Friday, 14 November 2014

New York Style of Trading

15:26 Posted by The Thalesians (@thalesians) No comments

Martin Amis is a master of the English language. I remember reading one of his books (or maybe it was Hitchens quoting Amis, somehow after reading so many books, they all seem to coalesce into one another). The whole discussion in the book was an attempt to describe Las Vegas using a single word. I'll leave you in suspense to guess that word, although I'm sure you can think of some obvious suggestions! Whilst I've never been to Las Vegas, I have been to another beacon of very different version of Americanness, New York. Indeed, I am currently writing these words ensconced in Starbucks in this wonderful city, with the sound of country music whispering past, sung by someone is distinctively not Taylor Swift.

When it comes to New York, an attempt to classify this great city in one word will always fail. Simply walking down the street invites try brain to pick out a multitude of words: skyscrapers, street carts, surprise. Every neighbourhood has a different character. Contrast the low rise buildings of Greenwich to the high rise millionaire towers of midtown snooping a peek at the stars. Burger joints sit amongst Michelin starred restaurants, each delivering their take on what is New York cuisine.

Each word is somewhat unique in its ability to describe a certain facet of the New York experience.

The same is true of a good trader. It is very difficult to find single factor in isolation which can explain why the approach of a trader should be successful. Instead, it is an amalgamation of many factors which can at some level explain the profitability of successful traders. There are several obvious points, such as the ability to risk manage these views effectively, being able to cut losses, and allow profitable trades grow and accrue larger returns.

However, perhaps the most important attribute of a successful trader is what they don't do. This might seem contradictory. The ability to recognise when not to trade is perhaps just as important as knowing when to trade. Sometimes markets are simply not amenable to your style of trading. Despite this market participants might feel that they nevertheless need to trade despite the lack of opportunities. The result is overtrading.

The FX market has been a prime example of this. For much of the past year, markets were simply not producing sufficient trading opportunities because of a lack of trends. Obviously in recent months, the USD rally has spurred many trading opportunities. This has been reflected in the recent pick up in returns from trend followers (in particular in September). It feels as though the good times of strong returns are slowly returning to FX investors, although this has somewhat been tempered by the controversy around 4pm FX.

In hindsight, things are clearer, in terms of knowing when it was right to get involved in the market and when it wasn't. However if something really isn't working with your strategy or trade, perhaps blaming the market is unhelpful. Simply trading for the sake of it, might seem to fulfil your role as a trader (as in person who trades). Yet, from a returns perspective it is suboptimal.

Instead, patience is one facet of trading and waiting for the right opportunity. Trade when you want to, not when you need to.

My book Trading Thalesians - What the ancient world can teach us about trading today is out in late October on Palgrave Macmillan, has some colour on the topic of learning from the past (mixed in with a bit of ancient history). You can order the book on Amazon.




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