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May 1997
The STOCKS & COMMODITIES interview this month is with Jay Kaeppel, director of market research for Essex Trading, Ltd. Longtime S&C readers may remember Kaeppel's articles, which detailed strategies based on diverse topics: interest rates and the stock market, and Barron's Gold Mining Index and the Treasury bond market, as well as others. Kaeppel is, of course, a proponent of traders first defining their strategies, next reviewing market history utilizing those strategies, and then and only then risking their capital. While in the interview he somewhat facetiously recommends that traders "have a clue" as to what's driving any trade, what he's really saying is, "Have a well-thought-out plan and develop the discipline to follow it." Like most of us, Kaeppel arrived at this bit of wisdom the hard way, by making mistakes; he also talked to other traders, and he heard how traders repeat the same mistakes -- trading based on a whim, and not on a plan.I hear about the same issues from STOCKS & COMMODITIES readers. Traders tend to look for the best indicators, the best software, the best this or that, while what they really need to focus on is becoming the best at executing a trading plan. Software itself doesn't make money, after all; it only processes the data it's fed. Granted, the software can make life a little easier, quickly calculating indicators, searching your database for situations, screening for opportunities and ranking them. And software can also quickly review a strategy and determine its viability. But to be comfortable, really comfortable with a system, most of us must do more than just review a summary sheet of the trading history; we have to practice our trading, and that is best done by reviewing the trading history by hand.
Think, if you will, of the professional basketball player coming out onto the court, and during the heat of the game, shooting the ball effortlessly through the net with remarkable accuracy and confidence. What's the basis for that confidence? Practice and training -- years of practice, years of training. That athlete has virtually wired his or her body to react in a certain way under the stress of competition. Trading is similar: Much like the basketball player faces a different battle in every game, the trader faces different market conditions every day. Yet the goals remain the same every day for both: sound execution. To gain the confidence to trade effortlessly takes practice and training. That takes work.
I can tell you, though, that you'll gain confidence if you were to plot your target market by hand, as if you were trading in real time; that way, you'll truly understand your market. You may not be able to know the future, but you can approach each trading day as though you were involved in real-time trading, and implement your plan thus.
These are the steps to gaining confidence in your trading -- walking through the trades one day at a time, experiencing the system's weaknesses and strengths, finding out before you risk your capital whether your approach is sound. These are the steps to gain that level of confidence. Above all, you must convince yourself. Robert Krausz, one of the most knowledgeable traders I have ever met, said it best in our September 1995 interview with him: "Truly relaxed trading comes only from back-testing with vigor and persistence to the point that the subconscious is wholly satisfied." And that should be your goal.
