Book Summary: "Trading to Win" by Ari Kiev
Some of my favorite quotes from "Trading to Win: The Psychology of Mastering the Markets" by Ari Kiev, the trading psychologist of Steve Cohen.
Score: 8/10
Short review: Pretty good trading psychology book. If the trading psychologist of Steve Cohen writes a book about trading, one should definitely read it. I liked it more than his other books. A lot of focus on meditation, centering yourself so you can trade intuitively. More appropriate for experienced traders who have an edge and want to scale it.
Summary:
The super-traders, though, share certain common traits that supersede whatever discipline they might pursue. They are totally committed to their own particular style and demonstrate complete conviction when trading. Because of this conviction they are able to take large financial risks and have the confidence and belief that probability is on their side. They also have the ability to admit their mistakes and minimize their consequences—that is, losses—when they are wrong. They are independent and think for themselves; they are not easily influenced by others. Most traders, surprisingly, are not like that: They are indecisive, lack conviction, and are afraid of taking risks and making mistakes. They are unaware of the personal demons that are holding them back from true success.
Trading to win obliges you to review each day's trades, so you can see how you may have veered from your commitment, what dropped out of your trading, and what commitment you must add to get the desired result. You might need to raise the number of shares traded so they are consistent with your level of commitment. You might have to abandon energy-draining behavior-impulsiveness, chest beating, whining, and scalping (selling too soon to book a quick profit and missing the larger upward movement of a stock). You'll need to understand how to get out fast when stocks are dropping. You'll have to shed counterproductive habits, such as taking personal calls during trading times or racing home after the bell instead of reviewing the day with other traders and coaches.
Losses are always hidden in your P&L. It looks like you're making some money, even though if you look closely you lost a lot of money, and that costs slippage and opportunity as well. Start looking at how much people are not making because they're scalping on the way up. Let's say a trader scalps-sells for a quick profit—and makes $5 million. Maybe if he didn't scalp, he could make $10 million. The issue is tracking where the stocks go after you get out.
What if you're ahead at the end of a day, and you say, "The hell with it, I did well. Why should I look?"
Hindsight, you argue, is twenty-twenty. You're right. But I think you can learn from your past experiences. It's like athletes reviewing recent game films to see what they are doing, so as to improve the way they win. Granted, the best thing would be to be right there at the time. I'm merely trying to make you aware of your thoughts, in order to give you a chance to change your thinking.
I believe that most people are not inclined to look inward, but prefer to live in the land of denial and rationalization. And I take the position that learning the fundamentals of trading success requires much more self-examination. I believe that the more consciousness you bring to this process, the more successful you will be.
It also applies to cashing in winners too soon-scalping. You might think you want to avoid looking bad, and you don't trust your instincts. You might want to get a quick profit to look good. Instead you'll learn trust, patience, and your ability to get out later on.
Maximum Trading
1. Recognize your repetitive patterns of trading. Be aware of your life principles and preconceptions and how much they may be behind your trading decisions. At the very least, these principles provide a frame of reference from which emerge your marketing decisions.
2. Let go of the defenses of denial and rationalization that minimize mistakes. Begin to recognize the value of reviewing the previous day's trading. This can help you discern patterns of trading that may reflect an underlying perspective which, though reassuring, demonstrates that you aren't trading to win.
3. Read the tape, and follow it rather than your ego, needs, life principles, and notions about what you deserve or don't deserve. Notice how long-standing beliefs about yourself and the world come into play in the middle of action. Notice how they trigger old attitudes, resistance, and automatic responses-such that you are in the grip of what others are doing.
4. Develop purpose to your trading commit to playing to win. Play at a committed level of responsibility in terms of producing specific results, doing what it takes to reach objectives, developing self-mastery, and following trading and money management rules.
The master trader trades from a perspective of rationality, knowledge, and skill— not from an emotional or defensive perspective, not in order to feel "complete" or "excited." To succeed at trading you have to be willing to do things contrary to human nature. You need to hold on to or get bigger in winning trades and get out of losing trades faster.
"Trading to win" means surrendering to the moment without trying to control it. It means to let go of fixed preconceptions about what you must do, and to liberate your self-conscious sense of self and self-protective thoughts, which color the way you experience life and the market. When you can do this, you are in the here and now of your trading, and can bring your maximum potential to bear on the tasks before you.
"Trading to win" even means giving up thoughts about winning itself and any concern whatsoever with the result.
It means acting and then moving on to the next moment, without struggling to redo your last trade. If you don't reach your target, you look closely for what else needs to be done in your next trade and in the future, but you consciously avoid judging yourself.
Mastery, as I am using this term, is equivalent to the Buddhist concept of nirvana, a psychological state of mind where there is no fear or desire, only the chance to exist. This attitude makes it possible to be in the world and to trade without reacting to sorrow and pain, but by recognizing pain and anxiety as an aspect of trading. In this acceptance of anxiety, pain, or risk taking, you develop the capacity to transcend those feelings.
