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Interview with Brent Penfold - Part 3
** Trading Mindset ** Q. Equally, profits and losses can have a significant psychological impact on traders. How do you deal with them? Psychology is important, but in my mind it ranks third behind money management and methodology. It’s not a problem for me as I average about one trade a day somewhere in the world and because I risk less then 1% of my account balance no individual result is going to get me too excited or too despondent. 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? 1. Learn about Risk-of-Ruin. This is the real door way through which you gain solid trading knowledge. 2. Be patient. Don’t get sucked into having to trade right away as +90% of all active traders lose…so why rush to become a loser? 3. Learn from a person who actually trades. Only take advice if they can show you their real time results of the methodology that they are going to teach you and that they personally trade. 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? Identical. Q. Is trading as difficult as many people appear to make it seem? Trading is simple. It’s the knowledge to know what works that’s hard. Q. What are the 5 most important character traits of successful traders? Please feel free to briefly explain them. 1. Humility. The best traders are the best losers. And losing often is a humbling experience. They know their ability to take every loss is a keystone of their success as they know that being the best loser makes then long-term winners. Successful traders never move stops and accept losing as part and parcel of trading. 2. Patient. They don’t look for a home run trade but are happy to chip away. 3. Conservative. They under trade, under trade and under trade. They risk very little of their account on any individual trade. They know how to keep their risk-of-ruin to zero percent. 4. Inquisitive. They are always looking out for new ideas as they know markets can and do change. They’re always looking to improve their edge and not be ambushed by structural change in market conditions. 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? It would be lonely if I wasn’t running my web site. However since I have the business I find it gives me interaction with people and an opportunity to present at Expos, which gets me out of the house. I also have a couple of friends with their own hedge funds and we usually chat each week. 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? Poor money management and being ignorant of risk-of-ruin. Applying sensible money management helps me keep my risk-of-ruin to zero percent. 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? Certainly. I’m currently in a 6 month draw down and I can assure you its no joy. All I can do is follow my trade plan which includes measuring my models’ equity momentum. When they turn negative I step to the sideline and wait for things to improve. This is my fail safe system to ensure I don’t suffer a catastrophic event. 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? Being mechanical helps to manage my emotions. Usually if people find they are riding the outcome of an individual trade they are risking too much of their account. Q. If you experience a large profitable trade, do you reward yourself in any way? No. Q. In your entire trading career, what are the biggest lessons you’ve learnt and how did you learn them? Trading with a statistical edge by being mechanical and learning about the importance of money management and risk-of-ruin. Q. To finish off, if you were to start trading all over again now, what would you do differently to what you did originally? Learn all about risk-of-ruin before opening an account!
Brent Penfold is a full time futures trader. He began his career 1983 as an institutional bank dealer and today specializes in trading global index futures. Brent is the author of the best selling book Trading The SPI and publishes the daily newsletter IndexALERT™. He is a popular speaker who has presented to the Australian Technical Analysts Association and the Traders and Investors Expos around Australia. Brent is a licensed futures advisor and holds a Master of Commerce (Finance) degree. Return to the Index of Interviews ...
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