The Markets Will Chew You Up and Spit You Out

10 mantras for trading success

Published June 26th, 2020

My interests in the financial markets were initially very brief and, interestingly, in 12 year cycles. Starting when I was around 12 years old in the mid 70’s when I use to look up my Dad’s mining stock prices for him once a week – generally penny dreadfuls. I do remember his stories about trading in and out of a Nickel company called Poseidon back in the late 60’s early 70’s. Poseidon within one month went from 80c to $12.30 and then within the next 5 months tagged an intraday high of $280 before collapsing. My Dad eventually sold all his stocks though, and with this my interest also died.

My next foray into the markets didn’t come again until late 1986, early 1987. I was working in my 2nd year as a Psychologist in Sydney in an offsite area of the Prince Henry / Prince of Wales hospital as part of a controversial new management program call the Richmond report. It focused on getting adults with developmental disabilities out of institutional settings and into supported independent housing.

There was a guy working as a carer in one of the group homes who in early 1987 informed me that he was borrowing money on margin in large amounts and investing in a stock market that was constantly rising and that he was going to retire a very rich man in the very near future. I was obviously interested but also knew absolutely nothing about the markets. We got on really well and one day he showed me a prospectus and explained what it was all about. I’m pretty sure it was a BT fund called Futures Leaders or something similar.  I had a spare 2K and he seemed pretty convinced I would double it pretty quickly. I couldn’t go wrong so in I went.

For a while I kept track of the funds performance, it was going up which was great,  then 2 months later I resigned from my position and in March 1987 headed off back packing overseas with a good mate for 18 months. During that 18 months I can honestly say I never thought about this investment. Even more odd, when I was travelling I wasn’t even aware the stock market had crashed. In fact in October 1987 I was in Ireland playing Rugby, working in bars and I also joined an Irish circus at one point to make some money. To this day I’m still not really sure why I wasn’t aware that the world had gone into financial meltdown. I guess the environment I was in was as far removed from the financial markets as you could get. When I returned to Sydney in August 1988, I looked up how my fund was going and was a little disappointed to see it was 50% down. I cashed out for a 1K loss, although it is obvious now that another seed had been planted.

Another 12 years went by before the stock market entered my vision again. I was working in a fantastic job with lots of overseas travel, and in 1999 I started dabbling in and out of tech stocks, once again without strategy. Yet like in 1987, I didn’t really need one, did I? The market was going up – it was a sure thing! Plus I had a friend who knew everything (no lessons learnt from 1987!) and was providing a constant flow of stock tips to me. But then again so was every 2nd cab driver at the time in Sydney. Ecorp, Onetel, Voicenet, Davnet and a line of other names I can’t remember with DOT COM on the end of them.

backpacker readingThen once again purely by chance right at another market top, I packed up my bags and this time headed off for 18 months travelling around Australia by 4WD with my wife and 18 month old daughter Jessamy. So with the NASDAQ wiping trillions of dollars off its value,  and people jumping out of windows, I was traversing isolated historic stock routes, crossing deserts and camping in the most remote areas of our beautiful country, oblivious to the carnage. We were as remote as you can get in Australia’s Gulf Country on September 11 2001 when a Ranger whose area covered 1000’s of square km’s told us that the twin towers in New York had collapsed through a terrorist attack.

On that day, the world had changed for all of us.

When we returned home in early 2002 I returned to my old job on contract yet my passion for it was lost and I found myself drawn to the markets again, yet this time in earnest. I became attracted to Elliott Wave theory, trend following, day trading, pattern recognition, volume/price analysis and started charting and trading everything from blue chip ASX stocks, penny dreadfuls, warrants and options to the SPI, Emini contracts on the S&P 500, Crude Oil, Gold, Soy Beans, Lean Hogs and Live Cattle. You name it. A swan dive into a massive pool of data, books, software packages, attempts at coding, and reading far too many newsletters and forums thinking these people knew what they were talking about.

