Stress-Free Trader (The Lawrence Chan Blog)
Full time index & forex trader, occasional consultant to hedge funds / institutions, my work leads to my not so normal view of the financial markets. My blog mostly talks about trading, market behaviours and other musings.
Originally this blog is supposed to be organized in a separate website like what most authors do but I don’t think I will maintain it properly that way. So here it is as part of this website.
Schedule – Regular blog post every Friday with occasional additional posts when I feel like ranting.
In case you are curious of what I do outside of blogging here:
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My Disturbing Birthday Week
2016 Jul 22 Fri 13:14:29 | by
Posted on Wednesday on what happened to my friend. Am still handling her matters until early next week when her brother comes back. The words “being affected” cannot fully describe how I feel. I guess “deeply disturbed” better explain the state of my mind. Many thoughts sparked in my head and I like to share these thoughts.
This is my birthday week. Observing something so disastrous happened out of the blue makes me feel vulnerable. What if something similar happens to me? Have I done enough to handle the aftermath? Maybe I need some comprehensive body check up. Maybe I need to take my exercise and diet routine up a notch to prevent things like this happening to me.
So I did what most people would do – I actually dug out my continuing power of attorney and my will for a complete review. I have not done something like this for almost a decade now. What I find out is truly amazing. Both my continuing power of attorney and my will have to be revised completely. So many things happened over the past few years making many of the provisions written in them no longer applicable. Law changes over the past 10 years also affecting the effectiveness of these documents I prepared long time ago.
Happy time for my estate lawyer for sure.
An Observation of My Diet
During this week I cannot follow my usual diet. Instead I have to grab whatever is available at various locations. So all these take out food with pasta, rice and noodles are stuffed into my body. I have not had so much carbohydrate for a long time. An obvious effect I feel is that these food are making me sluggish.
This is not a joke. I can feel a drastic slow down in both my mind and my body after eating these food for a few days. Maybe I should tell beginner traders to watch out their diet too based on this personal experience.
Interesting Story About My Birthday
My mother told me this story long time ago. When I was born, my mom found out she has no one attending to her at the hospital. She was in pain but everyone disappeared for a long duration. She did not know why. According to her maybe it is something supernatural.
Well, what my mother did not know was that on my birthday, it was the first time human landed on the Moon (i.e. Apollo 11). TV was on and off broadcasting the recording of the event all day. Everyone wanted to see the footage themselves hence no one remember to take care of my mom and probably me.
I guess I picked a pretty bad day to start my life, eh.
My birthday wish is that for the rest of the year my plans on various projects can go smoothly. I think it is not too much to ask for, isn’t it?
Looking at Trading Income from an Entrepreneur’s Point of View
2016 Jul 15 Fri 15:59:42 | by
Most people who are not interested in trading (or day trading) think of it as some kind of gambling. Many who work in the financial industry worship traders as some of them legendarily making millions every year. Yet, some others who are more familiar with the trading world know that majority of traders, especially retail ones, are really making not enough money, at least not enough to compensate for the stress and struggles. The opinions about trading income are pretty much all over the place.
Maybe it is a good idea to look at trading income from a different angle – as an entrepreneur who is planning to start a new business with excellent growth potential.
Once a trader is operating consistently, the trading income is often comparable to a very profitable convenient store with all the profit and all the salary paid to all the workers combined, without the relatively high operating cost overhead.
A good trader’s income is comparable to a very profitable high end restaurant with all the profit and salary paid to the head chef combined, without the high operating cost.
A well established good trader’s income is comparable to a small restaurant chain with all the profit and salaries paid to the main chefs combined, without the very high operating cost.
An established great trader’s income is often comparable with an established medium size industrial company’s profit without the high operating cost and headache in running such a company.
I am not trying to say that everyone should be trading instead of running other businesses. The main point is that the time and effort invested in learning to trade is well justified because of the potential growth with trading income is much more attractive comparing to, say, operating a convenient store. The barrier to entrance is low as creating a medium size company can take a lot of capital with many years of hard work, yet the risk of failure is at least as high as trading.
