Monday, 8 December 2008

Trading Style

I get asked a lot about my trading style. To be honest I haven’t really set out to develop one specifically at all, but after 30 years trading markets, I have realised a lot of what not to do.

First I tried fundamental trading, poring over statistics, money supply, interest rates unemployment numbers etc etc. When the Berlin wall fell, every economist predicted that unifying East and West Germany would cost billions and take decades. This was bad for the Deutsche Mark, and so on the fundmentals anyway the DEM was a sell. And yet we saw a huge and prolonged rally in the DEM, purely on the exuberance of the reunification of Germany. So fundamentals clearly did not always work, and emotions sometimes do.

Then I switched to charting and did the lot. Point and Figure, Moving averages, Stochastics, Momentum, Elliot wave, Fibonacci, you name it, I tried it. Bought the books, did the studies, bought the models etc etc. Sometimes they worked, sometimes they didn’t. Sometimes the pattern was so clear after the event, and rarely did it repeat.

Then I tried money management, and stop loss orders, take profit levels, risk analysis etc etc. I followed the reasoning that it was better to run your profits and take losses quickly etc etc.

But it was when I was watching really rich people in the markets that I realised the real truth:

It’s best not to care about the trade at all.

I have seen people with bad positions. They don’t panic. They don’t get out. They just wait. If the reason for doing the trade is still valid then they just wait. If the reason is not valid then they get out, whether a profit or a loss is realised or not.

The old adage still works: Money makes money. If you don’t care about it then you are unlikely to panic and get out at the bottom or the top . You just wait.

So I started out with small positions that I could ignore, and built up from there. I realised that all the styles are only tools to help you make a decision, and that it was my own fears that I had to understand really.

My style is to decide a trade and take a position and then just wait. I decide on fundamentals, charts, gut feeling, and a mixture of all the above. But I only get out when it feels wrong, not when some specific chart or fundamental stat starts going the other way. And even then I am reluctant to quit a trade quickly. I have seen people get very rich just by waiting for the cycles to turn again, and they do eventually.

I just wait…and you know, it usually works!

...and in between I watch a lot of cute blondes!!


thelonelytrader said...

Hey Kiwi I'm really glad someone said this -- I and one other person I know in the blogosphere (Jules in Jumbles) trade in similar fashion.

I have a couple of other more "retail-ish" models that I trade (when I have time), but my favorite style is something along the lines of what you have described on this blog. Of course, we would both take very different trades at different price points, but the ideas you have just talked about all underpin my long term method. And I enjoy it the most!

Let me know when you're over in Southern California. I'd like to buy you a beer or three.

Kiwi Trader said...

I was in So Cal in May. LA, SF, Yosemite and San Diego. Had a ball! Should be back there sometime later in 2009, love to catch up then! By then the NZD/USD will have recovered somewhat, as the USD collapses on the debt load and it will be safe to spend NZD's again!!

Tim said...

Just wanted to say thanks a lot for this post, I'm one of those who've been wanting to read it. :)