Rerun- Trade Greedy or Trade Scared

Boris Schlossberg

With summer doldrums in full force, as everyone lazes away the final few days of vacation, I thought it was good time to rerun this piece.

The other day my friend Jamie Saettele posted on Twitter that he made 180 pips on the recent EURUSD rise, to which I replied , “Me too, but mine were in 5 pips increments 🙂 . “ Jamie and I have been friends for a long time but agree on almost nothing. He is a solid Midwest conservative and I am the quintessential Northeast liberal. He trades almost exclusively off technicals favoring the arcana of Elliot Wave while ignoring all headlines. I almost always try to follow the story of the day and look at price action to support my decision.

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Most importantly Jamie is a decidedly long ball hitter while I will chip and bunt and scratch my way to the plate. Jamie’s trades are often multi-hundred point affairs that can last days and sometimes weeks. Mine rarely exceed 10 points and rarely take more than a few hours to resolve. Despite the differences we both manage to do ok. As Jamie tweeted back, “There are many ways to play the game.”

In trading there are indeed many ways to play the game, but there is only true way to success. You either trade scared or you trade greedy. In trading neither one of those terms is used pejoratively but is simply an honest assessment of your personal style. I, for example, will never make hundreds of pips from a trade. I simply don’t have the mindset to press my position. On the other hand I will never, ever lose more than 50 points on any trade. In short I am always trading scared. I am perfectly happy to increase my account by 5 pips at a time. That may seem arduous and tedious to some of you, but its perfectly fine for me.

Jamie on the other hand can milk the trade with enormous patience. He is perfectly happy trading “greedy” and although I haven’t looked at his account in ages I am sure his equity swings are much larger than mine. He may make in one trade what I make in fifty.

The point however, is that you need to know what kind of a trader you will be. You can trade scared or you can trade greedy, but you can’t do both. That’s the number one problem of any novice trader. They try to be greedy when it comes to profits and scared when it comes to losses. Alas it just doesn’t work that way. As Clint Eastwood once said, “A man’s got to know his limitations.” A trader must do the same.

Don’t Trade Like Tony Montana (Rerun)

Boris Schlossberg

Fly on any Jetblue flight from New York to Fort Lauderdale and a curious thing will happen. If one of the Direct TV channels happens to be playing Scarface, every seat with a man in it will turn to that channel within 5 minutes until the whole plane is watching the movie. Guys love Tony Montana — the swaggering, psychotic gangster immortalized by Al Pacino.

Who amongst us can forget that final scene when Pacino faces a crowd of assassins screaming “Say hello to my leeeetle friend!” as he fires off his bazooka while he takes a shot after shot refusing to go down. Despite the comic book violence, and the psychopathology of the main character, most guys view Tony Montana with a no small dollop of romanticism. He represents our universal desire to take on the world on our own terms no matter the cost. But the cost matters, because in the end, of course, Tony Montana gets blown to smithereens and Brina De Palma ends the movie with the shot of “The World is Yours” trophy fallen on the floor.

I’ve been thinking about the Tony Montana character lately, realizing that I sometimes do a bizarre imitation of the “say-hello-to-my-leeetle-friend” scene when I fight the tape in FX. Did you stop me out as tried to short the top? No problem I can take it. Here is another order to sell. Another stop? Give it to me. More? Go ahead I’ll take it all — I am stronger than the market, I can take it all. In any case, you get the idea. After a while, your trading account starts to look like Tony Montana’s body and you begin to realize that maybe this is not such a good idea.

This week’s moves in risk FX had many traders acting like mini Al Pacino’s with euro shorts refusing to accept the fact that the currency was not going to implode anytime soon. The short covering rally was one of the most vicious spikes in recent memory, but if you’ve been in the markets for a while you knew that it wasn’t that unusual. When the markets want to roll you can join them or get out of the way. If you chose to make a stand you will almost always be leveled to the ground.

Sun Tzu once said “He who knows when he can fight and when he cannot, will be victorious.” This is perhaps some of the greatest advice that we can absorb as traders. Very often we trade not to win but satisfy our ego. Taking on the world, or the market is a romantic idea that we’ve all been taught, but in finance, that is a very expensive way to conduct your business. As guys, we may all yearn for our inner Tony Montana, but as traders, we should wise enough to know better.