Fear(less) log Nr 9 - Brent Donnelly.
Brent Donnelly. "I kind of like the fear"
Hi Everyone
Episode 9 and it is a good one. Trading (and Twitter) legend Brent Donnelly, who by the way has also written some excellent books on trading (Alpha Trader is the book that contains the most post-its in my collection) was kind enough to answer the questionnaire. This is the same format as it was in Fear(less) log Nr 7 with Tom Basso, where I don’t get involved (nor does AI), there is no in-person questioning, just straight to the point answers.
All I have to do is copy+paste.
Enjoy.
Brent Donnelly (Trader and Writer)
Brent is not only trading, he is also helping other traders get better, hence the contribution here at Traderistic, but he is doing much more; in particular via his highly-respected macro and FX daily called AM/FX. Even if you are not a paid subscriber, Brent often provides exceptionally well researched content for free, so I recommend checking it out.
Here is the link to AM/FX and Brent’s Twitter profile.
When did you first become aware of fear while trading? Was there a particular trade or situation that triggered it?
The first time I was scared was the first time I traded. The idea of trading millions of dollars of FX back and forth is crazy daunting at first and you have a lot of eyes on you as a junior trader at a bank. Furthermore, you don't understand the spotlight effect very well (or at all) as a young person and so the stakes feel higher than they really are. Meanwhile, your boss is more worried about what he's gonna have for lunch, not your tiny risk taking efforts.
What specific fears did you experience while trading? How did they manifest? The most common fears include fear of losing money, fear of being wrong, fear of losing out on the dream, fear of not being respected, fear of keeping up with expectations, or just fear of losing.
“My biggest fear has generally been the feeling of being out of control. I trade large size and a lot of events and fast markets and while that sort of "in the zone" trading can be incredibly satisfying and profitable, it also leads to irrational acts and poor discipline in the heat of the moment. When I am trading well, I am like a cyborg, stopping out without emotion, but when I have traded poorly in the past, I find myself doubling down or praying for losers to rise up as my monkey brain takes over from System 2. The scariest thing in the world is not being able to trust yourself to do the right thing.”
How did you initially deal with those fears? Did you try any specific techniques or methods?
“The simple answer: I automated my stop losses. This technology was not available when I started and I did not use it when it first came out. Once I realized how powerful it was, I never did another trade without an automated stop loss. Every time I put on a trade, my next move is to put in an automated stop loss. This guarantees there is no after-the-fact or heat of the moment errors of bad discipline or irrational inaction.”
Did you seek out mentoring or support to help you deal with your fears? If so, what kind of support did you receive?
“No. The longer I trade, the less fearful I am. Every trade is a drop of water in the ocean. Now, I know that losses are just part of the game. I make money on half my trades and lose money on half my trades and am now at the point where I trust my process explicitly and subconsciously. I'm not afraid of bad discipline because my discipline is automated.”
Were there any resources (books, courses, etc.) that helped you better understand and cope with your fears while trading? If so, which ones?
“The main resource was technological ability to automate stop losses and thus eliminate discretion and irrational behaviors. Ken Grant's book "Trading Risk" was an excellent book that helped me understand the mathematics of trading and taught me to collect trading data so that I eventually came to understand that variance is just part of trading and there is no point getting emotional about it.”
Have you ever paid attention to your body signals, such as heart rate, while trading? If so, how did you use this information to manage your fear?
“Yes. When my face gets hot, I know something is wrong. Usually it means my position is too big relative to the amount of liquidity available. Also, if I feel angry, I square up and go for a ten-minute walk. Emotions are short-term phenomena and dissipate quickly.”
Are you now fear-free while trading, or do you still experience fear from time to time? If you still experience fear, how do you manage it? Does it motivate you, or do you try to eliminate it altogether?
“I am close to fear-free. The only time I feel fear is when, as a market maker, I am lumped with a massive position in a fast market and risk management tools will not allow me to automate the stop loss because the position is too big. In this case, I reduce as quickly as possible. Also, now that I rarely feel fear, I kind of like the fear. It tells me I am racing very fast in my car and that there is a chance I might crash into the wall if I don't steer carefully.”
What advice would you give to someone who is experiencing fear while trading? Is there anything you wish you had known when you first started dealing with fear in trading?
“Trade smaller at first and continue to up your size. Each new plateau should be temporary as you eventually realize that as long as you are in control and have a solid risk management process, there is nothing to be afraid of. Trades come and go. There are 1000s of opportunities for short-term trading every year. If you miss some, it doesn't matter at all. You are not missing out on anything, just waiting for the next trade to arrive. And it will.”
Did we miss anything? Use this space for anything you think would be important but hasn't been addressed by the questions above. If there is nothing left to say just leave it blank :) Thank you!
“My answers are specifically related to my personality which is highly risk-seeking. I know many people have a fear of pulling the trigger or fear of missing out, but those have never been fears for me. My only fear is blowing up, and therefore I avoid risk of ruin above everything else. No matter how good an opportunity looks, if there is even a tiny risk of ruin, I will move on to the next idea.”
References
AM/FX Daily and Spectra Markets
Ken Grant's book "On Trading Risk"
Final Word
I don’t have much to add here. This is a trader with so much experience under the hood that we should take diligent notes. One significant point here is that a system to curb poor decisions can be an easy fix. Automatic stop-losses are part of that equation.
Brent is obviously at a stage where he is fully aware of his emotions (“they are short-term”) and he even likes a little bit of fear to keep things exciting.
That’s what ‘being in control’ means.
Thanks again to Brent for sharing his insights. He can be found on Twitter @donnelly_brent.
Have no fear!
Chris
crk@traderistic.com
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