Interview With a Trading Legend - Mercenary Trader

Interview With a Trading Legend
Page 12 of 38
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Part III: Staying in the Game
In Part II of this Mercenary Vault series, we talked with Peter about mental milestones, win-loss ratios,
and ideal trading environments.
In Part III we further discuss the topic of “leakage”… the “path of least regret”… the key to having
triple-digit up years while cutting off down years… and the vital importance of staying in the game.
MIKE McDERMOTT (continued from Part II): So where would you most easily be able to cut the
leakage? Or where could most people look at it?
PETER BRANDT: I think it depends upon the trader and trading plan, because every case will be
different. We know that every trading approach, whether it is systematic or discretionary, can be in or
out of sync with the markets to varying degrees. It is also possible for a discretionary trader to be out
of sync with the trading plan. If a discretionary trader thoroughly understands his or her trading plan,
then it is possible to identify leakage. I define leakage as areas where a discretionary trader fudges on
the plan. In my case, the grand total of all my “fudges” have resulted in a net loss over the years. That
is how I would identify leakage in my case. I think it’s different for everybody.
JACK SPARROW: Can you give a more specific example of what that leakage would look like for
you?
PETER BRANDT: One example, a big one, would be trading decisions I might make during active
market hours. A good rule for me is: “Do not trade intraday.” From the time I submit my orders, that
should represent the sum total of my decision making. I should not change the orders, I should not
second guess them. You know the concept of MIT orders, “Market if touched.” In my trading I’ve had
CIC orders, “Cancel if close.”
So I put in an order and it becomes a CIC order. As the market gets there, I start to wonder, “Do I
really want to sell this rally?” And I go through that, and it is all about fighting these human emotions. I
also know instinctively that worrying about the money, looking at my trading balance is the worst thing
I can do. It is important for a trader to trade the markets, not his or her capital balance. I mean you
have to have capital to trade, but a focus on account balance and not the markets is a trap. I know it is
a trap for me at times.
Sometimes it comes down to the course of least regret. Asking, “Will I regret it more if I pull the order
and it turns out to be a perfect retest, giving me a double unit to ride back to the target – or will I regret
it more if I put the position on with a nice tight stop, and risk losing a little bit more, but not much, in the
big scheme of things, 30 basis points to make 400 basis points.” That should be the basis of my
decision.
JACK SPARROW: Always referring to the present opportunity and the present moment in time.
PETER BRANDT: Yes, “always attempting to determine the action that will represent my least regret.”
And I’ve got to take that course of action. To do that as an individual you have to think forward, in
terms of your human psyche, how you’re going to react to different situations. What’s going to be your
human emotion, how are you going to live with different courses of decisions and market outcomes.
Richard Dennis used to call it “the upstream swim against human nature.” You’re battling your fear,
your greed, your hope… all those human emotions are your challenge, especially as a discretionary
trader. Not that systematic traders don’t go through emotional turmoil too. They do – in some ways I
think maybe they go through it more.
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