Trading Questionaire

March 26, 2008


The market feels like it’s at a critical juncture. It rallied nicely last Friday and this past Monday and then took yesterday off. Today it dropped, and although a little backing and filling is fine, too much of a pullback is a sign the market just isn’t ready to launch onward and upward.
The short term trend is in question while the intermediate term trend remains neutral. The chart below shows the range the SPX has traded in the last two months.
The big picture trend remains solidly down, and we still expect much lower prices this summer and fall. Shorter term however we still slightly favor the long side.

Yesterday I posted a questionnaire by Kenneth Reid. Its purpose was to assess your odds of success based on certain characteristics and attitudes you possess. You can contact the author at doc2@daytrading-doc.com if you have questions or would like to employ him as a “trading coach.”

If you look at which questions you gave 3’s and 4’s to, I’ll bet there is a pattern, and if you’re struggling, perhaps the exact hurdles you need to overcome were revealed by answering the questions. Below I take each question and offer my random thoughts and comments.

In trading, I have difficulty learning from my mistakes.

You think you wanna be a trader…you go through the motions of being a trader…but you’re afraid to succeed. You won’t do what is necessary to succeed.

I don't review past trades much because I'm more focused on the future.

You’re not focused on the future; you’re lazy, and since you wing everything, analyzing past trades doesn’t seem useful. In fact you probably don’t have a clearly definable methodology that can scrutinized in the first place. Stop flying by the seat of your pants.

I pay more attention to my P&L on good days.

You’re trading in the moment rather than with a game plan that will make you profitable over several months. You’re emotionally clinging to your day to day performance rather than focusing on the bigger picture. A baseball player doesn’t lament about going 0-for-4 one day or get overly excited about going 2-for-4 because it’s along season. One or two days doesn’t make a career. Adopt the same attitude.

I set my stops intuitively and adjust them as necessary.

You don’t have a set methodology. You’re making things up on the fly, and while this may work some of the time, ultimately it will lead to failure.

When trading equities, I often use margin to boost my returns.

You’re reckless. Go ahead and use margin intraday, but there really is no reason to make a habit of using it overnight.

My account value fluctuates a great deal.

On a short term basis, this is no big deal; you’re going to go through such periods. But if it happens all the time or for extended periods of time, you haven’t realized your trading style works well in some environments and not well in others, and since you feel you need to trade all the time, you aren’t toning things down when you obviously should.

I trade more often than I intend to.

Sounds like you enter the day without a clear cut plan – not just regarding your methodology, but also how you manage yourself during the day. It’s not uncommon for traders to have rules such as: “if I have three losing trades, I take a walk for 15 minutes” or “if I have 5 losing trades, I take an hour off” or “if xyz, I turn my computer off; I’m done for the day.”

You don’t have a boss, so you have to manage and discipline yourself.

I enjoy anticipating the next big trading winner.

You’re predicting the next move rather than simply trading what unfolds. You’re putting yourself in a position to be either right or wrong which will lead to joy or sorrow. In the long run, you are doomed to failure. No one, and I mean no one, can consistently predict the market. But we can take high-probability set ups, control our risk, and let the law or large numbers play out.

I tend to have open positions in several different markets at the same time.

You’re not exactly keeping things simple.

I have had margin calls.

So did I when I first started trading but not any more.

You’re letting small losses grow. Using small amounts of margin once in a while is fine if the situation calls for it, but getting a margin call is inexcusable.

I like to anticipate the market moves and get in ahead of everyone else.

Again, you’re predicting what will happen rather than trading a predetermined set up.

I tend to exit too early.

This is because you’re making things up on the fly rather than trading a specific methodology. You probably look back in hindsight and say: “there really was no reason to exit that trade.”

Well, if you fly by the seat of your pants, you will sometimes get lucky and exit at the right time, but more often than not, your exits will be random, and you’ll regret many of them.

I really dislike it when the market doesn't do what I expect it to.

You shouldn’t be expecting in the first place. Again, you’re predicting what will happen and therefore setting yourself up to be right or wrong rather than trading the odds.

Although I have a small account, I believe I can support myself as a trader.

You have no idea what trading is all about or how difficult it is. You have totally unrealistic expectations.

When a trade runs against me I will double down when I know I'm right.

When you know you’re right?? So you think you’re smarter than the market? You think you know what should or is supposed to happen, huh? Give me a break. If you were right, you wouldn’t be down in the first place.

I aggressively increase my position size in fast moving situations.

This is somewhat reckless and should only be done by day traders who plan on quickly exiting. There’s nothing wrong with sizing up when you’re in a strong move. Just don’t expect to hold very long.

I trade at a proprietary trading office.

Not sure why this would take away from your trading. In fact I think it would help more than it would hurt.

I like to trade just about every kind of opportunity the market throws at me.

You don’t have a plan…you’re flying by the seat of your pants…you’re not keeping it simple.

I seem to miss out on big moves for some reason.

