Investing and the Irrational Mind

Robert Koppel,long time Friend, trader and Financial author, has just finished another excellent read and I don’t say that purely based on the fact that yours truly is quoted! Koppel covers many interesting dilemmas and demons we all face as traders. The book is available for order on Amazon.

I’ve attached  comments made by  Yra Harris, long time friend and colleague, and myself. There are a couple of key stand out points Yra makes that is germane to any style of successful trading and is worth reading a couple of times. “Notes from the Underground” is mandatory reading on a daily basis.

First and foremost always remain true to your stops, you can always get back in. Yra is a thinking trader (he takes a fundamental approach or has a reason to do a trade). Yra had the ability to look at the tombstones in the WSJ in the a.m. and pretty much tell you which way every currency cross would trade for the day based on the Bond offerings in various currencies.


However understanding price action and letting the market tell you what to do is how I get around that. Trading is not a one size fits all occupation. There are many winning strategies. I predicate my work by meshing many tools that I have found to work over the past 35 years. Patterns and timing are key components for me.

We have three key similarities which are required for any sustainable success in trading. We both defer to technical analysis for risk management ( trade location) and stick to our stops. We both follow the money ( something I learned from him) which gives you an idea of the expected capitol flows between instruments. Are they correlated? Are the correlations breaking down?

“Beautiful–I lectured for 6 hours yesterday about this to 3 finance classes at the University of Illinois” YRA

In Investing and the Irrational Mind, author Robert Koppel asked veteran foreign currency trader Yra Harris, who has traded on the exchange floor and has run his own shop over a 30-year career, what has been the greatest psychological challenge for him and how he deals with a series of losing trades or an extended period of drawdown.

He said, “The greatest challenge for me has been not to take a trade in too early. I do a great amount of fundamental analysis and then overlay it with technicals to measure the best entry point for the lowest amount of risk. The problem becomes when to exit a trade that has been right from the start. The discipline of loss taking has never been a problem for me, but the adding to a winner has always been my weakness. When I am in a period of losing trades, I recheck my analysis to see where I have missed something. I am a big believer in global money flows, so if the market is at a turning point, I know I need to recalibrate my thinking. The markets are dynamic in nature, and the underlying themes are always in flux; therefore I need to be ever adjusting. The reason I don’t like economic models is that they are too static—they may eventually be correct, but as a trader I will be broke. A serious setback has never bothered me as long as I stayed disciplined to my initial risk levels and did not pull my stops. I had a British pound/deutsche mark trade that blew up on me, but because I was true to my stops, it was the best loss I ever took. Had I hesitated, it might have been a major blow to my capital base and caused me to rethink my life in this business. But I stress that I am a very disciplined risk taker and don’t put myself at career risk—small losses.”

Harris added, “To be a successful trader, you have to tell yourself that you are wrong on a regular basis. Even after preparing daily and being patient to wait for my levels of entry, the trade still may not be right. As I teach new traders, you have to park your ego and let the market determine if you are correct. Most people in the world cannot admit to being wrong. I have to do it several times a day.”

Another trader I interviewed,Chief Market Strategist @ WhiteWave Trading, whom I had known as a colleague on the trading floor and who now runs an advisory service that concentrates on equities and Treasury bonds for hedge funds and professional traders, said, “I’ve found over the years that the best remedy for a cold streak is to take a break. For me it was sailing competitively. The concentration required to pick wind shifts, anticipate, react, and plan strategy was a total meditation that released my mind from all other thoughts. This allowed me to go back to trading with a fresh, uncluttered mind. After all, trading is just another competition. Winning is contagious, and the repetitive discipline to keep doing the right things begets more winning over time.”

This entry was posted in Archive and tagged , , . Bookmark the permalink.