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 June 5,
2005 Commentary (weekend edition)-
I am posting
this early, on Thursday June 2. As most everybody knows by now, I am officially
'on vacation'. I use the little quote marks because as most people know for me
a 'vacation' is taking a break from my computer long enough to make a fast
sandwich, and then rushing right back to it. Most 'vacations' I take (and even
making an attempt at a 'vacation' is only a two year old concept for me) have
me away from my workstation, but always close by, just making sure it doesn't
get too lonely.
The best 'compromise' I can come up with is just swearing off work
for the 'vacation' time. Such is what I will be doing this time, too. I will
not be checking any e-mails, writing any commentaries, or shipping any
books/eArticles until I return around June 19th. Feel free to order during this
time if you like, but understand that I won't even know you've ordered until I
return on the 19th. I will resume shipments on Monday, June 20th. If the wait
bothers you, please wait until I return to place your order.
I will likely
resume the commentary in two weeks, posting for the weekend of June 20th. I may
be a little late with that, and it's even possible I may not post until the
following weekend. I will do my best, but when I 'get back' I'm sure things
will be piled up and I have to prioritize. Keep checking back around that time,
and I'll do the best I can for everyone. I made a note about all of this on the
What's New page. If I
won't be posting around the weekend of the 20th, the What's New page is where I'll
let everyone know.
Let's move on to my commentary for the 'break'. This
will be a chartless commentary, as I alluded to in the last commentary. Many
people have told me they like my stories and anecdotes, so I figured what
better time to go into that mode than for a commentary I'll be leaving up for a
few weeks. I want to relate a little story and analogy, and follow up with
another analogy. I find many other professional occupations and sports have a
lot in common with trading, and a lot can be learned from them. It is with this
in mind I relate today's little parable.
The story begins with a name we are
all familiar with, Arnold Schwarzenegger. Since I will be paraphrasing the
story as best as I can from the way I heard it, my apologies to the
'Governator' and anyone else mentioned if the story isn't accurate. Please
don't come and have a 'talk' with me, or anything. Way back when, when
'Ah-nold' was still in Austria, he received an offer from Joe Weider to come to
America. Once here, after settling into a training regime, Joe looked over his
new potential star, and came to a quick conclusion, which he told Arnie without
hesitation.
He said 'Arnold, you could be the greatest bodybuilder of all time.
No doubt in my mind.', to which Arnold thought 'Great, that's what I want to
hear.' But the boom was about to be lowered, as Joe wasn't done yet. He
followed with 'Except for your calves. All that stands between you and the
making of history are those calves.' Arnold walked away, and what he was going
to do with that information wasn't clear yet. Until the next morning.
The next
morning Arnold showed up with a big, loose baggy sweatshirt with sleeves all
the way to his wrists. His sweatpants were big, too, but had an unusual
feature. They were cut off just below the knees. This getup basically had Arnie
covered from head to toe except for his calves. When the other pros saw him
they immediately broke out into raucous laughter, pointing and nearly falling
on the floor. The ribbing was intense.
Arnold promptly walked over to a small group
of the biggest hecklers, who found Arnold's 'skinny' calves being showcased so
prominently just too much to pass up, and got right up in their faces. He
looked at them deadly serious and said 'I want to ask you guys a big favor.'
They replied, in hopes of keeping the joke going as long as possible, 'Sure,
Arnold, anything you want.' He simply said 'Keep laughing.' He then turned and
walked away, and started to train like a madman.
The rest is history. He went on not
too long after that to use the full weight stack on the calf machine, some
2,000 pounds (you read that right), and then, needing more weight, doing it
with one training partner on the machine, and another on his back. As I said,
the rest is history. His calves went on to become so incredible that some
people would accuse him of getting implants. For many years no other
bodybuilder could touch him, just as Joe said.
Now, what's the moral of this story
for us here, and for trading? Inspiration? No. Although this surely is an
inspirational story, that's not it. If you've ever been in a gym you know that
there are always guys with big arms or a big chest, but nothing else. And every
time I see one of those guys, let's say the guy with the big arms, what is he
working on? Arms. His legs are like toothpicks, and yet every single time I see
him, he's blasting his arms, again.
What does he lack? Balance. At the
high levels of bodybuilding (and I venture to say any sport or profession)
balance is critical. No one wins a top bodybuilding title with one or more
bodyparts out of balance. You need more than balance; you need depth,
too. But without balance, it's unlikely you will succeed at the high levels.