Because you’re wearing too many hats at the same time…or because you’re easily distracted…or because you don’t have clear cut system…or because you’re overanalyzing things and therefore talking yourself out of trades because of conflicting info…or because you’re predicting the market’s moves, and in reality no one knows what moves are going to be the big ones. After all, every big move started as a small and innocent move that just kept going.

I get nervous when I'm up in a trade and tend to close it out quickly to protect profits.
That’s because you’re trying to figure out what the market will do, so every trade has become a test – are you right or wrong. If you trade from a probability standpoint, then you know ahead of time 4 of 10 trades will be losers. You accept this and therefore aren’t extremely emotional when in a position.

You don’t have a clearly definable system. You’re making things up as you go.

No comment needed. Find something that works and that jives with your personality and do it over and over and over. And ignore everything else.

Some days I get really upset with the market.

Getting upset with yourself is fine; there’s nothing wrong with a little competitiveness. But getting upset at the market – something you have no control over – is like being mad it’s raining outside. There’s just no point in harboring such negative feelings.

I feel like I'm my own worst enemy at times.

I actually don’t think this is a bad thing. At least you’ve taken responsibility for what happens rather than blaming others.

I see good entry and exit opportunities in hindsight, but I have a hard time seeing them in real time.
Again, you’re making things up as you go; you don’t have a clear cut methodology. Everything is perfect in hindsight when you play Monday morning quarterback, but in the heat of the battle, you’re blind to set ups because you don’t know what to look for.

I find I get whipsawed a lot.

You’re going to have bad days and weeks, but at some point in time, you gotta realize your methods are probably conducive to trading a specific environment, and the market isn’t cooperating. There’s nothing wrong with taking a break. Use the whipsaws as a hint to take a little time off.

I tend to buy near tops and sell short near bottoms.

If you do this a few times, no big deal. If you do it over and over and over, then there’s something wrong with your methodology.

When I feel that I'm 180 degrees out of sync with the market I trade harder to make up for it.

Revenge trading will ultimately doom you. Take a break…take a walk…take a day off. If you’re in it for the long haul, you shouldn’t feel guilty for taking time off when you’re out of synch. The market closed for 6 months during WWI and for a couple days after 9-11. Otherwise the market hasn’t closed and it won’t close; it’ll be here when you get back.

I second guess my trading signals.

You don’t trust or have confidence in yourself or your methods, and this probably leads to hesitation and the missing of many great moves. Success breads confidence, but you need confidence to enter a position in the first place.

I don't use a trading system, per se, I trade intuitively.

You don’t have to be a 100% mechanical trader, but a clearly defined methodology is a must. You should be able to explain in just a couple sentences how you trade.

When I'm in a losing trade I start to feel upset and stupid.

That’s because you aren’t following a clearly defined methodology. You’re either predicting what will happen and therefore putting yourself in a position to be right or wrong, or you’re making things up on the fly.

Instead, know and accept that 4 of 10 trades aren’t going to work out; then a single losing trade wouldn’t bother you.

I really like the excitement of trading; it is my dream job.

There’s nothing wrong with truly liking what you do – as long as you’re not reckless and haphazard. I don’t know too many successful traders who dislike what they do.

I have had a few months in which my account value dropped 25%.

Over the courser of many years, if you have a couple very bad months, I don’t think it’s a big deal, but if they happen often, you’ll obviously run out of money. Everyone blows up or at least gets caught in a situation and produces a huge loss at some point. As long as it doesn’t become a habit, welcome to the club.

Sometimes I freeze up and the market just runs away from me.

Very simple. You lack confidence…or you don’t trust yourself…or you don’t trust your signals. In two words, you hesitate.

You must accept that not all trades will work out, and if you have a losing trade, it’s not because you’re an idiot, it’s because it was just one of the 4 of 10 trades that went against you. It happens, but you must accept the nature of trading before you’ll confidently jump in. If Alex Rodriquez consciously considered the possibility he’d strike out, he’d never step into the batter’s box.

I can usually tell what the market is about to do.

You’re predicting, and while you will be right here and there, it’s not a good habit to get into.

I feel so great when I'm winning!

Alex Rodriquez will hit 50 home runs this coming season. Unless it’s a game-winner, you won’t see him get too excited about home run #8 in week 4 of the season.

Once/month reward yourself for a job well done, but you really shouldn’t get too thrilled with a winning trade. Take everything in stride.

Something always happens to make me miss out on great trades.

You’re either wearing too many hats at the same time and are therefore not paying attention, or …

You lack confidence and therefore purposely find something to distract you. so you’ll have an excuse as to why you didn’t take a trade.

The market is manipulated, so it is hard to make money trading.

You’ll never make it as a trader or in life if you refuse to take responsibility. The buck stops or starts with the man in mirror.

I'm frustrated that I'm not living up to my potential as a trader.

Hmmm….nothing wrong with having a burning desire to succeed.

At crucial times I overlook important options and alternatives.

I’m not sure what this means. A baseball umpire has to make three calls: ball or strike, fair or foul, out or safe. That’s it. In trading, you’re either in or out of the market, and if you’re in, you have to decide to stay or go. It’s not that hard. There aren’t many options when you keep things simple.

