Leadership: Believing in others as a way of life

Leadership as a belief in others

there are two models of leadership that I am directly familiar with.

The first is the leadership quality model which treats leadership as a quality manifested by the leader, often composed of subordinate virtues like honesty, loyalty, competence, empathy. In this sense leadership could be considered a state of being.

The second model is one of technique usually described as a form of situational leadership in which a leader applies the appropriate technique based on a diagnosis of the situation, who the people are who are being led, and the necessary form of a successful outcome.

The idea of believing in people seems to be directly related to leadership in my experience and doesn’t fit into either category. I say this based on some personal experiences which I’ll describe.

I can think of it a number of circumstances in which my leaders believed in me and my potential . It motivated me to perform at a level higher than I thought was possible. What unites these cases is that my leader was a significant other to me, whose opinion I respected and whose approval I sought.

Another essential element was the element of risk and authenticity. I knew that my leaders trust in me had consequences for them which affirmed my belief in the authenticity of their belief because they have something to lose if they were wrong. In other words, these are not just empty words there was real meaning in the outcome.

Taken together these contributed to my motivation and determination and made the difference in my final performance.

As a leader myself I have seen the difference in trying to replicate a technique and manifesting a true inner belief in others. In my experience, your subordinates can sense a lack of authenticity a mile away.

I think the topic of belief in people is tied to leadership because it places it in a situation in which hierarchies matter, outcomes matter, risk is taken in the consequences are in doubt.

I don’t think belief in others is pure leadership quality like in the quality model because it takes on the context of the situation to establish the importance of the belief in the risk that the leader is taking. I think it’s a leadership matter because the trust must come from the leader first to be truly motivational.

It’s not something the subordinate can request or requisition but it must come flowing from the leader to the subordinate.

Profitable ETF Trading Strategies: Respect Volatility, use its power for good

At the most fundamental level, volatility is the fluctuation in the price of an asset. The greter the price swings in the shorter periods of time, the greater the volatility. Periods of great volatility are like thunderstorms. They get your attention.

Volatility is an absolute requirement for a trader to make money. Most investors look at volatility with fear and trepidation, and properly so, because wild swings in price are an indication of uncertainty about the fair value of the asset in question. This uncertainty will play havoc with your bottom line as an investor. It is a normal tradeoff consideration for investors to give up the potential of outsize gains in exchange for protection against downside volatility.

 

It is clear from scholarly studies that increases in volatility correlate strongly with declines in equity value. If you look at bear markets you see volatility everywhere, leading to tremendous gains on up days and tremendous losses on down days. This volatility  is what drives longer term investors to the sidelines and creates the window of opportunity for longer term value players to establish excellent entry points for long term holdings in beaten down companies and sectors. This eagerness to buy value at a discount is why we see buying pressure even in the midst of the worst bear markets.

 

Traders who are looking to make their loving off the buying selling of inventory need the volatility of longer term position traders and short term scalpers to move price in swings that last long enough for them to realize their gains while offering the buyers and sellers from other time frames reasons to get in and out of these positions as well.

 

Because swing traders do not need fundamental beliefs in their positions they are able to operate successfully in swing trades during bear markets, and providing that they can manage their risk in the periods of higher volatility, should be eager to trade on the most violent of das in the market.  For a swing trader the greater the intraday volatility, the easier it is to see opportunities and frame favorable trades in terms of reward to risk. 

Like electricity, volatility can be your best friend or your worst nightmare. As a trader you must learn to use the power of volatility responsibly and effectively.  Stay grounded and respect the power for your own good. 

Profitable ETF Trading Strategies: Good traders know and exploit their edge

As an individual trader, you must be absolutely clear about where your edge is in the market place so that you can ensure your trading strategies are designed to put you into positions where your edge can make the difference against the average market return. 

Let’s be clear too: your edge must give you a reliable means of achieving better than average market returns or you are much better off simply buying and holding lowest cost broad market index exchange traded funds. To do otherwise would be a waste of your time and get you a lower than easily achievable returns on your capital. 