So, what is the moral of the story, now?
Arnold knew where he was weak, what
area put him out of balance. And he attacked that with extreme vigor. He didn't
look at how great his chest was, and go do some more bench presses. He did what
he likely least wanted to do, and that was work his weaknesses. That's a
difficult, but very professional, attitude.
Let's now
look at the 'Trading Plan', or more specifically my 'Trading Plan'. I am
frequently saying that I don't think it is possible to get a 'big' edge in the
market (except for the rare discovery of something that works until a rule
change alters it, or everyone else stumbles onto it, or whatever). I try for a
realistic small edge. To make that into a professional 'Trading Plan' I seek
balance. I look for an accumulation of small edges across my entire 'Trading
Plan', and not just in one area. A balanced sum of small edges.
Most traders
I know seek a big edge in one area, the potential trade area (PTA). Look around
you and see what you find, not just with yourself, but with all the traders you
know. Do they spend almost all of their time talking setups? When this
indicator does this, and this does that, I'm in. The market is going up now;
the market is going down. If the market gets here I'm shorting it. Now we have
a this pattern, or a that pattern, so I'm long. And on and
on.
I
don't hear people talk much about trade management (especially dynamic
management). Entry techniques. Filtering, via 'context' or otherwise (although
some indicator filtering is discussed, but only in the context that it tells
them which PTA's to take). Trade size and risk exposure. Scaling techniques.
Trade correlation between positions. Timeframe analysis and use. And on and on.
I hear one thing: here's my setup. (Trust me, saying that you have a 'profit
target' where you'll take half the trade off doesn't complete a 'Trading
Plan'.)
That's not balance. In order to have only one aspect of a 'Trading
Plan' and still be successful, that one area would have to have a fantastic
edge, and, I believe, one still wouldn't succeed over the long run. It's like a
bodybuilder saying if he could just get his arms big enough, he could win the
Olympia even without any development whatsoever in any other bodyparts. I can
guarantee you that won't happen.
I have said many times that the PTA
(the 'setup') accounts for only about 10-20% of my 'Trading Plan'. The rest is
all the other areas, some of which I mentioned above. I seek balance, and I
forever look for and study my weaknesses. Once you reach a certain level a
'weakness' doesn't necessarily mean one is truly 'weak' in that area as much as
it means that area is lagging the other areas, or that area is one where the
same level of improvement may produce the 'biggest bang for the buck', as far
as the overall 'Trading Plan'.
Once I hit an area of 'diminishing returns'
in my 'Trading Plan', I look for another area in the plan where my time will
give me better results. Here's where I get into the second analogy, this time
with chess (although this applies to many, many sports). Top chess players
don't have one coach; they have several. The have an opening coach. They have
an end-game coach. They have many coaches. They do this because each aspect is
so unlike the other aspects that coaches specialize.
Players, too,
find they are best at one aspect or another, and enjoy certain aspects more
than others. If they are determined to be the best, like Arnold, they focus on
their weaknesses, even if they don't like it. I have my 'specialties'. In my
opinion I'm really good with multiple timeframes, and I'm really good with
scaled trade management. Those are my specialties. I like managing trades far
more than I like opening them. My focus is not on the PTA anymore.
This may seem
funny, given that people seem to know me most for my unique PTA setups and
synergies that I have pioneered, and my Fibonacci-derived numbers. If I'm going
to all this trouble with this long commentary, though, then likely I am trying
to point out something I feel is of great importance. It's not about the
setups, it's about the well-developed, well-balanced comprehensive 'Trading
Plan', built from the ground up on a solid foundation.
Sorry, folks,
time to work those calves. Time to call the end-game coach back for some
overtime. Time to stop obsessing about who has the best setup techniques and
which way the market is going to go tomorrow, and realize what it takes to be a
professional. Or, you can keep listening to all this inane competition about
who is 'better' than who; and who has the best, killer, proven in backtesting
setup.
I'll finish with a quote from Bruce Lee: "I cannot teach you, only
help you to discover yourself." And more than anything else, your ability to
succeed as a professional has to do with the approach you take to the task at
hand. Just ask Arnold.
The next commentary should be the weekend edition for
June 19, 2005. If you check back and don't see it posted by June 20, please
check the What's New
section for any updates.
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