Learn to Process the “Noise” to Improve as a Trader

BellaGeneral Comments3 Comments

I received this email from a prop trader:

I’m very disappointed with the way I traded today. I had two more paragraphs written here explaining some potential causes for my under performance. When I started to write the third I realized how simple it all is. To summarize those thoughts, I get worked up and anxious when trading on the desk. It starts with my morning commute, being surrounded by so many seemingly miserable people really gets me down on my way to work. Then, when on the desk, I often have problems when I witness other traders around me reacting emotionally to their trading. Sometimes when I hear other people’s ideas I get confused by them and sometimes I actually still try to trade it – this can’t continue.

What it comes down to is that I need to bring attentiveness to the forefront. When I come in every day, I have an idea of what I want to do in the market. I visualize multiple scenarios. I like to imagine, the extremes in either direction, as well as what I will see if there is no opportunity. I think about what I would do if it trades a certain way or I see a certain thing. I should really only make a trade that makes sense to me. If what I prepared for does not set up in a way I can trade it, I should not make any trades. No one is forcing me to trade, but so often being on the desk makes me feel like it’s my job to trade stocks, and if I’m not trading, I’m not working.

I know how to trade. I know how to make money. I get so worked up about risking pennies that I try to anticipate moves and cheat against levels. (expletive deleted) that. I only want to trade setups that make sense to me, and I will give it 15-30 cents of risk if it is needed. I know I can make money trading 15-30 minute trends. My problems often come about when I have conviction in a stock and fight with it a million times trying to cheat for pennies. Like today in IRM, I piker’d my way out of a great trade and ruined my ability to make money by stopping out……..

I need to stick to rehearse my trading plan, avoid the noise around me, and execute when the time comes. During the 80% of time I am not executing, I should be preparing myself or learning something new.

Another thought keeps coming back to me. I want to try trading remote. The days I trade from home in my personal account, I do very well. Trading in a bubble may solve many of my problems and help me maintain focus. I would probably be happier as well.

Bella’s email response

I have heard your thoughts about the “noise” before.
This is probably the 100thplus time I have read an email like yours.
It is not a very well thought out position.
The “noise” around you is information.
You have to learn how to use that “noise” as useful information.
That noise is just like a chart.  Or the ticks. Or news.
Right now you are not using the “noise” to your benefit.
This is something a good trader learns how to use for his benefit.
For example I do not follow every idea on my desk.
But I am grateful for the ideas.
It is up to me to use those ideas to my benefit.
It is up to me to learn to use the “noise” to my benefit.
Some ideas I should disguard.
Perhaps most.
But that does not mean that overall the “noise” will not help me find more excellent risk/reward trading opportunities.
Just like every time an idea pops up on a trading filter I do not trade it.


One Good Trade

no relevant positions

3 Comments on “Learn to Process the “Noise” to Improve as a Trader”

  1. I found your most recent post very interesting. 
    What you answered was spot on. The same way one goes through charts and turns down ideas constantly (almost all charts that I scan I turn down for trade ideas), “noise” should fall into the same category.

    If I can add one point that might help the above trader. There are two types of confidence in trading. One, knowing what type of stock, setup, risk/reward, and style you trade and entering those ideas when you see them. Two, (I think this is harder to achieve and takes more confidence/discipline) having the confidence to turn down ideas. 

    The reason why I find this harder is, everyone with a little experience knows what a great setup looks like (clean chart, volume, order flow, etc…). Whats hard is when you see most of the concepts for a winning trade there but just one of the factors is off – great chart but no order flow from the level two or great chart and order flow but a resistance on a long trade right above. It takes REAL confidence to say to yourself- THIS IS NOT FOR ME NOW. Maybe it will resetup with all my factors but for now it’s just not for me.

    When you start taking trades when not all factors in your setup/style line up – you lose, and it starts to sap your confidence. When that happens you can’t even realize your real great setups. You start guessing at every idea that has a couple of factors (but not all) to it and your toast.

    Hope this adds something.

  2. I often find lots of nuisance noise at home: wife, kids, visitors, postman,,,,even some days a sloppy pre-screen routine because there’s no-one to tell me off: “it’s all up to me”. It helps reminding myself that my job is to make good trades, not excuses. And if there was something I’d rather do with my time, then that’s what I’d be doing. 

    There must be a good evolutionary reason for the tendency to see greener grass on the other side, but most often, in my case anyway, it’s a feeble excuse for simply not doing my job properly.

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