In effect, you learn to choose what you have. If you are uncomfortable, notice it. Own the feelings. Don't suppress them or try to get rid of them. Simply become aware of how much belongs to an old interpretation that something was wrong with you because you were uncomfortable. In fact, all you need to do is notice your discomfort and let it pass. If you can do this, you'll be on the way to grasping that there is nothing wrong with you, and you don't have to get rid of these feelings or mask them. In fact, trading to win starts with the assumption that you are already okay. Pursuing a goal is about challenging yourself, tapping your potential. It is not about feeling better or correcting for a deficiency.
Having once established a specific objective and a strategy for realizing it, you must rid yourself of your concern about results, and your belief that you need results to prove yourself. You do not need confirmation. All you need to do is to toss the ball out in front of you and then swim towards it. If you can let go of your expectations about results, you can stop holding back, stop playing it safe. The key is to keep acting beyond the holdback without thinking about how far you can go.
Mastery means accepting your power and your potential and permitting your trading to flow from your already existing trading style. You choose what you have, and enter into the next moment with the confidence that you can produce results consistent with your goals, knowing that things will evolve as they were intended to evolve.
Perhaps most important—don't try to prove your self-worth through the results of your trading. Learn to trade in a less ego centered way. Satisfaction can come from the development and implementation of your skills and trading strategy, not just from a profit and loss statement.
Similarly, if you are succeeding, don't think that you've stretched yourself too far or that you won't be able to do this again. Notice your negative thoughts and let them pass. Do not try to suppress or change your response, but consider the possibility of an alternative nonresponse pattern. Approach your trading from an entirely different viewpoint, one that's unrelated to your emotions.
To gain maximum effectiveness and vitality you must learn to recognize these fixed patterns, so that you can respond to trading events in terms of what the events call for, not in terms of automatic responses that were programmed in you during childhood.
"The rules are there. All you have to do is to follow the rules. You don't have to do anything but follow the rules and it will make your life very easy. Obviously, you know how to pick stocks and you know how to trade. But if you follow the rules, there's less of a burden on you. Last month you didn't have to think that much. You were in the zone. When you're not doing well you've got to go back to fundamentals and consistently do things the same way."
"Don't play takeover stocks; be patient-you can come back to them. Don't take home losers. Don't average down. Eliminate the things you do poorly. And stop rationalizing your mistakes by pointing to how well you're doing."
"In a nutshell, do the things you do well consistently. Make the commitment, create your own lists, and live by the lists. Consider what you are willing to do so you don't lose. Can you make a list of ten things you're not going to do to save yourself money? Make it up before you get in the game."
While super-traders own up to mistakes and do not rationalize failures as being at the mercy of market forces, they are also willing to surrender to the market, recognizing that they have no control over it. This does not mean that they trade willy-nilly. They do not fight the "elephants" and get crushed. They go with the trend of the big players, follow the momentum of stock movements, and don't short a stock at the bottom when it is certain to go up.
The best traders are able to distinguish between the right trade and the comfortable trade. In fact, they know that the right trade is often uncomfortable and have devised a strategy or set of rules that will let them override their emotional fears. Less experienced traders have a hard time distinguishing what is really happening. When they are under stress, they don't adapt to the new market but rely stubbornly on what they think they know.
However, some super-traders eschew the use of military metaphors and images of anger and hostility in favor of Zenlike notions of tranquillity and serenity. They are centered.
In the centered state, you focus on the task at hand, without concern for justifying yourself or making yourself right and others wrong. You allow events to flow, knowing that everything is as it was meant to be and that losing trades are learning opportunities, not a cause for self-flagellation.
In the centered state, you integrate mind and body. You sense a heightened affinity for others, a greater sense of the meaningfulness of the world and a sense of harmony with the cosmos. Going beyond egotism, you can trade in a more mature and generative way than before. The centered state of mind is at the basis of creative thinking, enabling you to disconnect your present thinking from powerful past images,
At the world-class level, the archer, the bow, and the arrow all act as one. The archer allows the fingers to unfold as the bow is released. Since the correct actions have been mentally programmed during extensive practice sessions, they now need only be allowed to function.
The power of visualization results from stopping intrusive intellectual functions, coupled with intensifying your intuitive responses in performance. Redefining a situation by seeing it in a new light, even before it happens, will help you to halt vicious circles, and will open you up to act simply and directly, at your own best level. Visualization, in other words, allows you to prepare yourself so that when the time for action comes, you are always ready.
Excessive concern for your image as a successful trader may lead you to focus too much on your profit and loss for the day. This may in turn push you to sell too soon to make a quick profit or lead you to avoid marking your daily trades to the market so that you can hold on to an overnight profit. A related image of not losing or not being the last to trade may reinforce an inhibited style and hold you back from trading more aggressively.
Awareness of your own repetitive thinking helps you participate nondefensively in the here and now. The same awareness helps you create a new way of relating to the trading opportunities before you. When you do this, you're more in touch with your immediate experience.
To start on your road to success, develop a list of affirmations that support your trading to win program and allow you to go for the gold without hesitation or guilt. Develop concrete images of what successful trading is like, based on past successes:
• What does it look like?
• How does it feel?
• What were you able to do that was beyond the ordinary?