Allergy Hell, Lapse of Judgement and Value of Time
2016 Jul 8 Fri 11:19:37 | by
I have not had a food allergy episode for many years. These things are bounded to happen though and I have lived through one this week. It is a good reminder than I need to be much more careful when I dine out. More importantly, I have relearned my lessons about lapse of judgement and the value of time.
It all started from eating at small boutique restaurant. The food is great and it is packed all evening. I enjoyed the night much and did not feel anything unusual until after the meal was over. The first few hives showing up looks like mosquito bites hence I ignored them. Only until later into the night that hives showing up everywhere that I have to take Benadryl to keep it under control.
Since then it was continuous high dosage of Benadryl for days now that the allergic reaction finally calm down but not over yet. Hopefully this bout of allergy hell will be over soon. I can assure you that it is not funny having hives all over. It is also not nice taking Benadryl which destroy one’s ability to focus among many other side effects.
Lapse of Judgement
When I was younger I was very careful when I dine out. I have a routine to go through when I go to eat at some place I am not familiar with. If I cannot tell if the food is processed separately I will go for the safe choices on the menu. Food allergy is a life long threat and if the reaction is strong enough, it can kill someone in a very short period of time. Yet, I have completely forgotten to do my part. How can this happen?
It is the change of routines over this past year making me doing all kinds of new decisions that wiped out my old routines. The busy schedule played a role too as I have to travel a lot. Going for safe choices most of the time led me dropping my safety routine and have forgotten about it all together. So when I venture out for something different, I have forgotten to play safe and paid for my lapse of judgement dearly.
This reminds me of a common mistake traders, both beginners and even professionals, often make. After a winning streak based on careful actions and analysis, human tends to forget about the safeguards that was not needed at the time. As the trading condition changes, those safeguards that are critical in taking care of the bottom line will be needed again. Yet, without discipline and a carefully written trading plan to follow. many traders would lose most if not all the money they made during the winning streak simply due to lapse of judgement.
For both traders and people with allergy, we cannot depend on our ability to maintain our best judgement. We must follow our routine that protect us from ourselves.
Value of Time
Taking medications to control allergy is simply using medications to control our immune system from reacting to external threats. Allergy reaction, most of the time, is over reaction by our bodies to allergens that may not be as harmful as our body determine. Numbing our immune system also reduce our response to our five senses and of course, our ability to focus.
I have been working hard on several advanced course like materials on trading. It takes a lot of focus to do the research and write with clarity. The past few days of Benadryl knocked me out at least a day and a half. I have to double up on my coffee intake to counter the effect. At the end, coffee only keeps me awake but not able to focus much. Frustration with myself flares up. If I had been more careful, time would not be wasted this way.
One of my mentors, an old gentleman who was a market maker at the time I first traded at the floor, asked me an interesting question one day. And I wrote down the conversation in my first trading journal that I am still keeping today.
“Why are you staring at the screen all day?”
(Note: At the time, there are no charts on the trading floor, just big fat monitors with quotes flashing all the time.)
“To keep an eye on my position.”
“Do you know what is the most valuable thing in the world?”
“What do you mean? Gold, diamond or whatever?!”
“It is time. Everyday, everyone has the same amount of time yet people waste it away. How do you spend your time determine what you will become or process in the future. You are wasting your time here, son.”
“Why am I wasting my time? I am trying to protect my position here.”
“If your position needs your full attention everyday to manage, it is not worth your time. You are not protecting your position, you are just letting your emotion controlling you. Your time is better spent by learning how to manage your positions without watching them all day!”
Managing oneself better can improve our lives in all areas. For me, it all started from my understanding of the value of time.
Post Brexit World
2016 Jul 1 Fri 13:18:20 | by
As of this time on Friday, S&P500 has repaired all its losses after Brexit. Yet, British Pound is trading near the post Brexit low which is some 12% lower while Euro has repaired half of its losses. The volatility index (VIX) has its steepest decline within a week over the past 20 years. What is the world telling us?
The New Norm
First thing we should understand and accept completely is that such wild market environment is the new norm.
