape decision-making processes without conscious recognition.
2. Selective Attention: Individuals may selectively attend to information that confirms their existing beliefs or biases while disregarding contradictory evidence. This selective attention can create a distorted perception of reality, leading individuals to overlook or downplay the influence of cognitive biases on their decision-making.
3. Heuristics and Mental Shortcuts: Humans often rely on heuristics and mental shortcuts to simplify complex decision-making tasks and conserve cognitive resources. While these heuristics can be efficient, they can also lead to systematic errors and biases in judgment. Individuals may unknowingly apply these heuristics without recognizing their potential pitfalls.
4. Social Influence: Social factors, such as peer pressure, groupthink, and conformity, can shape individuals’ perceptions and behaviors in subtle ways. People may conform to group norms or consensus opinions without critically evaluating the underlying rationale or considering alternative viewpoints.
5. Emotional Influences: Emotions play a significant role in decision-making, influencing individuals’ risk perceptions, preferences, and choices. Emotional responses, such as fear, greed, and overconfidence, can override rational analysis and lead to biased decision-making processes.

These qualities of human cognition and decision-making can produce various actions and outcomes:

1. Overconfidence: Individuals may exhibit overconfidence in their abilities and judgments, leading them to take excessive risks or make overly optimistic predictions about future outcomes.
2. Avoidance of Uncertainty: People may avoid situations that involve uncertainty or ambiguity, preferring familiar and predictable options even if they offer lower potential rewards.
3. Reluctance to Change: Cognitive biases can create inertia and reluctance to change established beliefs or behaviors, even in the face of new information or changing circumstances.
4. Suboptimal Decision-Making: Cognitive biases can result in suboptimal decision-making processes, leading to missed opportunities, financial losses, and other adverse outcomes.
5. Reinforcement of Biases: Confirmation bias and other cognitive biases can reinforce individuals’ existing beliefs and biases, creating self-reinforcing cycles of thought and behavior.

In summary, while individuals may possess qualities of risk aversion and cognitive biases, they may not always recognize or acknowledge these tendencies in themselves. Awareness of cognitive biases and their potential impact on decision-making is essential for improving judgment, reducing errors, and making more informed choices in various domains of life, including investing and finance.

---

While I don’t intent to overuse this type of research method on this website, I did find that block interesting and helpful and was unable to, in good conscious edit or alter it to “make it my own”. So I present it to you raw.

This may seem a bit esoteric. It’s actually very practical.

There are no secrets in markets. Only surprises.

I trade surprises.

My first “real” trade was a TSLA long where I bought with everything I had from the sale of a house. Sounds sketchier than it felt. It was not a purchase made in haste. I had a plan, but zero experience. It gapped up overnight. I added the next morning, full margin.

I rode that trade for a week or so as it sored into the S&P inclusion. It was a beautiful thing. I had no idea what I was doing. Other than skipping the “risk 5% of your account” or whatever people recommend, I traded it well despite my ignorance.. Initial position, add on confirmation, scale out into strength. The trade was textbook. I wouldn’t change a thing.

Except I was clueless. I mean, I had “done my research” whatever that meant but really, it was 2020 and things were going up. I knew the news was pending and price seemed to be reduced in it’s daily fluctuations. I had a “gotta cut it” point if it didn’t work but, who knows if I would have respected it. I like to think I would have.

My Super Power

I’ve always been able to push away from the table.

I took that win, banked it. Everyone around me said I should hold. I knew enough to know that when you win a wild hand, you have to take the money and run. A bird-in-hand as my friend Scott says.

Let me be honest. Markets have never been some great mystery to me. From that early win to a handful of swing trades using “The Squeeze” to basic technical analysis and trend following and capitulation fading and order-flow and volume analysis and price action and options greeks and all the things you can learn about markets, it’s never been “hard”.

The way people throw consequences to the wind when the chance to “make life changing money” arrives and the irrationality that follows when it doesn’t materialize has never been that hard to see. Combine that with some basic bank roll management skills and you’re going to do just fine.

That’s not the issue.

Despite all these things being fairly simple, my early trading was marked by clean, easy grinds up followed by devastating blowouts and freefalls. Four weeks of solid trading met by one day of going bananas and giving much if not all back.

Despite a solid start and an ability to “read” markets, my blowup cycle was the same as everyone else’s.

It was predictable.

One day, after a solid two week run, I showed a friend my P/L graph and said “I’d short that if I was you”.

A few days later, I was back at square one.

It was brutal.

In all the things I have done, I don’t know if there is something that was as painful as this. The boom and bust cycle of my first year. I would back test and then blow up the forward test. I would track my trades in a spreadsheet and then blow up the spreadsheet. Maybe it was lack of sleep. Maybe it was a bad system. Maybe it was a lack of a daily loss. Maybe it was that was was an idiot.

Who knows?

What I DO know is that a few core beliefs about myself and markets changed my mindset dramatically. The trick with beliefs, they are not an idea you had or an observation you like, They need to become central to who you are. They must override all other counter beliefs. They need to become so deeply a part of who you are that action upon them comes out without hesitation.

This takes time and is what quality trade execution is made up of. This is why trading cannot be taught. It’s not about a price pattern but a belief system. While someone can show you good beliefs, they cannot make you believe them. You must decide what yours are and internalize them until they define every action you take.

Until they fully override fear, impulse, neediness, compulsion, capitulation and rage.

My Core Beliefs:

The following are things I know are true and that give me the mental resolve to interact well each day with the markets.

Markets are Random :
Sure, their are repeated patterns but you don’t need to know what is going to happen to make money. You also can’t take responsibility for what the market does after you enter, only what you do. Put the trade on, do your job and move on. Stop or profit.
The Rational Take from the Irrational :
It’s not about perfection. It’s about rationality. As long as you can hold a clear head, you’re good to go. When that wavers, bail.
Dumb is Fun but Doesn’t Pay :
Traders have a strange anti-intellectual quality. I’m not into that. Use your brain. Simplify your edge, maximize your profit.
Clever Costs :
We cannot dance around the miserable parts of trading. Embrace them. Overthinking is pain avoidance.
Less is More :
When you want to add a trade or an indicator, take one off. You’re looking for certainty. Instead, look for rationality. Most likely, you’re buying the first dip or selling the first rip, optimize the way you think about this instead of adding more colors to your charts. Shave your head and trade a naked chart. Cut the fluff.
Good Trades Come Slow and Happen Fast :
Be patient, then decisive. You will have to feel like you’re not doing anything. That’s the job. Then sprint! We’re not here for volume, we’re here for power.
Losing Doesn’t Make You a Loser :
Losing is part of winning. Nothing more, nothing less. There are not greater take-aways from a loss. What didn’t work today, might tomorrow.
Just Stop :
Perhaps the most important and most overlooked. It’s ok to quit. I quit each day.
Sh!t Happens :
We make mistakes. Nothing you can do about it. Get used to it. The worst thing you can do is double down on a mistake to try and cover it up. Let it be what it is.
Watching > Trading :
We all love action. I’ve learned that it is truly better to be out and wish you were in then be in and wish you were out. The job is to watch. This is a massive edge.

Some of these you have heard. Some are clichés. They are cliché for a reason and they are meaningless to all of us until we deeply internalize them. Hearing them is different than believing them.

How do you know what your beliefs are?

You should read my other post on Dissonance. We can find marks of our beliefs in our trades, our journals, perhaps in our own bodies. Tension during a trade, either mentally or physically, can (if we take the time) lead us down a path to better understanding what we are thinking and why.

This is where the really interesting things are.

Remember how I said markets are easy?

Well, they are. They are fun also. I think we all share a great interest in markets, what they do, why they do it and most importantly, what they might do next. However, our own mind is, or should be, by far the most interesting thing we interact with each day.

I love building trading systems, making bets, trying again, winning, losing. The whole thing is just a good time. The magic however, is in the mind. It is in the ability of the operator to navigate their own headspace. To fist control it and then run it red hot.

In my post, Primary Colors, I talk about how, if we know the building blocks, we can not only control a thing but exploit it. That is what this is all about. This website, my work in this post and the ones before it. My aim is not to pontificate about the phycological side of trading. It is to find the handles of my own mind and run it as hard as I can.

Organize your chart. Organize your mind. Organize your method.

Ultimately, this is what it all comes down to. Organization with purpose. Find the most critical quality of something, then reduce until there is no impurity. Refined.

That should be your aim as well.

Those of you who have read these posts, thank you. I hope you get something out of them. I hope you find small parts of your own mind and capacity that you didn’t know about before. Either way, thanks for reading.

It’s dark. The air is cold. The streets are silent and empty. Nothing but the sound of my own feet shuffling over the asphalt.

It’s been a long day. Up early, loads of work, we all know the way it works for go-getters in middle age. An endless loop of tasks, requests, events and thoughts. My thoughts. Your thoughts, my wife’s thoughts… my kids thoughts. Even my dog’s thoughts are floating around in my head at the end of the day. It’s chaos.

Not here.

