I challenged myself to build a standing desk from Ikea and do it for under $300 after reading what others have been able to do. I used the following pieces to complete my standing desk in one afternoon:

I’m 6 ft tall so the shelving unit, casters, brackets and table top allow my arms to be at the perfect height. My monitors are on top of the half-round top which sits on top of the table top supported by the capita legs. The monitors are right at eye level so it’s nice. After using the desk for a few days I realize that I will not be able to stand for 8 hours at a time, at least at the beginning, so I have a bar stool as well. The monitors are closer to my face than before so that will take some getting used to as well. I may look to downsize to one large screen monitor in the near future.

Whether or not you decide to build a standing desk yourself, It would behoove you to at least stand and stretch every hour. Sitting is killing us!

I’ve worked with trend traders over the years that used the CAN SLIM methodology, Donchian channels, price envelopes, Bollinger bands, etc. in their trading. The one conclusion I drew from each of them was that trend trading can be one of the most difficult systems to make money in the markets. Not because of the chosen vehicle or methodology but because it takes extreme discipline to be successful.

As a trend trader you can take several back-to-back trades and lose on them all. As Andrew points out in his book, “Drawdowns are the bane of trading. When you are profitable, you do not think of these inevitable losses. When the losses mount, however, the doubts increase. I couldn’t agree more. The most important aspect of my work is helping traders with their discipline. Discipline is such a key aspect of success in the markets yet it is also one that is overlooked by so many.

One example where discipline is needed is in managing risk. Believing in and following your risk management is an ingredient for success in the markets. Andrew devotes a whole chapter in his book discussing some traditional ways in which to manage risk. Some examples are risk per trade, risk per sector, margin to equity, calculating your risk to ruin (if you’ve never calculated your risk to ruin you should. It’s an eye opening experience), etc. In theory all the examples he gives are good. However, the unknown variable in all the examples is individual discipline. The best designed risk management tool is useless if not used with discipline.

Towards the end of the book Andrew shares his trading journals of two accounts he trades. In the chapter he breaks down the trades and gives some insight into his thinking. I like this process of going over trades after they’ve been closed. Journal review isn’t sexy, but it’s where longevity is found in the financial markets. As Andrew points out, he’s been trading the same system for years with some tweaks or “filters” added along the way. No doubt this process of Andrew’s has contributed to his longevity and success.

Overall the book provides basic trend trading information along with Andrew’s approach to this widely known strategy. I think the title is a bit misleading though. With that, I think the most important aspect of the book is one in which Andrew points out early on– trading is difficult. Losing is part of the game, especially with trend trading. Manage risk with extreme discipline if you want to be successful, regardless of your approach.

DISCLOSURES: I was given the book for free and I’ve linked the image above to Amazon with my affiliate ID.

We’ve been taught that it’s wrong to do one thing at a time. In fact, multitasking has become a requirement of corporate America. It’s no wonder so many burn out of careers at such an early age. Golden watches and parachutes are no longer a part of corporate America. We’ve traded them in for high blood pressure and insomnia. As a result we’ve become a stressed out society. A society that is just now beginning to understand the harm that multitasking can cause to our most vital organ–the brain.

Brain research has progressed by leaps and bounds over the past few years, thanks in most part to technology. We are able to better understand the impact many things have on our brains. An area of the brain that I focus on in my research and work (executive functions) is the frontal lobe. This area of the brain is where we manage the massive amounts of information that is thrown at us each day.  Our brains work just as hard to ignore and filter information as they do to focus on important information.

We are literally killing our brains with information overload. Too much of anything is not good. One of the biggest culprits to multitasking is the abundance of thoughts that fill our minds while we are engaged in another activity. For the next three days do the following to see for yourself. Take a notepad and place it within reach of your work area. Put a simple tally mark on that notepad each time an unrelated thought to your current task enters your mind. At the end of the day add up the tally marks.

Now estimate how much wasted time each tally mark represents. In one study a group of Microsoft employees took an average of 15 minutes to return back to their prior mental task after being distracted. Sure, you may be able to find your place in the book you were reading before you answered that text message, but your brain is no longer “in the zone.” Bottom line is that rapidly switching between mental tasks causes our brains to work inefficiently. Instead of multitasking seek to narrow your focus on one task. Doing so not only creates a more efficient brain, it can also lead to psychological flow.