Think of your past successes. (If you have not had such experiences, make them up in your imagination.) What was your most successful trading day ever? Your most successful single trade? What happened? How does it make you feel? Keep feeling this way as your imagination summons up mental images that correspond to your trading strategy. Visualize the outcome you wish to achieve. What does trading success look like to you? Is there a dollar amount, or an amount of capital you wish to trade, or any other tangible parameter you can translate into a visual image?
Hang on to those feelings of success as you visualize future success. Dwell on those feelings, and they'll help you recognize opportunities in front of you.
Concentrated action means seeing clearly the next steps to take toward your goals without being thrown by your own nerves, self-doubts, or fears. Concentrated action enables you to keep going under stress, to hang in beyond pressure-cooker situations without reacting to your own responses. It means maintaining a state of calm in the midst of chaos, refusing to become frozen in your efforts to control such situations, refusing to be overwhelmed by them.
Admitting to fear is often an effective tool for reducing it. Reducing the effort expended to hide fear effectively eliminates it. By concentrating on how specific feelings feel, how long they last, and what thoughts are associated with them, and taking responsibility for them, you can dissipate the fear and anxiety that come from trying to suppress feelings. Concentration, even on those things that cause fear, has a strong effect on reducing ambivalence, indecision, and weakened efforts. It can be a great stress buster.
Exercise also may help you get back into the present, the here and now. It puts you in the right frame of mind for trading, where you can go with the flow and not be so conscious of what it is that you are doing. Then you can trade intuitively and independently of your conscious thoughts.
Commitment is an example of what Joe Greenstein, a circus strongman in the early years of this century, believed was necessary to overcome what he called "impossibility thinking." He believed in a Life Force that we all have but fail to activate because we think "impossibility thoughts" from the time we're born. We are constantly thinking, "I can't do that. I'll hurt myself." According to Greenstein, the little voice in us—that instinct for self-preservation does not give us an accurate
Nothing could more vividly illustrate the importance of believing in a favorable outcome than the large number of people who have been able to run sub-four-minute miles since Roger Bannister broke the "magic" four-minute mile barrier on May 6, 1954. Until that time, the four-minute mile, according to Bannister, had become "rather like an Everest—a barrier that seemed to defy all attempts to break it—an awesome reminder that man's striving might be in vain." Once the obstacle had been conquered by Bannister, the event itself suddenly became relatively easy. By the end of 1978, 274 runners had broken the "magic, impenetrable" barrier.
It doesn't matter whether you think you should or shouldn't be angry, jealous, guilty, frightened. Notice your feelings. Accept them. When you struggle to separate your emotions from yourself, you may project your own fears onto the world—and the world begins to look frightening and unpredictable. If you can accept your fears as part of yourself, your fears of the world will pass.
Successful trading is therefore based on the right combination of being able to measure probability and seize the opportunity. The key is information flow-assessing fundamentals, studying pricing patterns, analyzing balance sheets, and determining the relative value of a given sector relative to the group as a whole. Master traders are continually determining what factors move the market so as to change their fiftyfifty selection to sixty-forty. They are able to differentiate trades and make strategic allocations of risk capital on the basis of information flow. They are able to identify opportunities that allow them to maximize their trading. They know when to get bigger and do this on the basis of short-term fundamental analysis.
Perfectionist traders are willing to play only to the point where they are assured of winning. This keeps them from getting as big as they can. They restrict their winnings and do not watch their costs or their losing positions, which multiply rapidly.
Many managers believe that inexperienced traders should be encouraged to scalp or take a half-point profit and only later learn to stay for a longer time to make two points. Viewed like skiing, scalping is like learning to snowplow rather than immediately skiing downhill doing parallel turns. Like the snowplow, it's fine to learn scalping initially so a trader knows how to put on the brakes to maintain control. The danger is to get locked into snowplowing, so that one is reluctant to shift out of the comfort zone to trade bigger.
Take time off if necessary. "If you stick to your discipline and lose money five days in a row, it may be necessary to take time off to break up the losing patterns."
A single-minded focus on realizing the vision, no matter the time, the risk, or the odds against him.
A zealous regard for telling the truth and facing reality of risks and obstacles.
Success puts greater satisfaction on retaining what has been earned than on acquiring additional money. Traders become more concerned with loss than with gain, and are more motivated to trade not to lose than to trade to win.
Trust your intuition. Choose your own trading direction on both large and small scales. Get information from others, but don't ask others to make your decisions. Commit to your dreams and strive for them, and the world will mirror your own commitment and sense of certainty.
Hobbies are good activities to ground you, help you overcome anxiety, and give you a sense of expansion into new territory. You get humble by learning something new. Get into these activities by way of rejuvenating yourself and learning to take yourself in a lighter way. Then go back to trading with a renewed sense of yourself.
When you backslide, and you will, forgive yourself. Creativity and great performance are scary because you don't know where they are coming from. But they are coming from increased consciousness about trading-holding positions longer, playing bigger, being more patient, getting out of losers faster and sooner.
If you’ve made it until here, you must have really enjoyed this book summary!