Not out here on the road. Out here, in the cold dark evening after every normal person has settled into their warm house, I shuffle slowly down a narrow country road. No headphones. No lights. No company. No music. No podcasts. Nothing.

This is how I spend winter evenings. After all, winter miles make summer smiles.

It’s so much more than that.

I’ve always been a runner. At least as an adult. I found it in my early twenties and started racking up long miles when I lived in New York. It was a way to get away from the screens, break out of my city apartment and work through the day’s thoughts while exploring streets I knew I would soon be leaving. At twenty three, working in a major film studio and living in a city I didn’t know, it gave me a perfect escape. Rain, snow, didn’t matter. If my legs hurt or me knee ached, I’d just start slower.

Now, 15 years later, I still do the same thing. The habit I formed and followed then still forms the structure of my evenings today. Three kids, half a dozen cities and more mistakes than I care to count, I still look forward to that evening run. Rain or shine.

Distance

At some point, in the middle, I started eyeing longer distances. It was pre-kids and partly because, if I decided to go for a twenty mile run, I knew I had 3-4 hours on the trail before I would have to decide what else I should do with my Saturday. That and the access of now living in the west, I could see so many great things, think so many great thoughts all from the comfort of my own running shorts. I’ve run Marathons. I’ve run Ultras. My preference…. alone.

It’s always been this way. I hate official races. The chatter, the colors, the people… it’s all too much honestly. A total racket.

That’s just me. Running has never really been athletic for me personally. Yes, I stay in good shape but it’s always been about the mental side. I hardly track miles or times. I track thoughts.

I track dissonance.

I don’t track distance now. I track dissonance.

I didn’t understand this or a long time. I knew there was value but I didn’t know exactly what. All my best ideas have come from these long runs but, also I believe much of who I am today has as well. If you are a runner or spend a fair amount of time on foot, you likely feel the same way. It’s as if you are able to roll back the fog for a moment or two and see land. This land is the land you are sailing towards and the more time spent away from running, the thicker the fog gets. Before you know it, you are packed in heavy grey and not sure why you even started sailing in the first place.

Noise creates clutter and that clutter builds into dissonance.

Dissonance is simply a lack of harmony or a mental conflict of some kind. Perhaps a belief, maybe conflicting goals, perhaps our actions are not fully aligned with our desired outcome. We are ignorant to our logical inconsistency and our minds work hard to solve the problem. This active solving of an unsolvable problem creates inner tension and irritation.

This is a problem.

It’s a problem because, as long as we are existing with two conflicting ideas (often more) we live in a space of dishonesty. These are fairly easy to spot in other people.

The climate change advocate who flies to Cancun on vacation.

The loving father who spends weekend in the office.

It’s far harder to spot it in ourselves. We do a fairly good job covering it up, compartmentalizing, rationalizing or maybe simply ignoring.

Not only that but they are far more bothersome to us than we want to admit. We stifle our fitness goals with compromise in snack choice, we erode real life friendships with a desire to get “followers”, we reduce quality time with our kids by being mentally elsewhere.

It’s hard for most people to be harsh and honest with yourself in the way you need to be in order to sort through this level of personal noise.

Not when we’re running.

When you run or walk for long periods of time, these inner conflicts… they dissipate. We see through our own nonsense, our own false self. Like through a fog, we see land.

You know why? We’re too tired.

When you run distance, you’re just too tired for your own B.S. You can’t support it any longer. It’s extra cargo that needs to be thrown over the side.

We get honest with ourselves. We can clearly identify things that are a waste and things that are of value. We throw our hands up into the air and say “who gives a sh!t!”. Exhausted from our excuses. They seem like such silliness now, alone on the road. Legs aching and shoulders tired.

That is what is looks like to break dissonance.

In that moment, it’s not that we don’t care. It’s that we run out of energy for the things we don’t care about. We are forced to lighten the load. Not because we want to or because it’s easy. Because its required. It’s survival.

"Happiness is when what you think, what you say, and what you do are in harmony"  - Mahatma Gandhi

That’s a pretty good definition of what produces happiness.

In the end, I think that is what this is all really about. I think why running, even in miserable conditions can be so enjoyable. It’s about alignment. Alignment of purpose. Alignment of intention. It’s about reducing the nag of things we don’t realy care about. In exhaustion, we drop every meaningless thing and focus only on what is paramount. About getting to the point.

Distillation

When I was younger, I saw the Gandhi quote above as a call to honesty. Perhaps to reduce people pleasing tendency or to stop trying to be something you aren’t. I was focused on the external output of the idea. This surely brought me a lot of happiness and has made my life better however, a whole new world opened up when I realized much of my own stress was caused by simply not making a decision on my own thoughts. This simple ambiguity was causing dissonance.

You have two good thoughts. Both are legitimate. Regardless of their quality, one must be picked and in picking, you must fully commit to the consequences of having picked it.

This is where the real magic is. Distillation. Taking from an endless world of good options, one thing. One thing and being fully committed to that one thing. Rain, wind, sun, doesn’t matter.

As I lace up my shoes

Another dark evening. Kids in bed. I’m exhausted. It’s raining slightly; enough that I will be damp and cold for the next 90 minutes.

I am running the same route I ran last night. Sure, there are better routes I could run, ways I could get exercise and keep feeling in my fingers. It’s not about that.

It’s not about being tough either. Not about grit or some macho-chacho nonsense. I have nothing left to prove, too old for that. It’s simply a commitment to doing what I do, what I love. Reduction in noise. To be exhausted.

I take pain to remove pain.

The physical pain I am taking now is nothing compared to the mental pain of inner conflict and a life half lived. I aim, as you should aim, to live a full life dedicated to only a few most important things. Things that, when it’s all said and done have resonance, have tone.

The end will come. When it does, very little of what we spent our time caring about will matter.
Run.

"Art is the competition of honesty, not the competition of cleverness."

This is confusing for many people. We think of art as something pretty or a nice bit of color or perhaps based on our tastes. A lot of people fall in love with a “style” of art. While this is fine from a visual standpoint, it’s a bit like a Rube Goldberg device is to an engineer. Yes, it’s fun and enjoyable to look at but since it serves no purpose, it’s not meaningful and often simply a distraction.

There are also a lot of times art, especially modern is ugly. Maybe upsetting even in nature. It’s not that it’s trying to be purposefully offensive in this way, it’s that it’s seeking to be honest. The beauty of art seen this way is that, the only truly offensive art is that which is false.

Three categories of art :

Masterful – Handles the technical medium.

Expressive – Makes a point with some narrative.

Destructive – Breaks the rules either through free association or a violation of norms.

going to come back to this…

— ANDREW (@LNG_WNTR_TRD_co) January 18, 2024

I believe these three categories represent the main elements of all human creative expression. These are the primary colors of what we lay on top of the colors. In my last post Primary Colors, I talk about the paint and the painting. What we are to look at next is the painting. the meaning of it all. A point I make is that if we understand the core items we not only understand but can create with them. If we think about art or any kind of creation in this way, we might both understand how to better craft a message and fulfill our own creative desires.

Set aside taste

Before we dive into some work, let’s set aside our preferences. This is a good habit whenever we look to find out what is true, whenever we seek honesty. What we prefer is meaningless in the face of what is true. This can be difficult to do. It’s not something everyone can do. Often, people get so squeamish about how honest some art is that give up on art because it’s “too weird”. Well, here’s the deal. People are weird and art is only as weird as they are.

We can however judge if the works “speak to us”. This is important. “Is what the artist is saying meaningful to me?” This is a second layer we apply over the first.

Let’s explore these three items : Masterful, Expressive, and Destructive.

Below we are going to look at some classic examples of art that has moved art history. We’ll label them quickly with the “colors” that apply to them. The categories that make them resonate with the audience. I will also give a brief explanation of why they are important.

David, Michelangelo : Masterful + Expressive.

A masterpiece in marble. Commissioned by the catholic church, it’s distinctive quality as a work of art is it’s groundbreaking scale and quality.

The Last Supper, Leonardo da Vinci : Masterful + Expressive.

What made da Vinci’s last supper stand out was how he solved the issue of seeing all the characters involved. The composition is the stand out brilliance of the work, supported by da Vinci’s masterful handling of the medium.

Untitled, Jackson Pollock : Masterful + Destructive.

A style some struggle with, Pollock was responding to what felt like a thousand years of the human figure and nature scenes. While handling the medium masterfully, he also broke the traditional norms of narrative.

Fountain, Marcel Duchamp : Destructive.

Stepping further, Duchamp was essentially flipping the bird to the established art world by submitting a toilet as his piece of choice. While he made some statement about everyday objects being art, reality is that the story comes through pretty clear. It’s all bullshit.

Guernica, Picasso : Masterful + Expressive.

An expressive piece in response to the German bombing of Guernica, Picasso uses his distinct style to say more than could be said in a more traditional format.

Nighthawks, Edward Hopper : Masterful + Expressive

The clear narrative style and pleasing pallet of the 1940’s and 50’s comes through in nighthawks as Hopper seeks to illustrate the experience of urban life in America at the time.

Great artwork is the distillation and communication of honest ideas done masterfully.

If that isn’t interesting, I don’t know what is.