When I consider institutional traders, I see their advantages in computing power, depth of fundamental research, administrative trading cost efficiency  and legitimate inside information, I quickly conclude that there is no way I can find an edge by trading in direct competition with these organizations on a fundamental basis. 

This means I am going to steer clear of situations where my edge would consist of having a better understanding of the fundamental business model and market opportunities of individual firms. The fact that so many businesses go out of business due to misjudgments of market conditions when led by  experts who have a made a career out of narrowly focusing on that line of business suggests to me that I can not hope to have an edge in fundamental analysis. 

I also know that I am not capable of scalping better or market making better than brokerage houses who are fighting for fractions of pennies on large volumes in time periods measures in fractions of seconds. So I will stay out of that trading environment as well. 

I know that I need enough opportunities to allow my statistical edge in trading to manifest, and so I cannot afford to have overly long holding periods and wait for the ship to come in. I believe I need to be like Walmart and trade in quality merchandise that everyone wants, take my decent profits quickly and cycle through inventory efficiently. I want to be the swing middle man helping the market achieve orderly distribution. 

This leads me to look for my edges in the swing trade time periods of 1-5 days, and looking to lock in profits and/establish  no-lose positions as early as possible on the entry day, and only hold overnight when I have clear indications that the extra overnight risk is justifiable. 

Know your edge and stay within your area of competitiveness.  

Profitable ETF Trading Strategies: Stalking your way to success

One of the more neglected topics in trading systems development is the concept of stalking. Traders, particularly early in their career will tend to spend  lot of time, if not ll of their time, focusing on the entry, reasoning that if they can get that part right they will have some control over the market’s inevitable follow thru, which must go according to plan, because of the predictive power of their perfect entry technique. 

If, as a trader, you are able to survive this philosophical approach to the market, based on certainty, control and predictability, you will move along to other aspects of a complete trading system, like the exits, position sizing, trade management of open positions, portfolio heat, overnight rick management, re-entry and matching system performance to specific market conditions. 

These are non-trivial issues in the development of an effective system. Stalking the trade however has to do with the period before the trade is engaged, and offers you opportunities to leverage what may be your greatest edge as an individual trader, if you have discipline and patience to do it properly. 

I believe that stalking is intimately and directly connected to your deep understanding of the edge your trading system has. The better you understand your system and your edge, and the market conditions that favor its use, the better position you will be in to stalk effectively. 

Think of a pride of hungry lions on the hunt. Their stalking consists of knowing their market (their prey) and where they will inevitably congregate in large numbers (watering holes and  grazing lands which represent their trading opportunities). Effective stalking consists of taking advantage of their natural strengths in the market conditions that favor their methods. 

Liosn will sniff the air at a hint of a suggestion of the possibility of their prey. They will scan widely and contuously and begin fllowing the scent until they can vector in on their target and begin their hunt in earnest. Their stalking gets them reliably into the right position to begin the hunt.  That’s what your stalking must do for you.

Your stalking should include some early warning signs that let you know the market and trade conditions that favr your system are starting to emerge from the market mosaic. You can start posturing yourself for action early enough to conduct trade framing and execution rehearsals, and contingency planning, so that if the favorable conditions continue to develop you will be able to take the trade in stride, with full preparation and risk management in hand. 

Depending on the nature of your system and your edge, your stalking may take a different form, but it will always incorporate an early earning system, preparation planning and rehearsals if you want to achieve best results. 

Patience and discipline are the essential qualities of mind that you will need to exploit your deep understanding of your edge.

Profitable ETF Trading Strategies: Finding your best mental state for trading

In previous articles I have described my concept of the “zero-state”, and the combination of personal satisfaction and improved bottomline performance I get when I trade from that state. 

