Thursday, April 30, 2015


Al and Mick were two short-term traders at a professional trading firm.
Both traded the electronic Standard & Poor’s (S&P) 500 (ES) E-mini
futures contract, and both gave me carte blanche to stand by their screens
during market hours so that I could help them with their trading.
I began the day watching Al. The market was trading in a narrow range
early in the morning after an attempted rally fizzled. The average price
from the day before was about three points below the market’s current
level, and I had a strong sense (based on my historical studies) that we
would take out that average price. Al, Mick, and a handful of other traders
had met with me before the trade, and we discussed using the likelihood of
the market hitting that level as a potential trade idea. Nevertheless, Al was
leaning to the long side. I was skeptical, but decided not to press the point.
As the market ground lower and Al’s position went into the red, he
shook his head in recognition of his error. Very soon afterward, however,
he stopped himself out of the position and flipped to the short side. He was
able to pick up a few ticks before the market reversed on him once again.
The choppy action continued through the morning, with a mild downward
drift. Al was patient, but not making much money for the day. He took a
break at lunchtime and expressed to me his hope that the afternoon trade
would pick up. Throughout the morning he maintained his composure and
held his own in a difficult trade. He expressed optimism that taking a lunch
break and clearing his head would help him focus through the afternoon
and take advantage of opportunity. Never once did he lose his composure
or his positive attitude.
When I moved over to Mick, however, it was a very different story. Mick
also tried to play the market’s upside and found his position underwater.
Enraged, he held onto the position past his stop point, only to see his losses
expand. My cautionary comment to Mick was “If your morning losses are
small enough, you’ll have a fighting shot to make them up in the afternoon.”
He eventually did exit the position, but refused to take a break at midday. He
reviewed every piece of market data from the morning, replaying his bad
decisions. All the while he shifted in his chair, pounded the table, raised his
voice, and otherwise expressed his frustration. He became particularly agitated
when he reviewed the morning trade on his videorecorder. “I can’t
believe I was so stupid,” he fumed. He then proceeded to tell me five things
he should have seen in the market to tell him we were going lower. Come
hell or high water, he practically shouted, he was going to focus on those
five things in the afternoon.
Al and Mick: two very different traders. One of them made a high fivefigure
sum during the afternoon; the other one struggled to break even all day.
One was an expert trader, the other was struggling.
Al kept himself emotionally balanced, taking liberal time away from the
screen after setbacks. He honored his stops religiously and didn’t become
irate at losses. He consistently expressed optimism over his development
and a love of trading.
Mick was anything but balanced, taking losses almost as personal
affronts. He periodically violated his risk management guidelines and
could not break from the markets until he had rehashed all his mistakes
and fumed over each. At such times, he spoke of the market and himself
with equal derision.

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