I prefer to figure things out for myself rather than mindlessly follow instructions.

Hmmm…I would be a 10 if it was available, but I can see how sticking with something that has proven to work is probably better than reinventing the wheel.

I like to move from one exciting thing to the next.

You lack focus…or you’re afraid to succeed…or you’re keeping yourself busy and occupied so you can avoid getting too in depth in one area…or you have ADD.

I don’t like rigid systems or situations.

Americans by nature love their freedom and resist any type of authority that funnels them like sheep through a system, but as it relates to trading, it’s better to have a rigid system that is followed without deviation than to fly by the seat of one’s pants.

I tend to shoot first and ask questions later.

Hmmm….not sure I agree with the implications of this statement. Great traders do not hesitate; poor traders over-analyze.

If the author of this questionnaire is hinting at flamboyance and carelessness, then fine, but traders can take lessons from great athletes who act without contemplating.

I like to take the road less traveled.

This hints at your tendency to be a conformist who prefers to figure things out on your own. In some industries, this may serve you well, but if after 6 months you aren’t consistently profitable, you may want to consider giving in a little and taking instructions from others.

When driving, I roll through stop signs.

Hmmm….is the author suggesting those who roll through stop signs lack patience or have a personality type which is not conducive to trading profitably? If so, I disagree. Many successful traders I know think fast, act fast and are a little on edge. There’s nothing wrong with that. In this business, you either eat or be eaten.

I have a hard time stepping away from my trading screen during market hours.

So you’re an addict? As long as you don’t over trade or trade for the trill of it instead of waiting for high-probability set ups, there’s nothing wrong with not wanting to leave the playing field.

I feel like I should be further along in my life.

Hmmm….Ray Kroc was in his 50’s when he bought out the McDonald’s brothers and starting expanding MCD. It’s never too late to begin. Sometimes life gets in the way, and things are delayed, but if you can draw a line in the sand and say: “I’m not happy with the way things are, and I’m willing to refocus and work towards my goals,” then what’s the problem with admitting you aren’t in life where you want to be.

I collect a lot of trading info that I plan to look at some day.

You over-analyze…you want to figure everything out…you want to put everything in a nice neat box…you lack focus…you may have ADD.

I can get very enthusiastic about new projects.
You’re afraid to succeed…you’re afraid to commit to one thing…you lack focus…you like using “other” projects as a reason you’re not succeeding at your current project…you might have ADD.

I have a nagging sense of impending doom.

If this really is true, you probably have a hard time getting out of bed in the morning, and with this attitude, it’s hard to picture you succeeding at anything.

I enjoy dangerous activities or hobbies.

Hmmm…not sure what the definition of dangerous is. I go downhill skiing on some pretty tough terrain. For some, it may be dangerous. For me, it’s like riding a bike. I also rock climb quite a bit. Again, it could be dangerous, but if you have the right equipment and are with the right people, there’s little danger involved – although it still takes some guts. I understand the author drawing a connection between thrill-seekers and recklessness in the market, but as I’ve stated a few times above, I’d rather be someone who enjoys activities that really gets my heart pumping than walks in the park.

The most dangerous thing I do is drive on windy mountain roads in snowstorms with little visibility. Does this count?

My trading desk has piles of papers.

This is another statement which hints at your ability to focus or your tendency to be distracted. Perhaps you stay cluttered so you’ll have an excuse to fall back on (“I’m too busy, I’m too unorganized”) or maybe you have ADD and can’t focus.

Crisis brings out the best in me.

My answer to this statement was a ‘4’ because I do perform much better under pressure, but I understand why this trait may not be good…because I may seek out a crisis simply because it’s more challenging and fun.

I can make things worse by trying too hard.

Not exactly sure what this means. Does it hint at your laziness…by trying harder, things will get worse, so therefore, don’t try so hard? Not sure, and the author needs to define “trying hard” because some traders think they’re trying hard because they’re putting a lot of time in, but in reality, they’re just going through the motions. Spending lots of time makes them feel like they’re working hard, but they’re actually very unproductive.

I sometimes think I should hire someone to trade my system.

You do everything right, but you just can’t pull the trigger to enter. This is one last hurdle you must overcome.

I get very nervous during tests, so I peeked at the scoring data below.

You want to score well because you’re more worried about what people think or say than anything else. You aren’t comfortable just being you.

Love to hear your comments on the message board.

courtesy of
Jason Leavitt

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SP-500 vs. 10-day MA of the put/call ratio… 3/16/08

SP-500 vs. 10-day MA of the put/call ratio… 03/09/08

Spikes in the put/call indicate fear has quickly set in, but an elevated 10-day moving average of the put/call suggests fear hasn’t just spiked, but instead has been growing steadily. The last two times the 10-day got to the current level, the market bounced (notice the 10-day tops in Nov and Jan correspond nicely with the SPX bottoms). This tells us initiating new shorts right now probably isn’t a good idea unless you are ready to cover quickly if the market turns around. The risk/reward just isn’t as favorable as it was just a week or so ago.