I have the pleasure of having met hundreds of traders, the majority of whom are full time professionals.  I have regular dialog with several dozen traders as well.  Guess how many have been telling me lately that they are having a great year?

Zero!  Not one single person has said to me “hey Simon I am doing well at the moment”.  Isn’t that strange out of all of these traders?  I have had people say to me:

• “The market just doesn’t move, so I cant make money” – true earlier this year there was no opportunity whatsoever, at least none with a worthwhile risk/reward profile.
• “The markets are moving randomly on news and manipulation, so my normal signals aren’t working” – also true nothing works when a sudden shock spontaneously rewrites the supply/demand dynamic.
• “My strategy is broken, I need to throw it away and start building a new one” – wrong, don’t do it!  Living through freak times does call for modified daily behaviour, but don’t discard the tools that have served you well over many years throughout normal times.

Several people have asked me what I am doing to survive until things settle down to a higher degree of normality, so here are the three things at the top of my list:

Protect your capital

The first and absolute top priority is to protect the bulk of your capital.  How this is best achieved may vary from person to person, but whatever you do you must ensure you emerge from the rough times with your capital largely intact.  It is pointless waiting for better times when you can be profitable once again if you are effectively blown out of the game or nursing a drawdown that is too big to be quickly recovered from when the time is right.

Keep trading

The second point is that you must keep going.  That may sound at odds with the previous point.  But if you cut back on the number of trades you take and the size of those trades, you can actually continue indefinitely without doing any significant damage to your capital.  If necessary move onto a simulator or just paper trade.  But you must keep trading, for several reasons – it keeps you in touch with the market, it keeps you active and alert, it helps you practise and hone your execution skills.  Most of all it means you will be there when the silliness subsides.

That doesn’t mean you need to keep up the same long hours or to trade every day of the month.  Let’s face it you are not going to make money working 60 hours a week, working half time means you are simply going to not make money half as much – if you see what I mean!  There is nothing wrong with taking time off as long as you keep trading sufficiently long each week to still be in the game.  After all you wouldn’t want to be taking time off when things improve, so why not make the most of the tough times?

I used to think the solution to tough times was to put more time and effort in.  It was a natural way to think for those of us brought up to work harder and harder until we succeed.  But I was wrong!  If the market isn’t going to pay you it isn’t going to pay you and that’s all there is to know.

Do something positive

My third priority is finding something constructive to do in the business that keeps you positive.  Work on something that is within your control and not that of a crazy market.  It doesn’t really matter what you choose as long as you do something that is of value and something that you can feel a sense of achievement over.

I recently applied myself to taking overhead costs out of the business.  Fixed costs are a drag on any business and trading is no exception although mercifully our fixed costs are more limited that most businesses.  I was pleased to find savings amounting to 18% of our annual spend that I was able to eliminate.  That is quite a few thousand dollars a year.  But it is not the money that matters so much, although clearly it is better to have it than not.  What really matters is applying yourself to doing something constructive that you can feel proud of achieving at the end of the exercise.  It is certainly no replacement for getting your trading back into a profitable groove, but it is something that you have absolute control over and that no crazy market can derail you from.

So that’s my simple formula to weather the storm – protect your capital, keep trading and find something positive to do.

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