Setting Objectives
Chapter 3 of Trade Your Way to Financial Freedom is about setting objectives for your trading and creating a system to meet those objectives. Essentially you can't go anywhere until you know where you are going.
The first part of the chapter is an interview with Tom Basso, a trader, as an example of the self-assessment necessary to begin building objectives. I'm going to basically have an interview with myself where I answer these questions.
Self-Assessment
How much time during the day to you have to devote to trading?
My day starts around 7:45 (maybe an hour before that if I go to the gym) and I'm at work by 9 am. I work full-time, so I leave work for home at about 6 pm. There's an hour break for lunch when I normally go to the library and read or work on my trading blog. When I get home from work, there is about a 2-hour window for dinner and watching Jeopardy!, after which I might hang out with my wife, read, do housework, or just veg out until bedtime, which is usually sometime between 11 pm and 12 am. At most I have about 5 hours to spend on trading pursuits, but in reality it will be closer to 2 hours. Included in this is the fact that I can skim a little downtime at work to look at markets and read up on news.
When you are trading, how many distractions can you expect to have?
I don't expect a great deal, as most of the time on trading will be spent late in the evening at home or during the afternoon at the library, both with minimal interruptions.
How much time do you expect to devote to developing your trading system, to doing your personal psychological work, and to working on your business plan for trading?
Not having gone through a rigorous process like this before, I'm honestly not sure. I think a thorough assessment of my psychology and objectives wouldn't take a tremendous amount of time. I think I'm fairly aware of my limitations and strengths. I don't have a "business plan" so I'll more time to work on that. The mental work to create a system might be fairly quick, but the time to put it into practice will be considerable, particularly if I elect to program it using MetaTrader.
If I had to put a number on it, I think I could be ready to trade as early as February.
What are your computer skills? What skills did you need before you began this trading venture?
I have solid computer skills. I'm very comfortable with spreadsheets, database software, pretty much almost anything computer related. I can program in VBA and SQL as well as MQL, the proprietary language for MetaTrader. I'm going to skip that second question since I don't know if I've actually started a "trading venture" yet.
What do you know about statistics?
I know a fair amount about statistics including the basics (mean, median, mode, normal distribution, etc) and more advanced ideas like regression analysis, hypothesis testing, and sampling. I actually like statistics and put together a small study of FX prices during my last foray. I focused mainly on prices by tracking average movements by day and hour.
How would you rate your market knowledge? Here you should include what you know about trading mechanics, what moves the markets, how to execute orders effectively at low cost, which trading indicators you might need, etc.
From playing around in the FX market before I know about the bid-ask spreads and how to place different types of orders and how to use leverage. I know there are times when the bid-ask spread is so large that you can't trade at a low cost. I've done a lot of reading about technical analysis so I have an idea of what certain indicators represent and when they might be helpful. I think my knowledge is good for a non-professional.
What are your psychological strengths and weaknesses, especially in terms of trading system development?
First the weaknesses... I know I will lean toward trying to optimize test results to match the data set, attempting to get a perfect system. I probably will spend so much time trying to perfect any one idea that I won't work on other, maybe more promising ideas. I may not spend as much time as I should on understanding the principle I'm trying to exploit and focus too much on getting the code right.
For the strengths, I think I'm analytical and almost always looking for ideas. I'm patient and I like to do research particularly when it comes to data. I'm comfortable with numbers and doing data manipulation using spreadsheets and databases.
How about your strengths and weaknesses in terms of your personal discipline?
First the weaknesses again... I'm not very tolerant of failure or a lack of success, so I get down on myself quite easily. I focus so intently on details sometimes that I might miss a larger idea or goal. I tend to look for the potential negative in a situation before I will the positive aspects. I can be stubborn and unwilling to concede that my ideas are not working.
For strengths, I can work for a long time towards a goal. I can follow a plan pretty well. I'm usually deliberative, so I won't make rash decisions.
Do you tend to get compulsive (i.e., get caught up in the excitement of trading), have personal conflicts (i.e., have a history of conflicts with your family, at your job, or during past trading experience), or have any emotional issues that constantly crop up, such as fear or anger?
I have had times in the past where I did get into the excitement of having a position on that I didn't focus as much on what I was trying to do. I just enjoyed the fun of playing the game. I wouldn't go so far as to call it a tendency, though. I don't think I have a "history" of conflict as its intended by the question. Of course my wife and I have differences that lead to conflict but its far from an ongoing state for us. At times I get annoyed with work, but it is typically temporary in nature. As for emotional issues, I do get quite angry at times usually with work. Sometimes more broadly I feel anger, or maybe what be closer to disappointment with situations that aren't as I'd hoped or prepared for them to be. I think it would be nice to talk to a counselor or therapist, just to vent my feelings since I have a tendency toward not expressing my emotions. I try to stay level-headed as much as I can.
Based upon your personal inventory, what did you need to learn, accomplish, or solve prior to beginning trading? How did you do that?
That's a huge question. I don't think I know precisely what I need to work on to start trading, but I have an idea. The biggest thing is to curb the need to be right. Part of my personality is wanting to do thing the right way to produce the right outcome. I need to accept that quite often, I will be wrong. In fact, in trading, I'm probably going to be wrong more often that I am right. I think what held me back before is the fact that I focused on creating a perfect entry and was so discouraged when I found that most of my entries failed. Along with that need to be right is to be able to explain everything. Particularly in FX, things just move, sometimes without any accompanying news or reason. I think in the past I've let that fear of not knowing why things are doing what they are prevent me from continuing to trade.
I don't know how to overcome these things. I think part of the answer lies in blogging about my experience to reflect and process the goings on. I feel as if all I can do is keep trying to play the game.
