How To Stay In Tune With The Market

37 Wins, 17 Losses. Almost a 70% success ratio. No, these aren’t trading
statistics, rather they’re the personal 2002-2003 performance statistics of
this year’s likely Cy Young Award winner — Roy Halladay of the Toronto Blue
Jays. The numbers look even better when you consider Halladay’s team
has lost more games than they’ve won during that span.

Yet the real story behind this athlete lies in the two preceding years, when
after compiling a staggering 10.64 earned run average in 2000, the Blue Jays
sent the former first-round pick back to Class A to restructure his delivery
and regain confidence. That’s right … Class A. Those who follow sports
know such a move is like sending a high school student back to elementary
school for a summer retooling, completely skipping over the middle school
option.

Fast forward back to 2002 where Halladay led American League pitchers in
innings while placing fifth in ERA, sixth in strikeouts and 10th in batting
average against. And as we enter the final month of the 2003 season, Roy leads
both leagues in wins with 18 in an age where 20-game winners are few and far
between.

What made the difference? According to baseball experts, Halladay “learned to
harness the intensity that once bedeviled him”. The key for him was to master
control of his fastball, especially when under pressure, and the change was
clearly evident in all performance categories. For example in 2002, Roy’s
strikeout-walk ratio nearly reached 3:1, while previously in his career, the
ratio barely exceeded 1.5:1 despite possession of top-shelf stuff. A 2002 road
record of 9-1 further reinforced his ability to perform under adverse
conditions.

Last year, I spoke of Derek Lowe of the Boston Red Sox who had undergone a
similar transformation, and we could easily spend day after day uncovering
other incredible comebacks — by both athletes and non-athletes — that show
the strength of the human spirit under adversity.

In Halladay’s case, he accepted harsh reality, swallowed a mega-dose of
humility, and went back to the elementary school of baseball. In
Nomar’s case, he typically keeps swinging to transform an 0-for-15 stretch
into a 15-for-20. Since each is wired differently, the solution for one likely
isn’t suited for the other. And such is the case with trading.

What works for me might not work for you. In my case, I know bad habits begin
to creep in when I begin to read the general financial press or trading press
from authors whose methods are in conflict with those that I choose to
follow. Loss of focus, refusals to take vacations, discussing my trading
results, and lapses in personal spirituality from time to time also can kick
me off track, with the latter being a potential killer at this end, for I
believe when one is “out of tune” with life and God, one will be out of tune
with the market flow. That’s not mere speculation or religious hocus-pocus,
rather a solid fact based on times when I’ve lost my timing and it’s been
reflected in my P&L, with emphasis on “L”. And frankly, I can’t remember a
time over the last decade when a personal re-centering didn’t lead to a clear
and vast improvement in my patience, timing, and trading results.

Do you trade the extremes against the fear and greed well? Don’t pay attention
to trend-based material that reflect systems where you never fight the trend
.. it’s simply not relevant. Are you an effective three-minute
scalper? Pay absolutely no attention to daily and weekly Elliott Wave
interpretations. It can and will mess with your mind. Do others tell you your
successful method doesn’t work? Remind them of Rick Barry who remains the
second-best all-time free throw shooter who shot them underhanded!
When it ain’t broke…

Back to the issue of recovery, the key in all of the above cases is the
ability to come back to a manner that over the long run provides
sustainability and minimizes the damage via effective sizing during the slow
times. Comebacks of course do no good if the draws offset — or eat
substantially into — the gains from a financial perspective. Yet from a
psychological standpoint, any trader who doesn’t acknowledge this part of
him/herself is deceiving the only person capable of rising above the
adversity. And for those who offer so-called “investment advice” in an
industry where smoke and mirrors dominate, any adverse effects travel far
broader than one’s self.