What makes it infinitely more interesting on a day to day basis and as a person exploring ideas is the radical commitment to honesty. A commitment that is willing to suffer to understand what is true.

When I was in my twenties, I made a “radical” choice (as many twentysomethings do). I made a choice to pursue a creative career. More so, to pursue a creative life. I couldn’t articulate it then as I might be able to now but, this was less about being somebody or even being great at something and much more about living an honest life. Over and over, I made choices I felt I could live with regardless of if they could be defended or understood.

Perhaps influenced by those Art History classes I took getting that Fine Art degree I hold today. Perhaps influenced by my father or the other role models in my life as a kid. Perhaps simply because I could feel the power of destructive honesty.

Consider the contrast of these three themes. How might you mix them together to create something interesting, something honest?

My personal favorite creative expression?

Use mastery of medium or skill to generate income and then destroy it by giving it away.

I learned python, started a small SaaS firm in 2013, made 20k in a month and gave my car away. Turned $600 into 5K over 6 weeks in my first futures trading account, withdrew it and gave it away to a family raising their kids and helping build communities in the Dominican.

I want to use these ideas to confront my own sensibilities. The break out of my own dishonest limitations.

Whatever color is made by the combination of Mastery and Destruction is by far my favorite. Always will be. Nothing to do with what you should do or could do or what people say is best. It’s simply a raw expression of my honest belief that it doesn’t matter.

It’s my toilet on the wall.

Forget pretty. Forget clever.
Let’s be honest.

There are a lot of times we look around and all we see is noise. Chatter, he said, she said. Especially in this time of high data and content, all at our finger tips. How do we sort it? I don’t mean account data or data that can be put on a spreadsheet. I mean human data. People, behavior, myself, markets, the whole mess of it!

This is where I think some creative concepts might give us guidance. In art, we don’t have a spreadsheet. We don’t have any answers often we don’t even have questions. We must start with a blank canvas each time.

Totally blank.

This is quite daunting. To stare into the canvas and be expected to produce something. Something “fresh” or “new” or “expressive” or perhaps “accurate”. It’s almost impossible to comprehend really. But, humans do it. We do it all the time. Great artist produce great works not only with accuracy but with beauty.

How?

I believe it is a combination of hard skills and soft skills put together in such a way as neither of them are really recognized. It’s math and emotion. It’s problem solving and intuition. Its a complex mix of so many things that I think, for must people, they can do nothing more than stand back and say “wow”.

But how do we move ourselves closer to this level of creation?

I’ve spent 20 years asking myself this question. I did not have training at an early age or any talent or gift at it when I started. I just honestly loved drawing. I had to be able to do it. Nothing less, nothing more.

This meant that I had to go through the painful process of being fully conscious while growing my creative and artistic skills. This made progress often slow but it also allowed me to see it as it happened. This gave me a lot of insight into the human mind and how it might wrestle with a skill far greater than it’s current ability.

Wander with me for a moment and let’s try to unpack some concepts that I think may open up our ability to overcome some of the worlds most complex and unpredictable datasets. Markets.

Yellow | Red | Blue.

When painting, we understand the three primary colors.

What is interesting about this isn’t the colors themselves but the vast array of combinations they create. When we paint, we often look at a painting and see that it is a bit flat, maybe it’s a bit dull or perhaps a touch off in some hard to understand way. Over time, with experience in the medium, the artist will develop a sense of what is wrong and understand how to adjust for it.

An example, a painting with all warm colors can often come off flat and dull despite a range in contrast. Once you add a bit of blue, the work will pop to life.

Why does this matter?

A painting is two things. It’s a large dataset of color and it’s a second large dataset of information. There is the paint and there is the painting.

What is wild to me is that, at some point, humans looked at enough things and were able to boil them down into those three colors. Think about that. That is wild. We were able to shrink the dataset down so much that we found three things (yellow, red, blue) that drive all color as seen from the human eye.

That is amazing.

What happened when we did this?

We were able to take control of it. Once we understood it, in this simple root form we were then able to become not just seers of the world around us but creators of it, in painting form. Once we were able to control the paint, we gained control over the painting.

This should tell us a few things.

1. We are very good at handling very large datasets. The human mind can reduce something to it’s core with some accuracy.
2. Once we find the root of a thing, we gain control over it and are able to exploit it.
3. The exploiting of this information gives us creative power to bring new things into the world (limited by our human plain of existence).

Maybe this single idea is enough to give us a basic road map to human creativity.

If we stopped here, and mastered color on canvas, we could produce some really beautiful works. Let’s say we continue in threes and add to color, brushes and canvas.

Now we not only can learn to master colors as they combine but also the application of it through the mechanics of a brush. Paint can be laid heavy in thick globs or brushed thin and light. There are many many more simple variables to play with in this one bit of data but, if we add canvas, we now have space to combine the previous two nodes into countless combinations over a space.

Here is where things get weird.

Let’s get into some math.

If we have the numbers 1,2,3 and we have three slots to put them in, we have 27 different combinations we could use. We’re all probably aware of how this works.

It works the same with color, brush and canvas. Instead of numbers, we are using nodes.

Color = Yellow, Red, Blue.

Brush = Width, Hair Type, Density.

Canvas = Roughness, Tension, Thickness.

What this means is that with just a few variables, we can make something that looks very complex. Not only that but we can make almost infinite things that look complex. If we spent 100 years painting with just these three variables, we may never get the same painting twice. We will surly get a few that could look a lot of alike but no duplicates.

We can dial these values all day long!

This is the kind of data branch the human mind does understand. We get easily lost in big datasets with random details but, if we categories each into a branch, we begin to wrap out heads around it. Not only that but we begin to understand it. From there, we can control it. We can create with it.

The tricky part is that the base data we choose to build off must be true.

Garbage in = Garbage out.

If we are asking the wrong questions, we will never get the right answers. If we believe purple to be a primary color, we will never produce the work we want to produce. This is the great tragedy of markets and social media. You watch people constantly asking the wrong questions and produce right answers to those wrong questions. It’s brutal to watch.

It’s critical that we spend time finding the core variables that matter. It’s worth it.

If we find the right data to care about, we can then not care about any other data AND we can exploit the data we do find. This opens us to creation. We are capable of looking into the massive and terrifying array of endless noise and extract value.

We can find the variables that matter and begin to play in the places where most people panic.

Next, I want to explore the concepts of what we overlay on top of the color. What meaning do we apply to our work and how can understanding those variables help us both create better creative expression and more powerful experiences.

I’ve said it before, every man needs an endless project. Something to throw themselves into fully. To give themselves to. A challenge.

Markets attract hard workers. They attract the smart, the overachievers, those willing to put in the effort. The grinders. The self starters.

Then they consume them.

Years. Years lost in forums and threads searching for systems and ideas, back-tests, methods, tools, strategies. Few are lucky enough to avoid this trap. “I just need to understand one more good method, dial my strategy in just a little more”, the thought loops forever in their heads. Meanwhile a rolodex of useless information lays at their feet.

Those that do avoid the strategy trap, often fall into another…. the trap of endless self-help and psychology. Traveling never-ending paths of emotional difficulty through past events and childhood trauma. “There must be a reason I do what I do, why I am what I am. I know I’ll figure it out one day”, they think to themselves.

Yet they never find an answer that satisfies their need.

They remain in the comments. Always after another nugget of wisdom or signal.

Over time, their passionate dreams of who they are trying to become solidify into crusty, lifeless memories they never achieved. Another frozen corpse just shy of Everest’s Peak. They stand alone with piles of endless effort and no meaningful result.

 All streams flow into the sea,
    yet the sea is never full.
To the place the streams come from,
    there they return again.
 All things are wearisome,
    more than one can say.
The eye never has enough of seeing,
    nor the ear its fill of hearing.
 What has been will be again,
    what has been done will be done again;
    there is nothing new under the sun.

Ecclesiastes 1:7-9

The above statement is true, regardless of your personal worldview or beliefs. Proven more so today than ever before yet no less true in any period of human history.

So why is this?

Why are so many capable people failures in the end for a game that should be reasonably simple to solve? It’s not lack of intelligence. It’s not lack of effort. Not lack of knowledge or time or desire.

You are unsatisfied.

You want more. You want more money, you want more time, you want more knowledge. If someone offers you more, more of anything, you will take it. This is the problem. In markets, there is always more. At least in the offering. There is always another trade, another setup, another dollar you could have made.

Each one of these next potential opportunities offers to fill that lack of satisfaction in another area of your life.

Life is never perfect. It’s often not even that great. Why do people spent endless hours staring into a screen? It’s more pleasant than real life. There are few things better than being successful. To do something and to have done it well. This, like water in a river, only last a moment and we then pass on to the next.

Of all the things we are never without, lack is the one that dominates the human mind.

The burden of being present and an alive person is that each moment is measured individually. Life is an aggregate and we, like a trade, feel each one. The last one does hold beyond the next. Therefor, the satisfaction of success in anything is limited. Limited to the moment of it’s completion. Then… life moves on.

In this moment, we chose to continue instead of complete.