Objectives will be explored tomorrow.
The first part of the chapter is an interview with Tom Basso, a trader, as an example of the self-assessment necessary to begin building objectives. I'm going to basically have an interview with myself where I answer these questions.
Self-Assessment
How much time during the day to you have to devote to trading?
My day starts around 7:45 (maybe an hour before that if I go to the gym) and I'm at work by 9 am. I work full-time, so I leave work for home at about 6 pm. There's an hour break for lunch when I normally go to the library and read or work on my trading blog. When I get home from work, there is about a 2-hour window for dinner and watching Jeopardy!, after which I might hang out with my wife, read, do housework, or just veg out until bedtime, which is usually sometime between 11 pm and 12 am. At most I have about 5 hours to spend on trading pursuits, but in reality it will be closer to 2 hours. Included in this is the fact that I can skim a little downtime at work to look at markets and read up on news.
When you are trading, how many distractions can you expect to have?
I don't expect a great deal, as most of the time on trading will be spent late in the evening at home or during the afternoon at the library, both with minimal interruptions.
How much time do you expect to devote to developing your trading system, to doing your personal psychological work, and to working on your business plan for trading?
Not having gone through a rigorous process like this before, I'm honestly not sure. I think a thorough assessment of my psychology and objectives wouldn't take a tremendous amount of time. I think I'm fairly aware of my limitations and strengths. I don't have a "business plan" so I'll more time to work on that. The mental work to create a system might be fairly quick, but the time to put it into practice will be considerable, particularly if I elect to program it using MetaTrader.
If I had to put a number on it, I think I could be ready to trade as early as February.
What are your computer skills? What skills did you need before you began this trading venture?
I have solid computer skills. I'm very comfortable with spreadsheets, database software, pretty much almost anything computer related. I can program in VBA and SQL as well as MQL, the proprietary language for MetaTrader. I'm going to skip that second question since I don't know if I've actually started a "trading venture" yet.
What do you know about statistics?
I know a fair amount about statistics including the basics (mean, median, mode, normal distribution, etc) and more advanced ideas like regression analysis, hypothesis testing, and sampling. I actually like statistics and put together a small study of FX prices during my last foray. I focused mainly on prices by tracking average movements by day and hour.
How would you rate your market knowledge? Here you should include what you know about trading mechanics, what moves the markets, how to execute orders effectively at low cost, which trading indicators you might need, etc.
From playing around in the FX market before I know about the bid-ask spreads and how to place different types of orders and how to use leverage. I know there are times when the bid-ask spread is so large that you can't trade at a low cost. I've done a lot of reading about technical analysis so I have an idea of what certain indicators represent and when they might be helpful. I think my knowledge is good for a non-professional.
What are your psychological strengths and weaknesses, especially in terms of trading system development?
First the weaknesses... I know I will lean toward trying to optimize test results to match the data set, attempting to get a perfect system. I probably will spend so much time trying to perfect any one idea that I won't work on other, maybe more promising ideas. I may not spend as much time as I should on understanding the principle I'm trying to exploit and focus too much on getting the code right.
For the strengths, I think I'm analytical and almost always looking for ideas. I'm patient and I like to do research particularly when it comes to data. I'm comfortable with numbers and doing data manipulation using spreadsheets and databases.
How about your strengths and weaknesses in terms of your personal discipline?
First the weaknesses again... I'm not very tolerant of failure or a lack of success, so I get down on myself quite easily. I focus so intently on details sometimes that I might miss a larger idea or goal. I tend to look for the potential negative in a situation before I will the positive aspects. I can be stubborn and unwilling to concede that my ideas are not working.
For strengths, I can work for a long time towards a goal. I can follow a plan pretty well. I'm usually deliberative, so I won't make rash decisions.
Do you tend to get compulsive (i.e., get caught up in the excitement of trading), have personal conflicts (i.e., have a history of conflicts with your family, at your job, or during past trading experience), or have any emotional issues that constantly crop up, such as fear or anger?
I have had times in the past where I did get into the excitement of having a position on that I didn't focus as much on what I was trying to do. I just enjoyed the fun of playing the game. I wouldn't go so far as to call it a tendency, though. I don't think I have a "history" of conflict as its intended by the question. Of course my wife and I have differences that lead to conflict but its far from an ongoing state for us. At times I get annoyed with work, but it is typically temporary in nature. As for emotional issues, I do get quite angry at times usually with work. Sometimes more broadly I feel anger, or maybe what be closer to disappointment with situations that aren't as I'd hoped or prepared for them to be. I think it would be nice to talk to a counselor or therapist, just to vent my feelings since I have a tendency toward not expressing my emotions. I try to stay level-headed as much as I can.
Based upon your personal inventory, what did you need to learn, accomplish, or solve prior to beginning trading? How did you do that?
That's a huge question. I don't think I know precisely what I need to work on to start trading, but I have an idea. The biggest thing is to curb the need to be right. Part of my personality is wanting to do thing the right way to produce the right outcome. I need to accept that quite often, I will be wrong. In fact, in trading, I'm probably going to be wrong more often that I am right. I think what held me back before is the fact that I focused on creating a perfect entry and was so discouraged when I found that most of my entries failed. Along with that need to be right is to be able to explain everything. Particularly in FX, things just move, sometimes without any accompanying news or reason. I think in the past I've let that fear of not knowing why things are doing what they are prevent me from continuing to trade.
I don't know how to overcome these things. I think part of the answer lies in blogging about my experience to reflect and process the goings on. I feel as if all I can do is keep trying to play the game.
Objectives will be explored tomorrow.
posted by Young Pip at 1:34 PM
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