In this article I want to describe some other mental states that traders I know find useful and consider the implications for your own journey of self discovery and trading mastery.  It is my hope that you may discover that it works for you or that the journey of discovery may awaken you to other states along the way that you will find equally satisfying and useful. 

After all, trading from an emotion free state (like my description of the zero state) may not be the best mental state for you. For example, I know traders who find it necessary and useful to achieve a state of emotional alpha male competitiveness in order to enter the ring of combat, which is how they perceive the markets and interpret their role. 

Without being mentally prepared for the combat they anticipate, and therefore see, they will be undercutting their own effectiveness in the trading arena. 

Another effective trader I know has a need to see himself as a pure mechanical businessman and must take a different approach: that of disinterested observer;  He gets so disinterested that he cannot even watch the trades unfolding lest he start adapting his rules in mid trade. His analysis showed that this was not adding value, and so his mental state needed to be as far away from engagement as possible. 

These were  just 3 examples of different mental states being suitable for effective traders, which implies that there may be as many unique states as there are traders, which means that you must use introspection and self knowledge to discover what works for you psychologically as well as needing to examine trading strategies that suit your personality, time frame, risk profile and working hypothesis of market behavior. 

How will you know? Know thyself, consult with trusted others, but above all else, make sure you are trading with real money in very small position sizes to assess the effects of market, system, money and self on your total trader’s performance system. Without that essential step you are postponing the day of judgment. The sooner you get into the game, the sooner you will engage in real learning.

Profitable ETF Trading Strategies: Experiencing the Zero-State

For me, achieving the zero-state is a necessary precondition for trading at my peak. In other essays I have described it as a place where adjective pairs of mental states cancel each other out, leaving only a moment of pure being.

It is the space between the words that we know, a moment and a place of freedom, where all notes may be struck, the moment precisely before the next action occurs.

For a horn player, it is the moment where he has gathered his breath and is prepared to initiate the note, the pure balance point between inhale and exhale.

For a diver it is the moment of motionless serenity between ascent and descent.

Imagine a Cartesian coordinate semantic grid system with adjective pairs arrayed about the origin, with each word having its precisely paired antonym and where the midpoint of the ray that connects them is bisected at the origin. That spot in the semantic meaning gris is where I seek to trade from in order to have my trading takes its purest expression in both action and no-action.

When I trade from this moment, this place, my results generate neither joy nor sadness, and simply are what they are. This allows me to enter the next trade with no emotional charge.

It is also keenly important to my style of trading where I am looking for the hesitation point in a channel trade or in a breakout, where price remains poised between fear and greed, where bulls and bears are in timeless balance and the next leg of the move will begin just as the last leg ends.

When I am able to stalk the price to that moment of harmony, that zero-state where momentum transitions I am able to refine my entry to very tight level levels and find initial capital preservation stops that are absurdly close, which enable me to minimize open risk and move to “no lose” trade conditions very quickly.

 When I know that barring an interruption of connectivity or market discontinuity I will never do worse than break even,  this is an immensely freeing psychological state to be in as a professional trader and yet it’s value for me is in the spiritual nourishment and satisfaction I experience having a brush with Truth and Perfection in a small way for a fleeting moment in my life.

In judo we speak of a moment in a throw where you and your partner are equally sure that the other judo player is throwing you with exactly the same force and skill as you are throwing them. In that moment the throws stop, time slows, and you are suspended in a moment of pure being.

What I like about trading is that as I approach the zero state my equity curve smoothes and my trading practice is rewarded

Profitable ETF Trading Strategies: How science can improve your trading

Trading by its very nature is filled with uncertainty. Any human endeavor that has such a strong psychological component must be uncertain, until such time as human nature itself undergoes a fundamental change. 

It is uncertainty which helps make a market for assets. It’s what helps drive the discovery process to uncover the relative value different parties place on an asset. It encourages risk-taking behavior in real time to anticipate the short term future direction of prices. 