We move to the next thing. Back into back-testing. Back into study, and effort and work and trying. Even those who obtain some level of success still find themselves on an never ending loop of effort and digging and grinding.

Stop.

This is misery. Maybe it seems normal to you now but it is misery. It’s also not something you can do long term in markets, trading your own capital. You will one day, give it all back in search of that satisfaction.

We know how to start things. We know how to work but we don’t know how to end things.

You must end it.

This will never come from something external. You will never reach a place where you say “There, now I have done it, I will be done now. Because I did x, I can be finished”. You have to find a way to declare the end in your own work.

As an artist, you decide when the last pen stroke has hit the paper. You are not “happy” with it. You are simply done.

As the creator, you have to decide when that is. When a piece is complete. It is the same in markets. The day is done when you say it is. The system is done when you say it is. The research is done when you say it is. Anything less is insecurity, wanting, needing. Markets love needing. No matter how clever or hard working, they eat needy people.

I can’t help you.

Unfortunately, I cannot give you a way to do this. I cannot give you something that will allow you to finish your work. Only you can do that. Only you know what will satisfy your endless needing. I know what satisfies mine but it will not be what satisfies yours.

Like Forest Gump, after running across the USA multiple times, you have to decide to be finished. Just as, one day you decided to start.

“I just felt like running” needs to be followed, at some point by “I’m pretty tired. I think I’ll go home now.“.

You are the creator of your experience. You are the creator of your journey. Therefor, just as you decided to start, you must also decide when you are done. To trade well, you must do this daily. Often multiple times per day, per trade perhaps.

“This one is done”.

Now, move on. At no point will you have seen enough. You will never feel that great sense of satisfaction you were looking for. You will never reach the goal you have set, only make a new one once you get closer. The problem you solve today will create a new one tomorrow.

Take a step back. Understand that it never ends. Stop grinding. Stop hammering into long nights. Stop digging for more answers. You have what you need and, naturally over time, what you need next will come to you. no different than a trade setup.

As a fly fisherman, I cannot do anything to catch a fish but toss my line with as much care as possible. Everything else, I just have to accept. Enjoy the sights, the sounds, the time to think while I let the fish do their job of biting.

Take that last cast.

This changes your internal positioning. It must. After you’ve done the work, after your spent the time, after your earned the right to call it complete, you must now allow yourself to receive whatever it is this life has for you.

I would argue, the only way to go where you want to go, to get what you hope to get, is to put in massive effort, then call it complete. Finished. Then receive whatever is on the other end of the action.

This is a mind bender for most.

Most people cannot care to the level you need to care and then just…. let it go.

It’s an impossible task. It feel reckless at least and totally insane at worst. This is why consensus in markets cannot win. It never will. It cannot wrap it’s head around this. It’s what makes trading art. We cannot control the success of the outcome, only the effort put in and our releasing of the result to chance. Subjectivity. A big fat maybe.

We are engineers of “….. perhaps”

Once the effort is in, the action released, if chance offers you the opportunity to be right, the least you can do is take full advantage of it and be grateful for the experience.

I sat on the patio of a small coffee shop in Venice Beach.

I hadn’t ordered anything yet, I was waiting for someone. Not just anyone but someone in particular. Heart rate was elevated. Trying to be cool. I took a deep breath.

I might as well have been 400ft up a bare granite wall trying to fit a cam while my legs shook.

I was scared.

Sure, I’d gotten coffee with plenty of young ladies before but something about this felt more important. My typical cool headed, ultra casual demeanor had given way to raw nerves.

I stopped my mind from racing for a moment and though, “this is what I am here for”. I took a deep breath. My heart rate slowed. My shoulders relaxed. I felt the intensity of the moment. I embraced it. I smiled.

The girl I was meeting that day would, 9 months later be my wife. It was, in the end, an important cup of coffee. At least for us. My intensity gauge reading a bit hot that day was appropriate.

I am confident you can relate.

Maybe in a relationship, maybe a meaningful business meeting. Perhaps an extreme outdoor adventure (my favorite). Regardless the occasion that created the intensity, I learned something that morning.

To dial the intensity down in the above moment, I used a method I had used countless times high up on a rock a face. I took a deep breath and I embraced the intensity. After all, I LOVE that feeling. Maybe nothing better in the world. Probably describes an adrenaline junky. I am ok with that.

What does that look like?

Well, a few things.

First – You must acknowledge that the moment is intense. We run into irrational thinking issues when we fail to accept this. We hold the intensity off trying to not let it in. You must let it in.

Second – You must accept the intensity and know that it can’t hurt you. Sure, heartbreak is terrible and all but it was a risk I was willing to take.

Third – You must embrace the intensity. The first two are like eye contact and a handshake. To truly sit in the intensity and benefit from it, you must also wrap your arms around it. You must love it.

In Markets

Have you ever traded well but then went up in size and blew out? We all have at some point I am sure. Some people say this is a mystical self-sabotage and you’ll never get over in until you deal with every past trauma you’ve ever had. In some cases, this may be true! In contrast however, what I find in many is that it’s just that they weren’t ready for the increase in intensity and when this got them over their skis when fear took over.

Breathing is a byproduct.

What I have found is that breathing exercises alone do not help me reduce intensity or heartrate. I’ve tried. I typically just stay anxious or nervous.

To walk through the steps above, mentally allows for an immediate shift in breathing. Like I said in the story, my shoulders relaxed and my breathing slowed. You allow yourself to feel that intensity. Live in it for a moment. Take it on. Let it in your veins.

You calm down. Your thinking slows. Rationality returns.

I actively use this thought pattern for outdoor sports, workouts with increased intensity, confrontations, intense business items and.. every single day before I start trading.

It might take a try or two but I think you’ll find value in it. Tom Hoggard talks about a similar idea in his book Best Loser Wins. He says that before the day has started, he’s already been through his worst case scenario in his mind. I typically do a quick mental trading session and then breath it out using the method above. I’ve found it to do two things.

One : Increase my willingness to take “spicy” trades. The ones with the highest R:R.

Two: Reduces my frustration when it doesn’t work. I was already prepared for this to go poorly. I’ve accepted it.

I hope this gives you something to think about.
If not, too bad so sad.

Wander with me for a moment.

We are all aware with the issue of slavery in early American society. It’s clear and apparent and in so many ways, something we, as a country are still working to resolve.

What I want to explore here is not the topic itself but the model it creates. Especially as it applies to bias and decision making.

Some facts.

The economic model of the south was built on cotton and the need for cheap labor to produce it. This created, in contrast to the northern states, an incentive to see slavery as positive. There was financial incentive to dehumanize African Americans in order to continue to produce wealth at low cost.

This is not a new concept. Much has been written on it and I don’t plan to either compete with or correct it. I simply want to highlight how a slight nudge here or there can produce lasting consequences that often take much longer to correct than we anticipate.

Here is the model :

Incentive (wealth creation) > Moral Adjustment (devaluing human life based on skin color) > Conflict (moral disagreement of adjustment made) > Double Down on Adjustment (Desire to remain in alignment with incentive) > Bias Creation ( cultural normalization of moral adjustment) > Decision Collision (civil war in this case) > Expansion into Long Term Consequences (the clear and long lasting racism of the south created in and by the enslavement of African Americans and the entrenching of bias to do so)

Fun topic. I know.

I am not here to make some major statement, I am here to create for us all a model for how slight reality adjustments create expensive bias. The moral quality of this topic is neither here nor there. What is important is that it was a shift in reality. You could call it a lie. A lie is a moral item and therefor, the bias becomes a moral object. Here is a simpler version.

Incentive – Adjustment – Conflict – Consequences

Many things in history we should learn from. Yes. Many other things we should simply observe, record and try to understand. This particular topic, we can learn a lot from. Especially about problematic bias and how intensely we create them.

Let’s make a modern business application of this simple concept.

Incentive = Increase user traffic and ad revenue.

Adjustment = Increase emotional intensity of headlines even if they become irrelevant to the content of the story.

Conflict = Readers call out “fake news” as stories no longer appear to have bases in reality.

Double Down = Find stories that allow for adjustments that drive user traffic and thus ad rev.

Bias Creation = Readers forget the first adjustment and begin to read polarizing stories which were fielded only for their ability to generate traffic and ad rev through emotional response.

Decision Collision = No idea how this plays out honestly. Maybe in cycles paired to election years?

Consequences = In the age of incredible connectivity and a glorious revolution of accessible information, we’ve soiled both in pursuit of ad revenue.

We now live in a world where Huffington Post became the model for “real news” and journalistic integrity is an expensive hoop to jump through.

I am in not so much comparing the severity of one situation to another. Enslavement of African Americans and media outlet pursuit of ad rev. I am simply highlighting the similar train of thought that has been problematic in both cases. Both will no doubt create fallout and destroy a great human asset.

This pattern of thinking happens constantly in society. I don’t trade markets, I trade people, their beliefs and my own. Therefor, this is very meaningful information to me. It’s meaningful not only because I am exploiting it intraday but because, as a risk manager myself I want to work hard to protect myself from the risk that exposure to this type of thinking produces.

