Applying Futures Trading Personalities in Investing

I was reading the Optimus Futures Blog (I don't trade futures anymore because of that I am unable to commit such a huge capital base anymore, but thanks Matt for all the help previously when I was your client, if I ever go back into futures trading, you'll be the first broker I'll look for :) )

I was reminded of the personalities of what a trader should adopt and I believe investors would do good to learn some as well.

No, I'm not talking about going into short term trading (it is not for everyone) but how to keep you sitting on your hands and not make investment decisions you'll regret later on.

In this post, I'll adapt those suggestions into something more for investing than trading (though very similar, I say).

This is the ideal personality which it is hoped that you'll as close to it as possible (rather difficult but it takes time to slowly get there) and well, don't worry, doesn't mean you aren't ideal you can't do it but rather it helps much more. :)

Confidence without ego

You want to have confidence in your investing rules and believe in your investing framework. This enables you to buy in during periods where everyone is strongly against what you might wanna do (i.e. buying in during a crash or even sitting on your hands while everyone is buying in crazily during a bull run) as you see them without hesitation or doubt.
However, when you gain a high level of confidence that you develop a big ego, things can become dangerous. Investing with ego means that you believe you have superior abilities when it comes to picking good trades which then leads to emotional trade attachment (raging why the market doesn't move as you will and continue to hold a lost cause instead of cutting losses or buying against the market).

"So while confidence is required, ego is a character trait that might end up destroying you."


Humbleness without fear

Being humble means that you accept that you don’t know what is going to happen and that you have no control over the outcome. 
A humble investor follows his investment framework but understands that even the best setup can and will fail over and over again.

However, humbleness can easily change into fear which might cloud your investment decisions. An investor who constantly fears that he could end up with a bad investment decision, which results in a losing money (notice I said results in, losing money doesn't mean you made the wrong decision) and will often miss good opportunities (Risk management helps with fear too, speaking from experience, the simple suggestion is reduce your positions until you can sleep with ease at night).

“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” – Peter Lynch                                                                                                                 


Flexibility without sloppiness

An investor has to be flexible and open-minded. Flexibility allows an investor to change his sentiment when he sees clear signs that the market is turning and that it is time to cut losses. It’s a fine line between flexibility and sloppiness; a sloppy investor constantly changes his mind, does not know what he is looking for and typically invest without an investing framework.


Risk-taking without gambling

Investing is taking calculated risks and as an investor you are constantly risking money, hoping to achieve a positive return. A gambler, on the other hand, invests/trades for the excitement and entertainment. A gambler is characterized by his indifference towards losses and he does not actively study and work on his investing skills.

The risk taker looks for investments with high probability of winning (based on his methodology) and avoids trades where his risk can’t be managed or where he does not have an edge (such as your circle of competence).

“At the end of the day, the most important thing is how good you are at risk control.” – Paul Tudor Jones


Analytic thinking without getting lost in the detail

Fundamental analysis, filtering out stocks with a negative expectancy, calculating position size and evaluating risk based on performance metrics has to be done consistently. However, the belief that more knowledge leads to better investing decisions can misleading.

Focusing on the things that can really help you make your investment decisions and understanding where you are in your investing journey is important. There's a term called "analysis paralysis" where you get too much information that probably contradicts each other (which may not matter to you), resulting in frustration.

It is important to know what you want to look out for, yet at the same time notice red flags that might tell you to drop it.


Passion vs. money

An investor who is driven by passion and enjoys the challenges with the markets has a very different approach and mindset. A passionate investor has a process-oriented mindset where he focuses on making the best trading decisions possible. The money driven investor is not interested in making improvements and developing a good investing framework. He is not in it for the long term which leads us to the next point.


Long-term vs. short-term thinking

Investing is a system just like a business operation. Those new to investing usually, on the other hand, see investing (and even trading) as an easy way to make a lot of money in a short period of time. The problem with that is when amateurs challenged by problems, they are much more likely to give up.

Embrace the challenge, think of investing like a long-term business operation and avoid day-dreaming about double digit returns week after week. A realistic perspective and a long-term commitment are the keys to investing success and it helps you not to burn out.


Hope it helps to better your investment decisions :)

That being said, I recently realised that contrary to my beliefs, SGX has market data vendors, perhaps I can check them out to put my futures TA into use :p