What you know about yourself is more important than what you know about trading

Readers may believe that you are exempt from feeling any emotions by following your trading rules. But unfortunately, everyone from day traders to investors to trend followers are human like me and our brains are built to respond to "the possibility of making money" even more than the making of the money itself.
Those feelings are aligned and in business with your level of intelligence, and most of your are "over-smart" to coin a phrase: you have CFAs, MBAs, and some PhDs. You have more intellectual brain power than almost all of your peers, friends, and colleagues put together, and your self-esteem is not unaware of this fact either. And that's we're it all starts to go south.
In an interview for my upcoming book, "The Inner Voice of Trading," I interviewed legendary traders such as Ed Seykota, Bill Dunn, Victor Sperandeo, Michael Marcus, and Linda Raschke for their insights on what it takes to become a professional trader.
Most are market timers of a sort and they've spend decades building their trading strategies. I wouldn't call them day traders nor what they do day trading, but I wouldn't call them investors either. They are stock traders and commodity traders. Some are systematized traders and others are discretionary traders. However, they all are traders who are emotionally compatible with their trading strategies. There is harmony between what they feel and how they act, and that is what you should aspire to as you lean to trade.
I discuss the impact of emotions on trading and how those feelings can betray those learning to trade to prop traders to hedge fund traders. What the pros have that you don't is a deep sense of self-awareness. They all had to go through what I call an "emotional hazing" to get where they are. I myself detail my own lessons in this regard in a chapter called "My Tuition." Calling it that, tuition, helps give me perspective and keeps me in student mindset, although I teach a Certificate program in Commodities at NYSSA.
Let's look at legendary trader Bill Dunn from DUNN Capital Management. What separates Dunn though from the pack, is the emotional constitution that has come from a decade of scientific research as a university professor of Physics long before he began trading (and Dunn's track record goes back to 1974). Dunn himself has a PhD in Theoretical Physics. But the fact is, Dunn remains an emotional being like the rest of us. As much as he is an expert in physics, he is an expert in self-awareness. Despite being fantastically insightful and intelligent, Dunn does not make trades outside of his model. We cover a great deal of this in the NYSSA Commodity Certificate Program available online.


A good set of trading rules will have agreeable emotional and financial outcomes. A trader is responsible for all that you do -- and all that happens to your equity. Your model must be calibrated for both financial and emotional payoffs. In that paradigm, you don't get to blame the market for losses or whipsaws in your equity. If you make money on a trade, you may be good or you may be lucky in the short-term. If you lose money, you may have poor skills or you may have had some bad luck. The only thing you can do is keep your losses small...and that's where the fun starts, because highly intelligent people don't like being wrong. It's not what they're used to.
To illustrate this, let's take a look at December COMEX Gold contract. The trendline has been broken after two drastically big down days, the day after which gold traded down to $1,700 per ounce. The volatility as measured by the Average True Range (ATR) has more than doubled over the last month or so, rising from $20 per ounce to over $44. That's a 120% increase.
Translating that into dollars, you are looking at $4,400 of directionless volatility per contract of gold (which is standardized at 100 troy ounces per contract). You can think of the ATR as the contract's personality.
Most professional traders typically risk a maximum of 1% per commodity per trade. In that regard, unless your account has $440,000 in net, unleveraged equity, gold futures are too volatile for you to trade now. In concert with the fact that the downtrend has been broken, you may still be bullish on gold on a fundamental basis. I am in that camp.
However, with the volatility up 120% and the uptrend broken, if gold trades down to $1,700 per ounce, the question isn't "who is to blame?" It's "How do the emotional payoff of your trading rules serve you?"
"The Inner Voice of Trading" is available for pre-order. The foreword was written by Ed Seykota and it is endorsed by Seykota, Bill Dunn, and Victor Sperandeo to name a few.