Trading is not some mystic skill reserved for a select few. There is no “crystal ball” inaccessible to the masses. Trading, like surfing, playing piano or shooting a basketball can be learned by anyone willing. It is a combination of applying proper mechanics with the correct strategy to a select set of products. In other words, trading is a skill that can be developed.
Skills needed to trade can be learned by anyone willing to put in the time, as Liz points out. We needn’t look much further for evidence than Bat’s illustrious and continuing career. Or take Jared and the famous Goat Cookout of ‘16. Learning to cook was not something Jared was born knowing how to do intuitively. Over time, however, he learned how to cook large (and questionable) slabs of meat.
Beef (not the cooking kind) dispelled with the notion successful traders are lucky. In fact, being lucky may be the worst thing to happen to a trader because luck leads to a belief in “knowing something.” A trader who thinks they “know” something is a trader about to lose their money. Still, not all losses are bad.
No trader wants to lose money, ever. But losses can teach. Unfortunately, as Jared mentions, there is an entire industry waiting on traders to fail. Traditional finance firms enable that failure mentality and quickly offer to “help” by taking your money and investing on your behalf. What they fail to mention is the exorbitant fees which they will charge.
One of the skills most crucial for any trader is a working knowledge of what influences the price of an option. Specifically, understanding “greeks.” Beta, delta, gamma, theta, vega are fundamental concepts in the world of options trading. Unfortunately, they are also an intimidating set of jargon.
Understanding greek terminology is not easy. Beef, Dylan, Jared and Liz all agree we need to find a better way of communicating greek concepts in a way more easily understood. That is part of tastytrade’s framework of articulating how to trade. When traders can properly articulate what is they are doing and why, they have mastered the mechanics of trading. That leads to reason number ten to be a tastytrader.
Frank, Jenny and Pete joined Dylan for the final episode on being mechanical. Traders are humans and have emotional responses. When stress increases, Dylan contends we become “lizard brains.” Our emotional responses to situations engage us in an epic struggle of good vs. evil, or mechanical trading vs. emotional trading.
Any tastytrader who’s been around a while has undoubtedly heard Tom mention having made an “angry” trade. Angry trades deviate from mechanics and often lead to losses. Just ask Jenny.
Without getting into the specifics of the trade, Jenny’s worst loss in 2016 was a trade in which she was not mechanical. At some point, most every trader’s cognitive powers give way to lizard brain. It happens. But mechanics are what lead to consistency and getting back to them is key.
As a purely directional futures trader, Pete was a momentum trader. There were no mechanics for trading futures. Now, using options, Pete is able to use mechanics. Options offer him risk management in his trades. The “go big or go home” mentality that Tom mentioned once dominating trading floors has been replaced, so traders can keep coming back the next day.
Staying mechanical often involves how we deal with risk. Identifying that line where mechanical risk tolerance ends and “lizard brain” begins might be the difference between trading tomorrow and getting wiped out.
Frank, Jenny and Pete all had slightly different takes on what is the proper amount of risk. Risk is inherently subjective. We all have a different risk appetite, according to Frank. For Pete, the right amount of risk is an amount where he can walk away from his screen and sleep. For Jenny, it’s about not allowing any one position become too large that if forced to close as a loss, it would wipe out an account. In Dylan’s case, an acceptable amount of risk was getting married.
Dylan, Frank, Jenny, Pete and Tom all agree that proper mechanics such as trading small and trading often help mitigate risk. Order entry and size are the two things all traders can control. Recognizing whether we are trading from emotion or mechanics help reduce risk. Luck is not a mechanical way of trading.
Understanding the mechanics of trading and acquiring the skills to be consistent is not difficult. Cognitively, the skills make sense. Emotions, on the other hand, have a way of intruding on life in ways that can be detrimental. Controlling emotion, or becoming void of emotion (a skill Tom seems to have mastered) will keep traders from making mistakes.
Trading is a skill set that can be learned. Like any skill, it comes down to understanding mechanics and how to properly apply them. Wash, rinse, repeat. Overcoming emotional response is not easy and we all learn how to do that on our own. However, remaining mechanical will reduce the number of times we are forced to deal with those situations and that is right in tastytrade’s wheelhouse.
Josh Fabian has been trading futures and derivatives for more than 25 years.
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