So I was finally committed to the financial markets, in fact I was well over committed.  And even though some type of strategy was well on the way to developing, I was clearly in the beginners cycle of information overload and without any clear direction. Too much noise will put a dent in your trading account every time. But I was determined and full of confidence coming out of a highly successful job. In reality my ego was patting me on the back from past business achievements and telling me how smart I was and that I was going to make a million dollars in my new area of employment trading full time. The very first trade I made backed this fully yet it was also the worst thing that could have happened to me under in my deluded state. I made $10,000 in about 30 minutes trading a penny dreadful stock (stock code MUL) intraday that was running on the back of day traders and forum ramping. I entered it around 4c after it had already run up about 30%, and sold it around 9c after it rejected heavily off 10c. I watched every single tick of that trade on a live 2 minute chart on my dynamic platform. When I closed out the trade, the adrenalin was pumping.  I was on fire and so was my EGO. I was already doing calculations in my head on how much money I would earn in this job making $10,000 a day. Life was good. I was at the top of my game with my first trade only taking 30 minutes of my time. Yet within a month I had given back to the market every cent of that win!

After another year of mixed results, it suddenly dawned on me that my risk management was terrible and totally undisciplined and this was weighing heavily on my psychology which takes you to all the wrong places. It also started to twig that when you trade full time, successful trades are not actually profit, it is simply revenue needed to pay all the bills that would normally be getting paid when you are working full time earning a reliable stable income.

It dawned on me; only revenue minus expenses equalled profit and in my case the numbers were not stacking up. I suddenly started trading with everything now being on a time frame centred around when my next bill was due. BAD MOVE. My trading strategy and tools to analyse charts had in fact become quite robust, yet my psychology through the need to make money and pay bills was shot to bits. I became obsessed with getting up in the middle of the night and watching the futures markets live and either cheering my trades on or panicking when they didn’t go my way. I was losing it mentally. The market noise I was inflicting on myself, was throwing all discipline completely out the window. Financial markets will do strange things to you if you watch it day in day out.

I realised I needed a mentor and rang Daryl Guppy who was based in the Northern Territory somewhere – he was away fishing at the time. He kindly returned my calls, said he didn’t do one on one mentoring but that there was a guy in Queensland called Nick Radge who might. So I rang Nick. I flew him down to Sydney, he spent a day with me and made some pretty blunt comments, especially about my risk management strategies or lack thereof. My other structures were pretty sound, yet what I’ve learnt is that you can have the best systems in the world,  yet nothing will ever succeed if disciplined risk management is not the number one component of your business. In fact this applies to running any business, not just trading.

Some of my wins were frequently very big yet the problem was so were many of my trades were losses. There was nothing in between. I may have been running nicely with the trends when they appeared, yet I was refusing to accept that I was wrong on certain trades when they turned against me. And this meant that big draw downs were also part of my initial trading journey.

From a psychological perspective, this type of roller coaster journey just could not be sustained. Especially with me getting up in the middle of night to cheer on my futures trades as if it was making a difference. Nick was awesome. Hard but fair, was into Elliott Wave, and absolute expert in pattern recognition and identifying low risk set ups and micro patterns, yet above all, he taught me the importance of strict risk management and how to position size.

By the time I had everything in order it was 2007.  And this time instead of perfectly timing another extended travel journey, and avoiding the torment of another global meltdown, I was bunkered in at home with twin babies on the way. The market had finally caught up with me, and we all melted down together! But at least I now had a robust trading strategy in place.

From this I reverted to trading part time as an end of day (EOD) trader, and was one of the first people to subscribe to a new business Nick was setting up called The Chartist which I thought was absolutely fantastic to trade along side. I worked in my own business with my partner centred on another passion of mine, kept conversing with Nick and sending him my charts and sharing ideas, and then around 2010 I took a phone call from him asking if I would be interested in working for the Chartist, and the rest is history.

So what did I personally learn from all of this, even all the way back in 1975 when I was checking my Dad’s penny dreadful stock prices? I’ve put together 30 trading words of wisdom for you based on my journey and experiences. Print them off and hang them in your trading room. They are simply worded, sometimes with a bit of humour added (never lose your sense of humour in anything you do in life), and even to this day I check in on them to keep me on track.

By Scott Goddard

You can follow Scott’s Global Chart Research, updated Tues, Wed and Thursday evenings.

Join The Chartist free trial