A nudge here. A nudge there.

It all adds up. Often, we don’t want to admit it because we may be embarrassed. We may experience financial consequences. We may just prefer what looks like a more efficient method.

More likely, we’re desperate.

This is where need comes in. Need creates in each of us the desire to round the corners. Nudge the lines. Average things out a bit or in some cases, defend what is fully corrupt. The south was desperate to keep their wealth growing. In the early 2010’s media outlets were desperate to keep funding as readers moved away from print media and towards online. Outlets like the LA Times were bought and sold in rapid succession only to slip into irrelevance in the wake of the new media model built on hype, political polarization and a race to be the first to publish regardless of accuracy.

This is not about a high moral horse either. It’s simply an observation of the reality of human thinking as it applies to incentives and our willingness to manipulate reality to benefit us short term.

Why is it important?

Humans are driven by incentive. Everything you and I do is based on incentive. By default, human decisions will move towards the easiest decision with greatest incentive unless there is reason to override this baseline reasoning. I highlight this in order to create reason to override.

Staying Power

There are few more important concepts in life and business. The fastest out the gate is rarely the winner at the end.

A car crash happens the moment a driver commits to the behavior that produces the crash. It’s a dead-man walking situation. In markets and in life, there are lots of dead-man walking situations. People commit to an idea because it produces short term results but fail to see the longer term consequences and therefor, have resigned to their own long term failure despite producing short term positivity.

Putting on a trade where you don’t have a plan to take the stop is a simple and clear dead-man walking situation no matter how far it goes your way first. I micro version of the above.

It’s not over till it’s over.

I have seen, as I am sure you have as well, many great players play for a time and fall away. This doesn’t signal the end for them but it does signal a reset. I am all for a redemption story but it must be noted that the cost of redemption is far more than the cost of correction. This is all we’re really talking about.

It is cheap to correct and expensive to redeem.

Bias is after all, the one cardinal sin of trading. The one act or thought that must be paid for. The market will reveal it. It will not leave a debt. I offer this idea up simply as a lens to potentially view your own bias, my own bias.

The goal should always be to complete the race and to do it with as many friends as possible. We lose a few, we gain a few. Life’s primary goal should be to help as many finish well as you can.

You do not need to be a genius to have a great system. You certainly don’t need to be pinned to an eight monitor super computer to see what you should be trading. The gift of a clear and complete model for your trading is that you no longer become a moving piece of the market. You are fixed. In place. This gives you a great advantage as you simply look for trades to come to you. Here’s how you set up your own model if you are like me… a non-quant.

The Goal

The goal of a model is to contextualize price for you in a way that allows you to both manage risk and exploit opportunity. To do this it must take in some basic factors. While those factors are reasonably fixed, the way you read them is fully dependent on your primary edge, read and what you find compelling in markets.

Each one of the following should be simple, clear and easy to read. They each exist in one of two states. Clear and unclear. You simply need to see how each node triggers a clear or unclear reading and move down the chain. With a simple system, this can be very quick and easy to do.

Some Assumptions

I trade intraday futures and some stocks. I trade a small timeframe. Five minute and lower. I do not trade options. While this information can be applied to swings, options and futures, you may find that some data adjustments are needed to fit your specific needs.

Trend v Range

On a larger timeframe, are we in range or trend?
This can be daily, hourly or whatever timeframe meets your needs. You don’t need more than this and this data point should inform your execution questions which are simply, fade or follow. I simply use daily bars and previous day high and low to get a sense of trend v range.

Structure

This is a fairly common term in today’s more advanced circles and it should be. Let’s define not what it is but what it is for.

Structure should give you a sense of how much your market typically moves (atr) and based on these distances, where interactions may change. You should always know how much your product can move and realistically, where it may begin to transition. It’s simple a projection tool for trend v range.

Momentum

Momentum is just a technical term for the markets emotional intensity. I use two items to understand this. Item one is simply the previous day’s close v current day’s open. Buyer/Seller strength is clearly measured by gaps and if they fill v if they do not. More than that, it tells us of the “mood” of the market for that day.

My second item I use here is simply an opening range. I use a modified fifteen minute opening range. When I say modified it’s simply because I do not care about the high/low as much as the open/close. I always ask the same two questions about it.

1. Are the open/close values near the high/low values?
2. What is the distance between the open/close values?

This simply shows me how the RTH gap might be relating to the RTH trading session. A good model will give you these three dimensional concepts as you move towards execution. For an intraday trader, RTH momentum for the current session is critical.

Again, the aim of this node is to give us a sense of trend v range on an intraday chart. It’s functioning as a projection for participant behavior.

Positions

Never forget this. A market is just positions. As we now narrow into execution, we need a way of taking advantage of other people’s positions to give us access to bigger ideas. For this, I use a combination of price action, technical analysis and some order flow. This is truly the “whites of the eyes” element of trading. In the previous nodes, you are getting estimations, generalizations and such. In this node, we need to be truly specific.

There continues to be no need to complicate this. Range v trend is still primary. You should be able to simply see where people are positioned and when they are wrong.

Summary

In a constant pursuit of range v trend, we simply need a few tools that tell us the mood of each timeframe as we move towards taking advantage of other people’s positions. This can be done with price alone. I however use a few additional tools laid over price that act as shorthand for these concepts and give me a quick sense of things without overthinking.

The reality is, you will be wrong. This is the advantage a non-quant has over a quant.

When you keep trading “loose” and release the need for perfect results, you open up an advantage not many have. You are now operating with a high level of executional edge without the mental block of “being right”. With these in mind, you can both develop a model that works and trade it without massive pressure and self criticism.

A key belief that I have as trader is this:

It’s not the model or strategy that makes money. It’s the trader who trades it. You must take a model and make it profitable. This is done only through consistent observation of the model through a feedback loop.

When we think about probabilities in trading, we think about a simple graph that shows Win Rate v Risk : Reward. We build a strategy with this in mind. When it fails to produce over time, traders find new “edge” or blame their “mental game”. The problem is that not only is there not enough edge in either of these two topics, they are simply not enough to believe you have edge or could be a profitable trader.

Don’t get me wrong, I don’t think trading is that difficult. I’m not trying to make a mountain out of a mole hill. In fact, quite the opposite. Most traders are making a mountain out of a mole hill. Creating some great big impossible task due to simple intimidation. I want to return that mountain back to it’s proper size.

The basic math works like this:

If Win Rate (WR) >= 50% then Risk : Reward (RR) only needs to be => 1:1 to create positive expectancy. Therefor, if a trader has a 60% win rate and a 1.5 profit factor, they then have a positive expectancy system. We fudge the numbers even more when we say that, if positive, there is a 100% likelihood of success when the system is followed as the system produces a positive expectancy.

What’s interesting in this brief example is that the trader is willing to make massive assumptions while considering the “big picture” and gloss over any meaningful details they may need in order to have the luxury of a “surely good system”.

Why your system doesn’t matter that much

Trading is not this basic. It’s not a single node with value of “Trading Strategy” where this node does all your edge production.

Trading is a chain of sequential nodes linked together and dependent on the success of each other. This is why your “strategy” or “edge” cannot do all the things people want it to do and PHD level traders spend YEARS in the Strategy Development phase without truly making any money.

They are asking one node on a network to do the work of all nodes.

This will never work.

It’s the Holy Grail search but perhaps from an angle you have not heard.

Instead, we have a series of nodes that require the function of one another to operate well and produce positive returns.

Perhaps a bit better math is : ANYTHING x 0 = 0.

Let’s say you have a great system. It has a 60% probability of success per trade. You aim for a 1.5 R return per winning trade. The likelihood that you get the desired result in a session is 70%. That means that in each session, with this system, in ten sessions you will have 7 winning sessions and 3 losing sessions.

Let’s add some values here. Every system has losing streaks. Perhaps this system is good but, an extended losing period may last as long as 6 sessions. (a coin flip of 50% can have trending streaks of 6-8). Let’s say the likelihood of this streak happening is 100% over a series of 4 months. Now, let’s also say that a trader will have a losing day where they take 6 trades and all trades lose. This happening in a 3 month period is also 100%.

Remember, I am making this up to make a point.

What is the trader’s likelihood of being able to maintain focus and executional rigor during such times as their system’s worse case scenario?

Maybe their likelihood of failure in one of these situations, either due to improper size adjustments to account for current stats data or timidity in execution post event is 50%. Both variable reduce your likelihood of success even with a clearly profitable system.

Let’s look at sizing.

If you trade a 50K account with max drawdown of 5,000 (the point you question your life choices) and trade a risk of 500$ per trade and your system has a 100% likelihood of producing an 11 loser streak over a period of 100 trades, you then have 100% likelihood of failure.

I have yet to meet a trader who doesn’t consider a 10% drawdown a “slump” and thus make some adjustments to system or mental game.

So what are the nodes?

You can’t look just at WR and RR. That is just one node on the network. You have to look at something more like :

WR > RR > Max Draw Down > Behavioral Randomness > Likelihood of System Adjustment > Lost Trade Count to Max Loss > And a few more…

What is my point?

