The always entertaining and insightful Brian Lund did again with his post today, The Only True Edge You Have In The Markets.
I don’t agree with his definition of rules at all but I guess him and I will settle that over a beer or arm wrestling match. If you are having trouble following your rules ask yourself the 5 whys.
Why didn’t you follow your rules?
Because I was I didn’t know I was breaking them.
Why didn’t you know you were breaking them?
Because blah, blah, blah.
You get the point. Go through that exercise and you will at least have a different perspective. Most times your rules were created when you were in a sick state of mind. Like promising God that you will never do something bad if he gets you out of it just this time. Secondly, most rules are just a speed limit sign. You follow them so you won’t get caught not because you believe it is the right thing to do or is the least riskiest to do.
On looks being deceiving:
The best job I ever had (at the point I was in my life) was doing security at a popular night club in Chicago. I got to meet a lot of athletes, celebrities, and important people. But probably the most legendary was a humble guy and very generous. He never was in the VIP section. He wore nice suits but not loud. He had subtle expensive watch, I didn’t know how much it costs till years later. Not till one night after driving him home did I realize who this guy was. I wont say anything else but to say that had I not handled him in anyway that was not completely professional it would have been very dangerous to me. I was in my twenties, former college athlete, was learning to trade, had the “power” of doing security at a popular night club, and over all king shit. Or so I thought.
Luckily I handled that situation right and it taught me to never underestimate anyone. That is not to say I try to please everyone and do not get carried away at times but I am mostly on the right side of that. I look at people as people, whether they can help me or not. (If you need more examples I have 100’s of others.)
That is the same approach one should take to the market. As Mr. Lund pointed out the market does not care who you are. No matter how big you think you are there is always someone or something that is bigger. Use that to your advantage not disadvantage.
If there is anything positive about the learning and consequences of poor decisions in trading, it is that it is quantifiable. Just like Mr. Lund let $100 desk prevent him from getting a $25k discount and potentially more profits, overestimating yourself and underestimating anything else can be costly.
Now here is the caveat, you still have to take a risk. You still have to put yourself out there. You still have to work smarder (imagine if smart and harder had a baby). I have gotten to places because of that and probably taken longer at times when I wasn’t doing those things.
When talking about edges it is important to understand the difference between an edge and mechanical edge. Mechanical edges happen in new markets and because of regulation. Both of those disappear. HFT has the potential to be shut off tomorrow, just like fractions, options routing, and pits.
Once again, Mr. Lund and I had different ideas on rules. But we agree that you are the edge. The market can take away your mechanical edge. The market can take away your money. But it can never take your process, your ability to learn, your knowledge. Your edge is you and it is a constant sharpening process.
That sharpening process is the hard part.
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