Keeping Up With The Joneses

By Greg Tolpigin | More Articles by Greg Tolpigin

As a trader one of the worst things one can do when in the midst of difficult dry spell is to be distracted by what others are making.

I received a phone call one afternoon from a trading friend of mine (let’s call him Andy), who instantly proceeded to inform me that a mutual trading colleague of ours from many years ago had just turned $100K into $2 million in three months and as a result he was extremely frustrated, if not somewhat angry.

I asked him “Why?”

To this he replied that his frustration and anger stemmed from the fact that not only didn’t he make that same amount of money but that in his own trading, times were difficult and over the same period he had actually lost money. In addition Andy also thought that he had better skills as a trader and that “luck” just wasn’t on his side and it just wasn’t “fair”. Andy wasn’t being arrogant he had been a top level trader in New York for several large investment banks and commodity houses and genuinely had made a great deal of money for himself and his employers.

My reaction to hearing this fortuitous trade was somewhat different. I was pleased to hear of this momentous victory as not only is it difficult to be a winner in the trading game, but when a winner is an old friend well that’s even better. The two different reactions between Andy and myself, triggered me to begin questioning what is it about the mind that creates these differing feelings with one being broadly positive and the other almost self-destructive.

When a difficult trading period sets in, the normal first human reaction is to blame something or someone else – be it, the market, poor information sources, bad data, your broker, even God. We also look for immediate comfort for the feelings of inadequacy with stories of others who are sharing the same misfortune. Unfortunately the winning trade of Andy’s friend didn’t do that. And that’s what made him frustrated and angry, compounded with the fact that if Andy wasn’t making money how could someone with possibly less skills be making so much more?

Looking and focusing on what someone else is making at such a time is one of the worst things one can do. It’s a sure recipe to disaster.

I rang Andy back to give some words of encouragement and give him some food for thought from my perspective since I too hadn’t enjoyed such a stellar winning period but viewed it much more positively. Firstly, Andy is a short-term trader. Holding something for longer than a few weeks is very difficult for him. Andy’s skill set is in identifying market moves and opportunities between a few hours out to about one month. In addition he is a technical trader and rarely focuses on the fundamentals. It’s just not his area of expertise or where his skills are.

Now our colleague had actually made his near $2million in 1 single trade and did so on a penny dreadful running from 20 cents to $8.00 based on ‘light’ fundamental research that had passed his desk.

There is no chance in this world Andy could ever hold a stock for that long while sitting on that amount of paper profit. He has to crystalize it. Nor could he ever buy a stock based on fundamental research.

I proceeded to tell Andy that even if he had the same trade on at 20 cents in the same stock, where would he have sold out at? 50 cents, $1.00 maybe $2.00? And he would have traded it a few times over on top of that, if he ever convinced himself to buy it in the first place. It was therefore, totally unrealistic for Andy to think that he could have done the same, given the same opportunity. Buy and hold he doesn’t do.

Andy had missed that and was totally focused on the dollar value that was earned from the trade. He was projecting his frustrations with his trading outwardly rather than internalising it, accepting it, identifying his trading mistakes and learning from them. To Andy the grass was greener on the other side and had totally disregarded his own trading skill set that he built over a decade and began to contemplate about ‘getting lucky’ with a winner like that by attempting to maybe adopt a buy and hold strategy. “If only”.

Like Andy, many of us hear of fortunes made by others in a wide variety of industries and businesses that generate negative emotions like envy and jealousy that can easily steer us from our own path. For a trader it’s even worse, because a trader needs to have confidence and belief that his own methods and skills that he uses are what makes him money and what suits his character. To begin to try and radically change one’s trading style or method merely because of what someone else is making is virtually the worst thing a trader can do. We all make and lose money at different times.

Every trader will experience periods of poor performance, low levels of self-confidence and frustration. It is at this time that it is crucial that traders focus on learning from their own mistakes and fine tuning their trading methodology rather than trying emulate someone else’s style with the hope of striking it rich. It never ever happens.

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Greg Tolpigin

About Greg Tolpigin

Greg Tolpigin has over 20 years of experience as a proprietary trader and high-level strategist for the major investment banks including Citigroup, Bankers Trust and Macquarie Bank.

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