My point is simply that you cannot depend on system alone to save you. Your trading process, system, risk management, mental preparedness and strategy for overcoming data variants all need to go into consideration if you want to be more than an average trader. Winning some, losing some and then, after years of trying and “scraping by” throwing in the towel as real success always remained just one “piece” of the puzzle away.

Our trading “strategy” functions much more like the image below. This is from the American Revolution and was meant to communicate to the colonies that, if they did not work together, the whole body would die.

So it is with your trading system.

Arguing about the most important part is not only a waste of time but fully incorrect thinking. No trader who considers the “head” only without considering the whole body will never last in a risk career. They will die. This is the root of the endless search for edge in markets.

Traders who understand this to be the case have oddly simple systems and the ability to enjoy the fruits of their effort in contrast.

Your system, your process, it’s all one functioning operation dependent on the success of the previous piece. This fact reduces your odds of success from 50/50 to nearly 0. Unless the body is tuned and well connected. Then, it’s almost effortless.

The beauty of adventure is two fold.

We’re often drawn in by the potential for a great experience. Perhaps to meet a challenge we’ve not yet met or accomplish a thing that has not been accomplished.

A great adventure, one where we’ve fully committed ourselves to it, should bring us to the very edge of life. It should put up against that perfect moment between success and failure. In the mountains, that failure is often fatal. This reality sharpens the senses and bring into view our primary intentions as well as priorities.

The second element of a great adventure is to view what is not often viewed. To see what not many see. Standing beneath a 2000ft granite slab with the intention of ascending it brings about feelings of intensity, owe and appreciation.

To most visitors, the walls of Yosemite are grand, beautiful, intimating. They can certainly be appreciated. But to the climber who’s spent season after season working the details, the minutia of those walls, the view takes on a whole new meaning. Depth.

So it is with charts.

For those of us who live and breathe and make our home on the one, five or fifteen minute chart, we see and understand it in a way that seems perhaps obsessive to the normal visitor. We’ve lived much of our lives in these charts. It’s not that we live our normal lives here, we live some kind of alternative life here. One where we are someone else for the time. One we leave behind once the day is done.

In the images below, you’ll find some notes about how I see the rock walls we climb each day.

Cheers to an epic 2023 trading session.

Onward and upward.

What is job #1?

Manage your risk, manage your risk, manage your risk.
Or, that’s what they say.

This is true but, it’s also a bit lacking. I think it reduces the general concept of “not getting killed” to too small a thing. I for one am not here to “manage my risk”. I want my risk to be as high as possible.

Risk is how we get paid. That is a fact. So that means that we need a more robust method of thinking about risk than simple to manage it or reduce it. Let’s introduce a variable “consequence” into the equation and see what we get.

Two issues with risk control

Issue #1:
Reward is tied to risk. No way around this. You can build a high R:R strategy and should (only way to go imo) but, you still have linked Risk : Reward metrics. For many, this is fine. For me, it is not. I am not willing to trade a 2:1 RR system because it does not offer enough edge. Why? Because I am far from perfect. I (you probably as well) can bugger up a 3:1 RR system and trim it down into a 1:1, am I right?

Which leads us to issue number 2.

Issue #2:
It is almost impossible for the human mind to wrap itself around the concept of risk in the aggregate. Meaning, we will (almost always) do anything we can to adjust our execution or system to offer us less risk and thus less reward.

Let me explain.

You put on a trade with 4 contracts.
It goes for you, then comes back. Almost hits your stop. Then, forward again. What happens?

Well, you’ve either added to the trade as it came against you or, if you have good discipline, you are in the same size but considering your current “risk”. The trade has gone against you. You consider this trade to be at high “risk” of stopping you out. What do you do? You de-risk the trade if you are really really good. You take 2 off at BE. “This trade is gonna lose” you say to yourself. “Better lose a bit less, turn down my risk”.

This is a mistake.

Why? It follows the logic of managing your risk. “I reduced my risk when the trade no longer looked good” you might say.

Let’s pretend now that this trade goes on to be the biggest winner of the week. After you close half you position size, your short trade turns out to have nailed a major swing high and price falls off without ever retesting your entry again. Kicking yourself. That is what you should be doing.

You need these wins to pay for all those losers. Trust me. We all know that.

In this example, you’ve reduced consequence by reducing exposure. You’ve also reduced reward by the same. Later, we’re going to talk about how to Mitigate Consequences while keeping Risk Exposure the same. Remember, Risk Exposure is what we want. (why I capitalized it improperly)

Another Example:

Same thing happens. You enter short on a signal. The trade goes against you. You add a bit. Feathering into positions is a fair method ( I do it often). The issue here is that, in the face of perceived risk, you increase consequence. Now, stop out consequences are higher and risk of being wrong is also higher. This is not good. If you’re going to make a mistake, make the first one above, not this one.

Losers average losers.

We all know this. Nothing new here. However, I want to take this risk vs consequence idea and flesh it out into some internal monolog that you can use actively in your trading.

Know what the hell you are doing.

In the face of risk, the mind needs concrete action and behavior expectations.

As I said in a previous post, I am often long LOD or short HOD. Remember, the worst looking trades are my jam. (fade the strong 5 or 15 min bar close is a fav)

How to make bad choices

I have traded with so many conservative “I told you so’s”. Really grinds my gears. There is no money in this. Not on the Naz anyway. You also can’t be a thrill seeking degen either. So, what do you do?

You create a method of excellence for making what seem like “bad choices”.

Mine is simple. I enter a trade. I talk to myself. Here is what I say:

“This trade is high risk. It is also low consequence”

What are the consequences for any trade I have on at any time? This is all I want to know. I don’t care how likely the trade is to work. I don’t care how much I might or might not make. I don’t care if the market is “looking really bullish”. None of that matters in any way to weather or not I will take a trade.

It’s because of this that I don’t believe in managing risk. I want as much RISK as I can get. I mitigate my consequences. I want as much risk as I can have with as little consequence as possible.

If you start thinking this way, it will change how you trade. Most people put on a “safe” trade and then ride it as long as they must in order to be right. Don’t do this.

Adding

Let me tell you how to add to a trade.
If you are long and showing a positive PnL… hit the buy button again.
If you are short and showing a positive PnL….. hit the sell button again.

In reality, why is adding harder than this?

It’s harder because “If I add, I am adding to my risk and I don’t want to be over exposed if it turns around”.

This is wrong. Sorry, I don’t mean to be pushy here. It just is.

What you should say instead is: “What are the negative consequences of adding?” Once price moves away from your entry enough and the setup warrants the add, adding is doable without adding to the negative consequence. You may still get stopped out but, well managed and you get stopped out for BE or near. Certainly less than you would have if you had put on this size first and the position went wrong. The payoff? You were able to increase risk exposure in the case that the other side didn’t’ handle their consequences well. Beauty!

When Tom Hoggard talks in his book about “Flipping the Switch”. This is the switch.

Remember, clarity is confidence and confidence in markets is talent.
(so is the ability to think as said by Pencil_Trading, and we need to think and then act our way to confidence.)

To wrap up this idea.

If you are trading at your limit, you will feel fear. You can use rational thinking to override your emotional/ego brain. You can do this in the same way we do as climbers.

I get scared.

4 pitches up on a flat frickin finger crack and my palms are sweating. How do we manage this? We do not consider the “risk”. “What if I fall and die!”. That would be bad. We override the perceived risk with actual consequence. “I am safe in my harness. My knots are tight. My belay is good. We are game on. I am good to go here even though I am emotionally uncomfortable”. (maybe it’s not that robust of a thought but you get it)

We actively work to re-enforce mental stability by seeing the real consequences of our actions.

Now, if at any time the consequences increase to a place that is not tolerable, we pull.

So important. It’s not about risk. It’s about consequences.

So next time you look at a trade that fits your system, instead of asking yourself something subjective like “Is this a good trade?” or “Is this really the best place to buy/sell?”.

Ask yourself another question ” Can I accept the consequences of this trade?” and “How, if I am right, can I increase my risk exposure without increasing my consequences?”.

This is the mental gateway to trading size.

I want to try to unwrap a simple but important concept in hopes that it might change not only the way you look at risk in your own trades/ideas but also the risk of others as you look to take advantage of their positioning.

I’ll be honest, part of me wants to just be dumb and trade my system. I have a great system and I love trading it every single day. However, in the interest of maintaining more than a gorillas intellect, I will try to expand upon a topic I find interesting. I will also show some trade examples that help make my point.

To understand the level of “risk” we are dealing with, we must agree that…

Markets are random.

This is true in the sense that what appears to be happening often is not and that we, not matter how hard we try, can never know what the next price will be. Understand that I believe that we can build some logic to what is more or less likely to happen yet, we can never know before hand. It’s only in hindsight that market appear non-random.

Therefor, every position has risk of loss.

I am not some options guru, I trade futures and thus cannot mitigate my risk with Greeks, Romans or Babylonians. It’s all raw, straight forward positional risk. I can however take a concept from a previous post to illustrate my view of Risk vs Consequence in markets and attempt to give you a sense of how I see exposure in intraday trading.

