Tuesday, January 31, 2012

Zen and the Art of Trading

Came across this "lost" interview excerpt with an unnamed trader from Jack Schwager's New Market Wizards and I'd like to share it with you here. 

As Schwager explains in the intro to his "Zen and the Art of Trading" chapter, this wide-ranging, and rather philosophical, interview with a top trader had to be scrapped on fears it would alter the trader's image with his firm's corporate clients. 

Schwager asked this trader for permission to anonymously publish one interview excerpt, which he found particularly insightful. Here's a sample:  

"...I still don't understand your trading method. How could you make these huge sums of money by just watching the screen?

There was no system to it. It was nothing more than, "I think the market is going up, so I'm going to buy." "It's gone up enough, so I'm going to sell." It was completely impulsive. I didn't sit down and formulate any trading plan. I don't know where the intuition comes from, and there are times when it goes away.

How do you recognize when it goes away? 

When I'm wrong three times in a row, I call time out. Then I paper trade for a while.

For how long do you paper trade? 

Until I think I'm in sync with the market again. Every market has a rhythm, and our job as traders is to get in sync with that rhythm. I'm not really trading when I'm doing those trades. There's trading being done, but I'm not doing it.

What do you mean you're not doing it? 

There's buying and selling going on, but it's just going through me. It's like my personality and ego are not there. I don't even get a sense of satisfaction on these trades. It's absolutely that objective. Did you ever read Zen and the Art of Archery?..."

Let's note that the unnamed trader's view of zen in trading was partially informed by his reading of Herrigel's Zen in the Art of Archery. This leads me to the following thoughts and questions.

Some reviewers on Amazon have noted that Herrigel's understanding of zen and his tutelage in archery were rather muddled (for a variety of reasons). They went on to recommend reading Yamada Shoji's critique, "The Myth of Zen in the Art of Archery", along with Kyudo: The Essence and Practice of Japanese Archery for greater understanding of these topics. 

Kyudo Practice Japanese Archery book Onuma
Kyudo: The Essence and Practice of Japanese Archery

If Herrigel's pursuit of zen was fraught with misunderstanding, does this mean that some of the lessons drawn from his book are false? 

Was our mystery trader still able to connect with a Westerner's explanation of these topics, thereby fueling his own understanding? 

Can one really achieve a zen state of trading or being, and if so, did the unnamed trader somehow begin to approach this state, as described by his experience in the interview?

As a total (Western-born) outsider, I'll leave these questions open for you to ponder. 

Still, as this interview chapter is now 20 years old, I'd be interested to know more about the unnamed trader and the lessons he has learned in the intervening years. If nothing else, this brief and unique chapter of Schwager's book has certainly proven to be a catalyst for further reflection on the ideas of a "flow state" and trading/being. 

If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights.

Related articles and posts

1. What makes a great trader? Managing risk.

2. "Know Thyself" - Richard Russell on identity

3. Inner Voice of Trading: Lesson on ego and risk.

Thursday, January 26, 2012

Netflix chart update

Netflix chart update (see: "Netflix melt-up and Google breakdown"). This earnings period was kinder to $NFLX and the market reacted positively. The gap-fill play to $115 is now complete.

"Da-doo-ron-ron-ron,  Da-doo-ron-ron".

Thursday, January 19, 2012

Joe Fahmy: Relative Strength Trading Webinar



Great educational (and free) TraderInterviews.com video webinar with Joe Fahmy on trading high relative strength stocks in healthy markets. 

Joe is one of my favorite trading follows on Twitter and we've also highlighted some of his blog posts and interviews here in the past. 

So with that introduction, you should know that I'm posting this video because I've learned a lot about the stock market and trading from Joe in recent months. You'll probably walk away from this webinar with some knowledge that you can use in your trading as well.

Fahmy offers a quick summary of his general trading philosophy at the start of the webinar, then quickly launches into a discussion of his relative strength concept. You'll hear Joe explain why he looks for growth stocks that are emerging as leaders when the overall indexes are bottoming or consolidating. He also offers a few keys to successful trading and ends with a solid Q+A session with the webinar group. 

Check it out, and be sure to follow Joe's blog and tweets at the links above.  

Related articles and posts

1. Trading psychology: interviews with Joe Fahmy & Phil Pearlman - Finance Trends. 

2. Kirk Report interview + Q&A with Joe Fahmy - The Next Big Move.

Monday, January 09, 2012

Netflix melt-up and Google breakdown

Chart update on Google ($GOOG). After breaking out nicely above longer-term resistance near $645, $GOOG has spent the last few days giving back those gains and more. 


Today we saw $GOOG open with a gap down at $646.50 and it quickly slid downhill from there, ending the day at $622.46 (-4.2%). 


As Reuters reports, Google took a slide after Motorola Mobility ($MMI) warned of lower-than-expected earnings, which prompted worries over Google's entrance into the hardware side of the smartphone market via their Motorola acquisition. So we've gone from breakout to correction mode in just a few short days.

Meanwhile, Netflix ($NFLX) continued its recent melt-up, surging 13.8% higher today. 


The market seemed excited about Netflix streaming services crossing the Atlantic to Britain and Ireland. Not to mention the short-covering rally that ensued. As the article above points out, $NFLX is up 40% in the first five trading days of the year - so much for dour 2012 predictions. 

Look for a potential gap fill play back to $115 in the near-term. If Netflix can keep building momentum in their business through the first part of the year, maybe they'll be able to regain some share momentum and slowly heal the memory of last summer's DVD vs. streaming split debacle. 

I've not been following Netflix closely in recent months, but I have been eyeing the chart in recent days and will continue to watch it here. You can hear more about their vision for the future in this Charlie Rose interview with Netflix CEO, Reed Hastings. We'll see if they execute.

Disclosure: I have no current positions in either $NFLX or $GOOG, nor have I had any position in either stock in recent weeks. Readers will be alerted to any future long or short positions I hold in individual equity names mentioned, if those positions are held at the time of writing

Nothing here should be taken as a recommendation to buy or sell securities. These posts are strictly for educational purposes and a market journaling exercise. Thank you for reading.

Tuesday, January 03, 2012

Google breakout: chart update

Google broke out above some long-term resistance today. See the daily chart below.


Here's an updated weekly chart to show the longer-term view.


The stock had been trading in a rather wide sideways range between $450 (support) and its prior highs (resistance) near $645 since January 2010. 

Today, $GOOG cleared that resistance level with ease, soaring to $665.41 by the day's close. Not a bad trick for the first trading day of the year.