Uncertainty and psychology don’t necessarily make it easy on the trader to act with confidence and commitment. On the contrary it provides opportunities for self-doubt indecision, and will often keep you on the sidelines when your rational mind and trading system may signal you to act. 

Traders that set aside the uncertainty of the moment and act with conviction based on sound trading principles and thoroughly vetted trading strategies have a definite edge over those who are coming from a weak place. 

One of the mental disciplines that I have found to be very helpful has been to adopt a trading approach that relies on a scientific metaphor to focus my mind and free me to act in a sound manner. Here is the technique’s basic approach. 

Once yo have a reason to believe in the soundness of a basic strategy, define the boundaries of the idea and circumstances in which you have an edge. 

It may be in a price level, in a chart pattern, in a combination of indicators that have yielded statistically sound returns in certain market conditions that are now in play. 

Find the specific price levels that give you clear evidence that:

1. the idea is beginning to work

2. the idea is failing

3. the idea has fully manifested itself and the profit target is realized 

These specific price levels allow you to define your initial risk, set the triggers for entry, initial capital preservation stop, and profit target to harvest your reward for action. 

By clearly defining the terms of your trading idea you have established a hypothesis that can be tested based on the pure evidence of price and eliminate some of the counterproductive self talk that leads to inaction. It allows you to let the trade decide its own results, and gives you a case study that can add to your knowledge of the system’s performance. 

By trading it at a risk level that allows you to dispassionately separate yourself from the results you allow the trading idea to stand on its own merits and remove the variable of your own discretion from the mix. 

This approach is not a natural way to think about the market, but it can do wonders for your discipline and your bottom line if you have reasonably robust trading strategies.

Profitable ETF Trading Strategies: 8 attributes of quality research

There are plenty of snake oil salesmen in the financial advisory business, but there are by far many more conscientious professionals prepared to act as good fiduciaries for you. At the same time there are many people willing to take on full responsibility for the design and implementation of some or all of their own investment program. 

This article describes the characteristics of quality financial research, to help you identify the difference between quality and snake oil, using the standards of scholarly research to inform our decision-making. 

What distinguishes quality research in any field from pure opinion has everything to do with rigor, the design of experiments, and a respect for the difficulties in pursuit of the truth. 

If you can see the following qualities in the research of someone who proposes to provide you advice or financial services then you can have more confidence in achieving your financial goals. 

Quality research should be: systematic, controlled, empirical, amoral, public and a critical examination of the world, informed by theory, and framed in a hypothesis. 

Here are some brief insights to get you started down the path of critical thinking: 

1. Systematic: the research program should be unhurried, thorough, comprehensive and organized. There should be evidence of an attention to detail and a commitment to completing the testing no matter the time or complications in performing the work. 

2. Controlled: care should be given to establish the difference between correlation and causation; in the identification of cause and effect and in identifying dependent and independent variables. 

3. Empirical: we want to see evidence from the real world, that is replicable, verifiable’ in the case of back-testing we want to ensure that only the information available at the time is used in hypothetical decision-making in order to be truly realistic. 

4. Amoral: we want facts and conclusions to succeed or fall on their own merits, and in pursuit of truth; not simply to support a biased opinion. 

5. Public: we want to see all the details of the research and they should be independently verifiable; we don’t want to see black boxes or special testing circumstances unavailable for inspection. 

6. Critical examination: real scientists are concerned about overstating their claims and are in search of evidence to disprove their hypothesis, rather than looking for reasons to agree with their suppositions. A scientist is concerned about finding the hidden flaws in their own reasoning and hypothesis, because of the implications of their conclusions. 

7. Informed by Theory: we want the world to conform to reasonable processes; this bias helps protect us against statistical anomalies and data mining 

8. Framed in a hypothesis: we want to see how the experiment can allow the hypothesis to be disproven in a clear-cut, meaningful way. We want the ideas to be testable and falsifiable in unambiguous terms.

