 |
Interview with Michael Harris
** Trading Mindset ** Q. Equally, profits and losses can have a significant psychological impact on traders. How do you deal with them? I have come to the point that I feel comfortable to pull the trigger and take a loss and I think that was a significant achievement of mine. If there are emotional states involved in dealing specifically with profits and losses this means that the individual has not reached the level of expertise required for consistent profitability and more importantly for managing other people’s money if we are talking about professionals. Q. Isabelle, 36 is a mother of two children and stays at home with them during the day. Her husband works full time and his salary meets all their financial obligations comfortably. Isabelle arranges an appointment with you to discuss trading – she has never traded before but knows you can help her get started with some initial guidance. What will be the 3 most important things you tell her in the appointment? Trading is a full time job. I think raising two children is also a full time job and Isabelle cannot have two full time jobs at the same time. I would tell her to wait until her children grow up and go to college. The markets will be there for her, hopefully. Q. Jack, 58 is a very successful business owner who wants to start trading as he slowly moves into retirement and away from work. He has arranged a similar appointment to Isabelle – would your advice to him be identical to Isabelle’s or different? Jack can certainly start trading although that is a bit late in his career. He must be very careful with money management and risk only funds he can afford to lose without impacting his standard of living after retiring. Q. Is trading as difficult as many people appear to make it seem? Yes, it is difficult because it is a zero-sum game, although some will try to convince you otherwise. What this means is that profits can be made only if there is a continuous influx of unskilled and inexperienced retail traders who are doomed to lose. Close to 95% of retail traders never make any serious money and almost 75% of them lose their trading funds to professional and highly skilled traders. Q. What are the 5 most important character traits of successful traders? Please feel free to briefly explain them. Intelligent, humorous, open minded, persistent, disciplined… Q. Trading can be a very solitary existence – especially in the early days when you are learning, and often feel as though you have no idea what you are doing. Do you find trading a lonely experience? Does this sit well with you? If not, how do you deal with the loneliness? Loneliness is a state of mind that intelligent people, especially those that have decided to get involved with the markets, must view as positive and rewarding and they must try to abolish the common view of the crowds that it implies an out-of-the-norm behavior. Remember that the crowd is the ultimate loser. Q. What would be or has been your most significant weakness in trading? Have you learned to overcome it or do you continue to work on it? My weakness at this point is that I cannot watch ten screens at the same time as I did 10 to 15 years ago. Growing older places a burden on your physical abilities but that is life. I can still watch four screens at the same time, no problem. Q. Assuming you are now consistently profitable, do you still have times when you experience self doubt over your ability to trade? If yes, how does this make you feel and how do you overcome it? Again, similar to the question about loneliness, I think self doubt is a state of mind that experienced traders have managed to isolate and completely block. Q. Ideally, we would like to be emotionless when we trade – we would certainly make more sound trading decisions more often. How do you control your emotions when assessing potential trading opportunities or open positions? Do you get very emotional at times? Let’s be honest. As long as we are human, there will be emotions. The issue is whether the emotions are properly developed with experience and controlled to point to the right direction. If you are greedy during bull markets and feel fear during bear markets that is good. The problem comes when the opposite happens and people fear bull markets but get greedy during bear markets. These are the typical emotional states of the crowd. They fell fear during rising stock prices, for example, and start feel greedy at the top of the market, when every insider and professional trader is selling to them. Q. If you experience a large profitable trade, do you reward yourself in any way? That is already the reward. Q. In your entire trading career, what are the biggest lessons you’ve learnt and how did you learn them? Risk just a tiny fraction of your trading capital, I suggest no more than 2%, on any single trade. I learnt that the hard way, thankfully very early in my carrier. Now for me it is the most important rule. Everything else comes after that in terms of importance. Q. To finish off, if you were to start trading all over again now, what would you do differently to what you did originally? I am happy I started as a fund manager and I did not go through the painful stage of trading a small retail account. I am also happy I used mechanical trading systems right from the start. So it is hard for me to think of a different and better way to start trading although I cannot discount there is one I am not aware of.
Michael Harris started developing mechanical trading systems in the late 80’s while working for Wall Street firms. He has been an active trader since 1989. He is the author of the best sellers "Short-term Trading with Price Patterns" (1999), "Stock Trading Techniques with Price Patterns" (2000) and “Profitability and Systematic Trading” (2005) and has written many articles for popular trading journals as an invited author. He is also the developer of the highly acclaimed trading software APS Automatic Pattern Search, a program that finds trading system automatically based on high-level performance criteria, and of the p-indicator, which is a new technical analysis indicator based on price patterns. Michael is currently the president of Tradingpatterns.com, a company he established in 1999 that specializes in the development of advanced pattern recognition software for position and swing traders and he is also the director of Harrison Investments, Inc., a fund management and financial consulting firm for offshore Institutional investors and hedge funds. Michael holds a Bachelors degree in Mechanical Engineering (Magna Cum Laude, SUNY at Buffalo 1981) and two Masters degrees, one in Systems Engineering (SUNY at Buffalo 1983) and another in Operations Research (Columbia University 1988). He has worked in the past for Bell Laboratories and several Wall Street firms. Visit his website at www.tradingpatterns.com Return to the Index of Interviews ...
|