I will reference this previous post, read it to follow along: Rethinking Failure

In the post above, I reference a free solo climb I did vs a multi-pitch climb. The two are very different from one another and for our purposes, generalizations will suffice.

In the instance of a free solo climb, the climber chooses a reasonably easy grade, one very much within their skill level and climbs it without protection. Meaning, no bolts, nuts of cams in the rock to catch them. If they fall, they fall to the deck below and become… jelly.

In the second story, I am on a multi-pitch climb of much harder grade. Pressing the limit of my climbing abilities and requiring protection to avoid death.

Climbing has some but not much randomness. Therefor, you can do a reasonable job knowing which grade you can solo and which you cannot. Add earth quacks or random fast moving storms and you have something more like markets.

Difficulty

The free solo climb is 5.5. It’s a very easy grade to climb and pleasant if not a bit boring without rope removal. Many would likely choose this as a route to climb if it was a bit shorter. (1600 ft or so) It can be a bit of a grind. The multi-pitch climb was a 5.11a finger crack. Much harder.

Let’s say these two climbs represent twos strategies. There is a hard one and there is an easy one.

Consequence

It might be lost in text but I will try.

In the solo climb, despite it being easier (much) it is of much higher consequence. What is on the line, death. While the other multi-pitch climb, although scarier has much lower consequence.

Risk

In the solo climb, you are very unlikely to fall. At this grade, it’s almost a sure thing that, with solid experience and a cool head, you will be just fine. However, if you fall, you are dead. In the multi-pitch, you are sure to fall but, that fall should only result in some lost height and likely not your flattened corpse 400 ft below.

The Math

Really quickly, let’s take these three ideas and make a bit of a risk map.

Option #1
Easy objective = High Consequence and LOW Risk of Occurrence.

Option #2
Hard Objective = Low Consequence and HIGH Risk of Occurrence.

If these two are your choices, people choose option 1. Think, selling naked options. high win rate, deadly loss risk.

But we see this happen intra day too!

People are constantly choosing to be in trades like option 1. They choose the easy trade, which looks high probability and ignore the fact that they are interacting with is as high consequence.

I want to be the person who chooses the trade that is low probability, low consequence.

Why?

Because the kinds of people who choose the high probability/high consequence trades will be the ones who fall to their death before giving up on the idea that they are falling. See, attachment is also a common human behavior. Rarely do people lose with grace and therefor, once they begin to lose, we can count on them to keep losing. All the way to the ground below.

Let’s keep moving – CHARTS!

With this concept in mind, let me show you some charts from the past few days. I will not show my fills but I will show you examples I did take.

Perceived Risk vs Actual Risk

In the chart below, you can see that we filled the gap, built a nice base rear prev day close and are now moving higher. We are in a strong uptrend, had a gap up and it would seem, the drift higher has begun. The easy trade here is to start buying dips if you are not long from the gap.

The real question isn’t about trend. The real question is, who’s not wearing a seat belt?

OOPS…

I was in this short before it broke.

To go back to our climbing analogy, it was clearly longs who were over exposed without a rope.

The easy trade was long. A mellow day in markets you might think. Perceived risk was low but due to the complacency of longs, even here at ATH’s, the realized risk was fairly high. Especially as it applies to intraday trades.

Let’s look at another, less dramatic.

Here we have double gap up days and a breakout from prev day high.
This looks about as good as a long can look if you ask me. Maybe the 5 min bar pulled back a bit far before the strong closing bar but there is no reason to think this is a high probability short right here.

I took this short.

Why?

Maybe because I am addicted to pain and only trade for the thrill.
Maybe because I understand that while this trade may be unlikely to be a winner, if we do turn, the guys and gals under are likely to be caught off-guard. That is all I need.

It did so happen to be the case that we offered back into range here after a look above.

We’ve all seen a false breakout. I get that. Nothing special here.
What is special is that many traders look for what is happening right now without understanding how people are emotionally positioned into those locations.

Risk

Risk alters the minds normal thinking operations. It changes what you will do and why you will do it. When people look for “Low Risk” they are willing to take on “High Consequence” in order to do so. This is why markets prey on so many people. It’s not because they are difficult but because people struggle to understand the complexities of risk and what your mind will do to avoid it.

What I aim to do:

I aim to take on the worst looking trades in order to Increase Risk and Reduce Consequence.

I say it this way because I want you to understand that I am not fading moves. Much of the time, I am in line with the trend. However, I do try to find the group who is most likely to be both offsides AND unwilling to admit it.

Increase Risk

When I say increase risk, what I mean is not increase the amount of potential loss. I trade with a 10pt stop on NQ. My aim is to increase risk in the way a protected climber increases risk. The likelihood that I fall is high. The likelihood I am here to try again tomorrow is 100%.

Nuance

For me, price action patterns are a lost cause. So is Auction Market Theory and many other more complex strategies. However, people are fairly easy.

You should be able to look at price and see where the potential for one side to become offsides is high BEFORE it is represented in price. Be a visionary for what could be before others have yet to get it in view.

Then, understand that you have plenty of equipment to protect you as you climb through your capabilities.

I trade the absolute ugliest things I can find because I believe that markets are random and people can’t handle the unplanned risk.

That is how I read charts. I want to be climbing at my max effort, fingers pealing off the wall and a rope to catch me below. I want the guy on the other side of my trade to be having a relaxed day at the crag, enjoying himself, climbing well within his skill level. Then I want some random fluke storm to blow in and test us both.

It was an early summer morning. Warm air flushed down the gully as we scrabbled over boulders in the early morning darkness.

The plan was to free solo a classic slab outside the city in a massive loop that took us full circle, up and over then back around to the Dan’s super market parking lot we started in.

You probably already know this but, a free solo climb requires you leave the rope behind. In this particular climb, we had decided to scale it as such because of the easy grade. 5.5 is all and part of what makes this climb so enjoyable is the massive exposure with little risk.

Well, the consequences are the same I suppose. Death. The likelihood however was fairly low.

The climb was a success, as you can tell by my writing this now, some years later. What stuck with me, however was the uniqueness of this climb.

Because it is fairly easy, you take on the full risk of the event. This is optimal because it gives you the best experience and while you could die, you probably won’t.

This is in stark contrast to another climb we had done a month prior.

The second climb in this story sits just outside of Vegas. Was a 4 pitch crack on a sandstone wall. It followed a perfect finger crack that from time to time flared open to fist size.

This climb was done in trad style. That means we placed protection (pro) in the crack as we went up. The difficulty of this climb was at the limits of what my partner and I could do.

We took a few whippers.

A whipper is a protected fall where you extend above your last piece of pro (10 feet perhaps, sometimes more) and in the fall, you then pivot around the last bit of pro until your belay catches you and you (hopefully) spring to a stop.

What’s important to understand is that, in the face of risk, we take on tools that allow us to interact with it in a way that benefits us. This doesn’t mean we enjoy the experience of a big whipper. From time to time, the fall is so terrifying that it takes the nerve right out of you and the last thing you want to do is give it anther go.

However, it is also often the case that a solid whipper precedes a good send!

In the case of our big wall climb, the whippers were solid but only served to reinforce our ability to protect ourselves and we continued on completing the route.

In my career as a trader, I’ve traded with many other traders. Both good and bad.

What I often see is what I consider a strange response to stops. In fact, stop outs seem to be the single greatest triggering mechanism for tilt.

Why?

Early on, I too would be a bit annoyed by a stop out. Sure, I get that. (I have also yelled loudly when I have taken a big whipper, nothing wrong with that!) However, fundamentally, stops are thought about incorrectly in markets. Most traders think of them as perhaps a slap on the wrist. Often as an unjust action cause by “terrible price action” or some such thing.

A flawed understanding of risk.

Go to a climbing gym. What do you see? If you look at the lead wall, you should find at least one pair of new climbers trying their hand out at lead.

Typical behaviors are:
– Shaking legs as they move above the last clip.
– Over-gripping as they fear the idea of taking a fall
– Shouting at their partner (take!)

What about the more seasoned?

A more seasoned climber will climb through the fall point. You have to build up to this but, knowing you trust your gear, you climb beyond what your mental limit is in order to allow the wall to tell you your limit. The fall should be a surprise.

These are the best falls anyway. The most fun and most productive. But what do they take? Well, they take time. They take a fair amount of time falling intentionally. You take a lot of “oh man, a can’t get this one” short whippers before you upgrade to the big ones. Those top of route, trying to clip the last bolt, fingers pealing off the wall, beauties!

How about in trading?

Do we not often see the same thing?
Fear grips the positions of the new trader, and many more seasoned as well.

Each tick for or against brings about intensity that alters the view of the trader. Behavior is altered, action is taken. Stops are moved out and profit targets are inched in.

This is the main problem facing retail traders managing their own money.

How do you fix it?
I have no idea.

On one hand, I think there are those who are meant to handle risk and those who are not. That being said, I did not come here just to tell a story. I want to try to help.

