Monday, May 7, 2007

Setting My Objectives: Part 1. Self-Assessment

Setting My Objectives

An over-used axiom is “Fail to Plan; Plan to Fail.” I will use part of Chapter 3 from Tharp’s Trading Your Way to Financial Freedom to begin developing my plan.

Part1. Self Assessment

How much time during the day do you have to devote to trading?
I can check the markets several times a day, devoting as much as an hour while the markets are open. During the evening I usually can devote at least an hour.

When you are trading, how many distractions can you expect to have?

How much time do you expect to have to devote to developing your trading system, to doing your personal psychological work, and to working on your business plan for trading?
I can devote at least an hour a night and several hours over each weekend. I am willing to maintain this schedule as long as it takes.

What are your computer skills? What skills do you need before you begin this trading adventure?
I have no programming knowledge. In order to program a system I will either have to hire a programmer or find a system that uses easy language, preferably with a large forum and support group. I am adept at googling and feel fairly confident that I can find help with basic programming. I have basic to moderately advanced skills using Excel spreadsheets.

What do you know about statistics?
I know more about statistics than the average person. However, it has been almost 10 years since my last Stats. and Probabilities class. I have used basic statistical analysis in graduate school to evaluate research. I enjoy statistics and probabilities and am slowly building a trader’s library on the subject. I am at the point where I am ready to begin integrating some of my statistics knowledge to make better trades.

How would you rate your market knowledge?
I have traded enough to develop a thorough understanding of the stock market--how to place orders, how to use indicators, and how to use a trading platform. I can read a balance sheet. I have limited knowledge trading options, and no market knowledge concerning futures and commodities, although I understand what moves these markets. I have no knowledge of international markets, or how I would trade in these markets.

What are your psychological strengths and weaknesses, especially in terms of trading system development?
My psychological strengths are that I’m very in touch with my own feelings; I’m very honest with myself, and I do not typically have much of an ego to feed. I am very open and aware of my own biases, and I am absolutely committed to conquering them.

My psychological weaknesses are typically a lack of confidence in my trading and methodology, and a difficulty in weathering drawdowns. I can also sometimes be sentimental and too emotional.

How about your strengths and weaknesses in terms of personal discipline.
I often stay up too late at night, and consequently can not perform at my best during the day. I am not very organized, and have problems keeping up with minute details. I tend to procrastinate on things I do not like and obsess over things I enjoy. I have several cigarettes a day during the week, my diet is not extremely healthy, and I do not exercise enough.

Do you tend to get compulsive (that is, do you get caught up in the excitement of trading), do you have personal conflicts in your family life, at your job, or during past trading experience), or do you have any emotional issues that constantly crop up, such as fear or anger?
I do tend to get compulsive, and impulsive, and make terrible trades because of that. Also, when I see the markets screaming up or down, and I see other traders making money, I tend to want to jump right in so as to not be left behind. I have no personal conflicts as my marriage is wonderful, my children are smart and happy, and I am very successful in my career. I do have some emotional issues that constantly crop up, mainly fear, and a need to create excitement. When the fear and the impulsivity hit simultaneously, I often am overwhelmed and make bad decisions.

Based on your personal inventory, what do you need to learn, accomplish, or solve prior to beginning trading? How will you do that?
Since I’ve been trading full-time for over 3 years, I feel that there is not much that I need to learn about the mechanics of the U.S. stock market. I would like to learn how to access international markets, how to develop basic options strategies, and how to trade futures and commodities. I also need to begin learning basic programming, and choose software that will help me backtest and perform statistical analysis of my strategies. I need to increase the detail and frequency of my journaling. Learning not to trade without a definite plan for entry and exit, and not trading to create excitement will be something that I must accomplish. Finally, I need to develop a strict routine for the morning and evenings so that I have time to research, journal trades, and develop my system.

How will I do all that? Part of it I’ve started right now by completing this self-assessment. I will talk to my wife about developing a schedule that will meet her needs as well as those of my children and still allow an hour or two a day to research, read, journal, and continue system development. I will continue to use my blog as a log, a sounding board, and a tool for marking progress and short-term setbacks.


Tutor said...

Tharpe is good with psych, but then so is Ghandi... The best lesson you will take fron Tharpe is your trading log. Keep it diligently as it will reveal much about your skills. To keep such log on the blog would be quite daring and I would caution that you may not be truthful to the blog, in other words keep a diary on the side so if you find yourself holding back in the blog you at least have the quiet truth noted elsewhere...

You make several interesting and telling observations about yourself, from which I can discern the following;

stop smoking on the qt. If you can't light up in front of your kids then you are not being true to yourself. Not to mention that the crutch is fallout from nervous unclear thoughts.

Your path is so familiar, and I would say that many who read you, fly, lindzon, etc. are all in the same boat. TA is where we all start because the data is cheap and the indicators make sense.

In the end though the "model" is where we make the money. And the "model" is whatever philosophy for approaching the markets you have the most discipline putting to work, day in and day out.

My advice, humbly, is to develop a strong fundamental base for buying/shorting stock, use the chart for confirmation only after your "model" brings you to the stock.

And most important, buy stocks not companies. In other words you nor I will ever be Warren Buffet, so when those 1,2,3 or 4 letter fuckers start to go against us don't fall prey to the "but its a good company" bs.

Not sure why I pontificate except for the fact you seem like someone truly wanting to get good at this little sport...

Woodshedder said...

The best lesson from Tharpe is not psychology, but the importance of figuring out your R multiple and the expectancy of your system along with position sizing. The psychology will really be the easy part for me once I can trust my system.

As for the log, I've logged every single trade I've made over the past 2 months, with 2 exceptions, for the public to view. I use stockalicious for that. I used to use Excel. I understand exactly what you say about the quiet truth. However, stockalicious makes it easy to log, track R, and journal, so I use it. It is open to the public, but I could always make it private if necessary. The blog keeps me honest-seriously.

When you say "develop a strong fundamental base" do you mean fundamentals like revs and earning, or simply a model that fits with my psychology, personality, and goals? Truthfully I hate earnings reports, balance sheets, etc. so I do not believe I can ever trade primarily on fundamentals.

I really do not care about the stocks I trade. However, it helps to know "the story" and then combine that with technicals for some huge gains. MVIS comes to mind in that category. However, I want my system to spit out ideas that I buy/short, never doing any research on them except to make sure the system is not flawed. I want the majority of my time to be spent maintaining the system and the records.

Pontificate away- you are humble, honest, and helpful, and I appreciate your thoughts.

RS said...

For international exposure I would recommend ETF's. is a good source for getting information of them. Use advanced search to narrow down the focus on different parts of the market.

downtowntrader said...

Excellent post woodshedder. It's a big step to sort all this out, and even bigger to publicize it. Good Luck in finding your niche.


Bullish Jim said...

Thanks for sharing that, Woodshedder. Very enlightening.

I also find it easy to use my blog as an honest journal. That's the beauty of being anonymous- I really couldn't care less if people know I f'ed up a trade. Writing about it makes me not want to repeat the same mistakes.