We’re active traders (probably 80% day-trade, 20% swing) and quite aware that the burn-out (and blow-out) rate in our business is quite high. It’s a given that trading is stressful, probably more stressful than many jobs out there, and because of this there are certain measures we’ve taken which have helped us avoid burning out (so far anyway, going on 14 years trading, and 5 years since we founded HCPG).
1. The most important decision for us was to become trend traders. For the most part we’re breakout traders. Even when we do support longs we’re buying oversold markets bouncing on longer-time bull-trends. We sometimes engage in contra-trend trades but rarely for long stretches of time. Why? Because going contra-trend for extended periods of time is exhausting.
Have you ever noticed those that are bears in bull markets cover way too early when the tide finally turns? Or perma bulls in bear markets who sell into the first real rally when things are just getting started and go into cash very early in the rally? It happens all the time. They’ve been underwater in their positions for so long that when they finally go green they’re psychologically burnt out and running on empty. They take meagre profits when the run has just started. This isn’t to say that contra-trend traders don’t make any money. We’ve always said that there are many ways to make money in the market and for the most part it’s a personal preference. But it’s not for us –we find contra-trend trading too exhausting. Kudos to those who can do it long-term. In life often the easy path is the wrong path. In trading the easier path (trend-trading), we’ve found, is the right path.
2. We’ve accepted the idea that we don’t have to catch every turn. There are times, for example, when we feel the market is very bullish but extended. Instead of looking for break-out failures the next day we instead chill and wait for the long-setups to get ready. In the beginning of our career we weren’t like this — we were hungrier and wanted to catch every turn up and down. As the years passed though we slowly decided the extra stress of constantly switching directions didn’t warrant the extra profits. In the end it’s all about risk (stress)/ reward (trading profits). In extreme choppy range-bound markets we still go back and forth but in strong trending markets we try to stick to one direction.
For example, as you can see in this chart of the $SPY it was smart to trade range-bound while in the box, but once we broke out of the range we were happy to stick to the trend and not try to go long/short at every small opportunity.
3. Trying to find a balance between work/life is always a juggling act. Our goal now is not to maximize profits but to find some form of balance between a good income and a good life. A good life for us is one that consists of retaining a certain economic comfort while still having enough time to spend with family, friends, on leisure, and exercise (post on home gym relevant to this point). To state the obvious, consistent balls to the wall will wear you out. There’s a time for intense work but there’s also a time to step back and balance out the work/life equation. One of the most useful points taught in any ECON 101 class is the concept of the law of diminishing returns. Our thinking is not to maximize PnL but to find that sweet spot between work/life that will most efficiently allow us to maintain a good life-style (money coming in via trading) while having enough free time to enjoy life.
Easier said than done of course but finding the balance between work and life is one that we’re constantly trying to achieve.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.