Originally if you wanted to learn how to trade futures you had to come to Chicago and try to get a job as a runner. Eventually as the floor has shifted to the screen you were a runner for food and coffee, like I was. I imagine it was similar with stocks in NYC too.
As trading has shifted to the screen, the tools, access, and information has leveled the playing field. As with lowering of any barrier of entry there are less people who are qualified to trade. It definitely leaves a sour taste in many traders. They blow through their first account finding out what they what the didn’t know they didn’t know. I have used the analogy before but just because you own a plan does not mean you are qualified to fly it.
The exchanges have dropped the ball a bit and some IB (Introducing Brokers) and FCM (Futures Commission Merchant) are just starting to realize the need to groom the new traders if they expect to keep them as customers.
I went to Harvard to see how it was being done in a college atmosphere because I believe that in the future many people are going to be working either for themselves or in smaller companies. Trading, accounting, finance, etc.
Here is a brief synopsis of the what the speakers were talking about.
Todd runs a fund that focuses on value investing. I could have listened to him talk all day. His passion and attention to detail was evident in his presentation. I do not trade or invest in stocks. But two important things that I got was having a plan and making proper adjustments and the understanding on how to best deploy capital. Those are important in any kind of trading or investing.
The reason for a plan is so that it creates lightbulbs that make it hard to ignore potential changes. And removes the emotions. He walked us through trade in AIG and GGP. In both cases he looked at what management said and what they accomplished. He continues to own the stock and warrants because management is following through. Much like a trader does but a reaction to price movement instead of actions. The reason for the subtly is a trader is more price sensitive and needs price to react sooner while an investor has a little more time.
Most traders do not have unlimited resources. A trader does really well on simulator because it will be the only time, for most, that they have unlimited resources. In the real world for every dollar you have at risk, it must come from somewhere. Todd described how he took some money out of GGP and put it in AIG after a small hiccup with Howard Hughes. It is a great example of adjusting to the market and not fudging the data to support your hypothesis.
He was also handled an obnoxious heckler with poise and patience which shows he knows his shit. He has a deep understanding of the business and how to find information or at least the willingness to find it.
Josh’s message was about the importance of retirement finance. One of the biggest problems with finance is the innovation of models. Model breaks and they break often. This is in part because every model requires assumptions. As participation and information changes so to should the assumptions. The two biggest changes are people are living longer and healthcare is getting more expensive. Healthcare is the new oil as far as the drag on economy, IMHO.
The second thing he pointed out was news. Tuesday the market got lit up. Tuesday morning the USA Today’s front page cover basically said stocks are dying. You need to always be aware of who is sending the message. The job of media is to sell newspapers. They play on fear, it is what it is. They do not care if you get stockblocked or not. If you want to be good at the “prediction” game you need to either have the same view or make a lot of predictions. Neither is very helpful and there is no motivation to make you money. You get what you paid for.
JC Parets aka JC Charts aka JC ” bag of nickles” Parets aka The Jesus of Charts
JC’s presentation was probably my favorite. Our trading principles are similar but he applied it to other markets. From a learning perspective it is always good to see the same information in a different way. We both look at things on a relative scale and take a big picture view of the markets and apply it to our shorter term execution. Using other markets and information to make a more informed trade.
One of the things that many traders do not understand is second trade first. Meaning you start from your risk price (stop) and work from their. Too many traders only look at entry. That is a huge mistake. I am not sure everyone in the room got that but it one of the most important things said all day.
Also his presentation was most interactive. He had a questionnaire in the beginning. I believe he will post the results on his blog at some point. He also did word association with charts. The heckler in the back said backward looking. To which JC immediately responded “as opposed to the charts from the future”. I liked the quick come back because it shut the guy up more importantly it showed JC deep understanding of the limitations of technical analysis. Technical analysis is not the end all be all. It creates sign posts that allow us to see patterns, establish risk, and understand who is participating. It is not the holy grail but it allows us to find what works best for us.
Phil brought up two important points about teaching/learning and psychology of trading. I think people expect too much from books, blogs, and talks. You can read all you want and it will not change your behavior. I get semi annoyed that people think I write about the psychology of trading. What I try to do is create awareness. Awareness can prevent a mistake or limit its destruction. I can’t change anything you do but I can make you aware of it. I can take you through the steps that I went through but it is ultimately about making the information your own. We do not have the same context so it means something different to you than I. Trading is not psychological, bad trading is.
Phil also talked about his 3 favorite quotes. His favorite was from Mike Tyson, “Everyone has a plan till they are hit in the face”. This is so true. When the shit hits the fan our subconscious partly takes control. One of the issues is that people have not practiced or taken the time to have a plan to shift it to the subconscious.
It is great that StockTwits is reaching out to the community, especially younger people. If trading is going to continue to grow there needs to be more informed traders and investors. Everyone makes money in the easy times and those are usually erased the moment the trading environment gets worse. I would summarize the presentation of all the speakers in the following:
- Have a plan and a plan to adjust.
- Know where you are wrong.
- Be careful how you apply the information you are consuming.
- There are limitations to any analysis.
- It is safer to learn by reading but until you start to apply it, it is worthless.
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