These ideas are strongly related to a conceptual approach to trading which establishes price levels at which we can state clearly that our idea is either working or failing, which gives us explicit criteria for entering and exiting.

Profitable ETF Trading Strategies: You don’t have to be “right” to make money

What happens when you have placed your trade and you immediately have second thoughts as you watch the market moving against you? 

It is a normal trading experience to have a position that has moved in your favor a certain distance but has begin to stall before it reached the price that you were expecting it to reach, or which you have established as a reasonable price target. 

As soon as you see the price start to reverse and move against you, you are presented with the age old problem of whether or not you should cash the partial win or remain disciplined, and true to your trading plan and let the price go where it will. 

Psychological studies have repeatedly found that we are affected emotionally about three times harder but our losses than our gains. So, to see a profitable position move against you into the red is especially painful because you have experienced the loss of profits (which you will measure from the highest high of the trade) compounded by the triple pain of a loss. 

Unfortunately all traders who have experienced this decision  have also seen what it feels like when they have taken the partial profit and then witnessed the position reverse once more and zoom upwards to new highs immediately after exiting their position.  The emotional response to missed profits hurts just as much as actual dollars lost according to psychologists. 

Because of the way our brains are wired the instances where we chose incorrectly stand out more in our memories than all the times we made the “right” decision. 

After this has happened to you a number of times, you start to second guess yourself, and you can get gun shy about any decision you make, to the point where you cannot rationally approach the subject. It is common for traders in this psychological state to look for a perfect exit rule that allows them to be “right”, to give them an insight into the “correct decision”. 

The truth is that no one has the perfect solution to this dilemma; no one can be “right” all the time. 

The good news is that you don’t have to be “right” to have an effective exit strategy. 

What you need are psychologically acceptable rules for exiting and for re-entering positions. This means they must be acceptable to you! 

By having a good re-entry plan you no longer have to worry about missing the great move that kept you in a position that was moving against you. This gives you the confidence of capturing the profit in hand before it disappears and becomes a tangible loss. 

By being effective in preserving capital and profits, and by being able to re-join a winning position you can stop worrying about being “right” all the time, and simply concentrate on making money. 

Profitable ETF Trading Strategies: 3 Tips for developing a market classification system that fits your style

In previous articles I have described why a market classification scheme is a high payoff strategy for improving your trading results. I now want to describe a few things for you to consider as you look to take advantage of your edge in market classification. 

Focus on the following issues to make sure that your research efforts can be applied to your style and objectives. Remember that you are not in search of eternal truths for all times and places, for all traders and styles. You are just trying to make a reasonable, risk-adjusted return on your invested time and money to achieve financial freedom, This will take you down different paths than those of the pure academic, and with the intent of adding value to your bottom line. 

1. Focus on your time frame for trading, especially if you are looking initially to supplement your income and have not yet made the leap to full time, professional, independent market trader for a living. You will have constraints placed on your time by the competing demands of work and family and there will be some styles that are simply not within your reach. No sense trying to develop a classification scheme for a style that will not fit you.

2. Identify interesting markets and targets for you to specialize in.  You want these to offer you the kinds of volatility you can trade yet are within your tolerance for excitement. As a trader you must trade on volatility, the fluctuation of price around the idea of “fair value”. It will be important for you in the early years to focus on markets that you find appealing and interesting and about which you will develop a feel and an expertise that will give you an edge. It is these markets where your classification scheme can be informed by both art and science. 

3. Look for a blend of art and science in your classification scheme. Find elements of the market’s behavior that may be expressed as rules, like seasonality volatility cycles, time frames that seem to repeat, typical patterns and express those quantitatively. Find those patterns and themes that seem to emerge in the course of your trading to add an element of qualitative description to your scheme.  By blending the best of both worlds you will have a market classification scheme that leverages the 2 primary domains of your cognition: art and science, qualitative and quantitative reasoning. 

Your classification scheme will help you to interpret price into useful meaning which can be placed into favorable risk-managed action.