When trillions of dollars are on the line every second, central banks, large institutions and many other parties affected by major geopolitical events are all using derivatives and bots to manage their positions in real-time. When everyone reacts in a similar way, volatility spikes up quickly. This means a corrective move that used to take 3 months back in 1980s to complete will take only an hour as we have witnessed from what happened to Emini S&P.
Second, central banks play a far more active role than most people think.
As many smaller central banks are actively investing in non-traditional “safe” financial assets like stock markets around the world, their actions control the short term direction of the stock markets much more than most people realize. Similar to what happen back in the 1980s and 1990s for which the major investment banks move the markets the way they like to, even though they never admitted to that. The ability to absorb all the liquidity at critical price levels in various financial markets can generate a lot of profit. Be ready for more and more of these central banks will try to make money this way.
Third, the unintended consequences are unpredictable.
Those people put in charge of these central bank trading groups are no genius. They just have access to more information but that does not translate into making sound decisions, especially in the long run. The more speculative these central banks become, the messier the financial markets will become. It is exactly the type of environment we do not want to see again from the 1980s where greed dominated the Wall Street and yet, we are dealing with the same all over again.
Hence, there is no point to guess what will happen in 6 months or a year. This is the fatal mistake that the major hedge funds are suffering at this point. With their out-dated paradigm, the net effects of certain development in politics, economies and fundamentals within companies can be predicted. But the problem is that when the speed of information has approached instantaneous access to almost all market participants and normal people, such net effects no longer unfold in synchronization.
For example, even if we know that Brexit is going to cause economic slow down in Britain and that the longer term effect is going to be good for Britain relatively to European Union, the expected outcomes no longer unfold together slowly. The markets now discount the British Pound first, instantly reduced the valuation of the UK companies which in turn making those who like to position themselves to short the UK companies for the expected economic weaknesses facing a huge currency risk.
Where are the Trading Opportunities
Does this imply it is no longer possible to trade profitably in this environment? Of course not.
The best trading opportunities now are the moves generated by the mistakes of these biggest hedge funds. As they continue to use their old paradigm to make their trading decisions, they will continue to create pockets of price discrepancies that can be exploited effectively with short term trading. My Special Theory on Price Discovery (STOPD) outshines everything out there including techniques like market profiles or other more esoteric concepts in the current volatile trading environment, proving that there is a beautiful structure behind this seemingly chaotic world.
Happy Canada Day!
Brexit and Its Immediate Impacts
2016 Jun 24 Fri 11:31:32 | by
So much buzz on Brexit yet majority of people are not even aware of what it is. Seriously, many people I talked to this week do not even know about it. Maybe it is due to lack of interest of current events (i.e. record low viewership on news programs). Maybe normal people are just not willing to learn more about the world as they find it too intimidating or too complex to understand.
We’ve seen the immediate impact of Brexit already – 5% limit down on Dow and S&P overnight with European stock markets all dropping more than that. Since then the damage is controlled as we see many European stock markets are recovering from the initial losses slowly all day. The truth, however, is not reflected because we have government intervention all day so far to contain this Brexit aftermath.
Can the governments around the world keep disrupting the financial markets like today?
No, because that will discourage investors from investing in these major financial markets.
And no again because the central banks are very poor these days. They do not have enough ammunitions to last more than 3 days of heavy selling if government bonds, stock markets and currencies all going south at the same time.
Hence the talking heads and so-called financial analysts will talk trash this weekend based on the outcome of today’s closing prices of the financial markets. Whatever they say means nothing as that is not real analysis of the impacts of Brexit. No one knows what the real impacts are as we cannot tell if Brexit is contagious or not.
One thing we can tell is that volatility induces more volatility most of the time. So volatility will likely stay high for at least several weeks. Volatility favours bearish actions in stock market, so stock market will have a tough time going higher these two months. Uncertainties is also something always affecting stock markets negatively. Until the roadmap of Brexit is hammered out clearly by the government officials, stock markets will have a hard time holding up.
My premium members already know what I think of Brexit from my newsletter earlier this month. Now that Brexit is in place, major moves in currencies and the stock markets will be unfolded in the expected direction. This will be a great time for traders.
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