1. You should take up climbing. It’s great.

2. Consider actively changing what it means to “fail”.

When climbing, you would never think of taking a fall as failure. You would look at it as the last place you got to in the route. Too many falls on a spot of climb and you will need to come down out of shear exhaustion. While this is a failure, we don’t consider it that. We consider it a “project”. Every climber has a handful or “projects”. These are climbs they have not done successfully yet although they have tried. They have failed, for now.

There is not more to trading well than stop taking.

People talk about positive expectancy systems and having a business plan. While I have both of those, and I believe they are important, what I see ruin them both is the inability to manage stops. It’s that simple. I wish it was more complex.

Markets are random enough and, in most cases, move enough that if you get involved reasonably well enough times you will do fine, if and only if you manage those losses. Like climbing, the more times you are able to return to the route, the more likely you are to eventually climb it. You’ll just get stronger. That is a fact.

Taking stops.

Lets rethink what it means to take a stop.

What if taking a stop simply means, in this moment, the hold you were on didn’t hold? You simply lost your grip on that one. No sweat.

What if taking a nice big stop heightened your senses, dialed you into the present moment? Made you more focused on what you need to do to trade well in this environment? Maybe that means save your energy, maybe it means re-engage in a different way.

What if taking your stops was the single most powerful thing you could do as a trader. What if this is the single thing that would set you on a new path of enjoyment in markets. What if you came to terms with the fact that a stop is simply a mechanism for you to try again, to continue to enjoy the artform you enjoy?

I love stops. I love taking them.

This will sounds strange but, I like taking stops more than winning a trade.

Why?

Anyone can win a trade in a random set of data. Not everyone can enjoy taking a good stop.
It makes me special and it can make you special too.

In climbing, the difficulty of the route you can climb (particularly in trad/mountaineering) is determined by fitness levels divided by nerve. Nerve being the amount of exposure you can take and the size/intensity of the fall you muster.

Trading is the same.

Trading size equals account value divided by max stop size you can handle without loss of nerve.

Let’s not make this a macho-chaco competition however. We are all in different places and need to account for that in how we trade. My point is not “grow some balls”. My point is “Trading success is linked to ones ability to handle intensity”.

My hope, in writing this is that you would consider than this factor plays a big role in who walks away from markets a “winner” and who doesn’t.

Before the market opens tomorrow, forget looking at the currency pairs or vix or whatever macro thing people say is important. Instead, visualize yourself getting stopped out hard. Imagine a good short trade you get squeezed in. Imagine massive stop outs.

This way, when it happens, you’ll keep climbing.

In 1944, C.S. Lewis wrote the following lecture for King’s College, University of London.

From a creative perspective, it’s possible that these words function as the cornerstone to genuine expression.

They certainly have for me.

I share this possibly to help you break through your own social constructs that may be holding you back, possibly some creative existence remains in front of you that has not yet been tapped.

Either way, I find the concept to be both simple and insightful and hope you enjoy it as well.

An excerpt:

---

“My main purpose in this address is simply to convince you that this desire is one of the great permanent mainsprings of human action. It is one of the factors which go to make up the world as we know it—this whole pell-mell of struggle, competition, confusion, graft, disappointment and advertisement, and if it is one of the permanent mainsprings then you may be quite sure of this. Unless you take measures to prevent it, this desire is going to be one of the chief motives of your life, from the first day on which you enter your profession until the day when you are too old to care. That will be the natural thing—the life that will come to you of its own accord. Any other kind of life, if you lead it, will be the result of conscious and continuous effort. If you do nothing about it, if you drift with the stream, you will in fact be an “inner ringer.” I don’t say you’ll be a successful one; that’s as may be. But whether by pining and moping outside Rings that you can never enter, or by passing triumphantly further and further in—one way or the other you will be that kind of man.

I have already made it fairly clear that I think it better for you not to be that kind of man. But you may have an open mind on the question. I will therefore suggest two reasons for thinking as I do. It would be polite and charitable, and in view of your age reasonable too, to suppose that none of you is yet a scoundrel. On the other hand, by the mere law of averages (I am saying nothing against free will) it is almost certain that at least two or three of you before you die will have become something very like scoundrels. There must be in this room the makings of at least that number of unscrupulous, treacherous, ruthless egotists. The choice is still before you: and I hope you will not take my hard words about your possible future characters as a token of disrespect to your present characters.

And the prophecy I make is this. To nine out of ten of you the choice which could lead to scoundrelism will come, when it does come, in no very dramatic colours. Obviously bad men, obviously threatening or bribing, will almost certainly not appear. Over a drink, or a cup of coffee, disguised as triviality and sandwiched between two jokes, from the lips of a man, or woman, whom you have recently been getting to know rather better and whom you hope to know better still—just at the moment when you are most anxious not to appear crude, or naïf or a prig—the hint will come. It will be the hint of something which the public, the ignorant, romantic public, would never understand: something which even the outsiders in your own profession are apt to make a fuss about: but something, says your new friend, which “we”—and at the word “we” you try not to blush for mere pleasure—something “we always do.”

And you will be drawn in, if you are drawn in, not by desire for gain or ease, but simply because at that moment, when the cup was so near your lips, you cannot bear to be thrust back again into the cold outer world. It would be so terrible to see the other man’s face—that genial, confidential, delightfully sophisticated face—turn suddenly cold and contemptuous, to know that you had been tried for the Inner Ring and rejected. And then, if you are drawn in, next week it will be something a little further from the rules, and next year something further still, but all in the jolliest, friendliest spirit. It may end in a crash, a scandal, and penal servitude; it may end in millions, a peerage and giving the prizes at your old school. But you will be a scoundrel.

That is my first reason. Of all the passions, the passion for the Inner Ring is most skillful in making a man who is not yet a very bad man do very bad things. My second reason is this. The torture allotted to the Danaids in the classical underworld, that of attempting to fill sieves with water, is the symbol not of one vice, but of all vices. It is the very mark of a perverse desire that it seeks what is not to be had. The desire to be inside the invisible line illustrates this rule. As long as you are governed by that desire you will never get what you want. You are trying to peel an onion: if you succeed there will be nothing left. Until you conquer the fear of being an outsider, an outsider you will remain.

This is surely very clear when you come to think of it. If you want to be made free of a certain circle for some wholesome reason—if, say, you want to join a musical society because you really like music—then there is a possibility of satisfaction. You may find yourself playing in a quartet and you may enjoy it. But if all you want is to be in the know, your pleasure will be short lived. The circle cannot have from within the charm it had from outside. By the very act of admitting you it has lost its magic.

Once the first novelty is worn off, the members of this circle will be no more interesting than your old friends. Why should they be? You were not looking for virtue or kindness or loyalty or humor or learning or wit or any of the things that can really be enjoyed. You merely wanted to be “in.” And that is a pleasure that cannot last. As soon as your new associates have been staled to you by custom, you will be looking for another Ring. The rainbow’s end will still be ahead of you. The old ring will now be only the drab background for your endeavor to enter the new one.

And you will always find them hard to enter, for a reason you very well know. You yourself, once you are in, want to make it hard for the next entrant, just as those who are already in made it hard for you. Naturally. In any wholesome group of people which holds together for a good purpose, the exclusions are in a sense accidental. Three or four people who are together for the sake of some piece of work exclude others because there is work only for so many or because the others can’t in fact do it. Your little musical group limits its numbers because the rooms they meet in are only so big. But your genuine Inner Ring exists for exclusion. There’d be no fun if there were no outsiders. The invisible line would have no meaning unless most people were on the wrong side of it. Exclusion is no accident; it is the essence.

The quest of the Inner Ring will break your hearts unless you break it. But if you break it, a surprising result will follow. If in your working hours you make the work your end, you will presently find yourself all unawares inside the only circle in your profession that really matters. You will be one of the sound craftsmen, and other sound craftsmen will know it. This group of craftsmen will by no means coincide with the Inner Ring or the Important People or the People in the Know. It will not shape that professional policy or work up that professional influence which fights for the profession as a whole against the public: nor will it lead to those periodic scandals and crises which the Inner Ring produces. But it will do those things which that profession exists to do and will in the long run be responsible for all the respect which that profession in fact enjoys and which the speeches and advertisements cannot maintain.

And if in your spare time you consort simply with the people you like, you will again find that you have come unawares to a real inside: that you are indeed snug and safe at the centre of something which, seen from without, would look exactly like an Inner Ring. But the difference is that the secrecy is accidental, and its exclusiveness a by-product, and no one was led thither by the lure of the esoteric: for it is only four or five people who like one another meeting to do things that they like. This is friendship. Aristotle placed it among the virtues. It causes perhaps half of all the happiness in the world, and no Inner Ring can ever have it.

We are told in Scripture that those who ask get. That is true, in senses I can’t now explore. But in another sense there is much truth in the schoolboy’s principle “them as asks shan’t have.” To a young person, just entering on adult life, the world seems full of “insides,” full of delightful intimacies and confidentialities, and he desires to enter them. But if he follows that desire he will reach no “inside” that is worth reaching. The true road lies in quite another direction. It is like the house in Alice Through the Looking Glass.“

You can find the full article here: https://www.lewissociety.org/innerring/