A couple different items to point out about this data. The first is that there is a 20-day SMA (blue line) to smooth out the signal. Notice how when that signal enters the area highlighted in gray that the market begins to form a topping pattern in price. The signal just entered that area yesterday. One other item is that the daily signal (black line) typically tops out around 70 and signals a bottom. After that happens the signal makes lower highs (red arrows) as price makes higher highs (green arrows) until the 20-day SMA begins to suggest a topping pattern.

One of my favorite categories of indicators assess market breadth. There are many ways to assess market breadth such as advancers-decliners (many derivations exist on this alone like the McClellan or  the TRIN), % of stocks above a moving average, new 52wk highs/lows and many more. The key idea is that whatever breadth indicator you use it needs to add value to your trading. That value is that the reading of the indicator helps you in forming an opinion of overall market direction.

One way I look at breadth is using a momentum oscillator of relative strength (RSI). The RSI has a look back period with 14 being the default. A 2-day RSI is one of my favorite indicators but I’m using 14-days for this study to give me a longer look back period. In fact, I’m taking it a step further by using a simple moving average of the 14-day RSI. This really smooths out the signal for longer term setups of a month or more.

Below is a chart showing a 20-day SMA of the 14-day RSI. However, it’s not the traditional RSI but a ratio of the RSI. Let me explain. This ratio is taking the number of SPX components that have an RSI(14) below 30 (oversold) and dividing it by the number of SPX components that have an RSI(14) above 70 (overbought) then smoothing it out over a 20-day period. Why do I use this ratio and periods? Because it lends itself nicely to my main trading strategy of selling option premium on the SPX.

You can see where this ratio turns and where the market tops out or bottoms. It’s not as clear cut as I’d like, which is why it’s one of  a few indicators I use, but it gives me a good overall picture of market breadth with a look back period of about 1-month. The current ratio is at its second lowest point in the past few years which suggests a top may be near. This makes sense as other indicators and sentiment suggest the same. However, look to the left and you’ll see that rarely does a turn in this ratio indicate a top/bottom. Rather a process is started once the turn appears. The first indication of a top I’ll be looking for is a turn up in this ratio (I drew a blue line to show what it could look like). In other words, there’s nothing telling me here that a top is in place.

While I’m not one to call tops or bottoms, this ratio helps me define risk in selling premium. With the current state of the ratio I’m more willing to sell call premium than put premium as the potential for a turn or a topping pattern is much higher than higher prices. Does that mean higher prices aren’t likely? NO! What it means is that I can go out to February and sell some call spreads beyond 1550. There is no holy grail to trading. However, there are some great indicators and variations of those indicators that can improve trading. All it takes is some sweat equity and a desire to improve.

There are other ways I use breadth as well. Here’s a look at the % of SPX stocks that closed above their daily pivot, smoothed with a 20SMA. Another way to look at breadth is the up/down volume spread. I’d love to know if you have unique or different ways of either looking at breadth or using breadth in your trading.

Assuming you use rules in your trading, here’s an exercise that can bring new insight into analyzing your trade metrics. The next time you review your trade history (you do review it, right?) focus on the rules of the trade. Specifically, ask yourself how you responded to the rules.

For this exercise we will use two types of rules—external and internal. An example of an external rule would be one generated from your trading system. Let’s use a simple moving average cross as a buy order. An example of an internal rule would be discretionary in nature. Usually we can find these in statements like “I told myself that I’d trade smaller ahead of my vacation so I wouldn’t have to worry about positions and truly relax.”

Take a piece of paper and divide it into two columns; one for external and one for internal. Now process your prior trades to see which types of rule you followed and didn’t follow. Take it a step further to see which type of rule had larger profits or losses over time. See if there’s a correlation between length of trade and type of rule. Perhaps there’s a common thread between losing trades and not following your internal rules. If so, this would suggest a lack of discipline on your part which can be fixed by creating an external rule to avoid or lessen losses in the future. Have fun with the exercise but approach it with the intent to improve your trading.

Yes, you can do everything wrong in the markets and still make money. However, if it’s longevity you seek then create a rules based trading system and follow it. Hold yourself accountable if rules aren’t followed while also trying to understand why the rule wasn’t followed. Perhaps the simple moving average cross isn’t what it used to be. The markets change and thus systems will need to be tweaked as they do.

Research suggests that we never truly forget our habits but overwrite them with new ones. If the old habit isn’t replaced with a new one then it can resurface. One way to replace a poor trading habit is to focus on the point of performance rather than the habit itself. This is where we as traders need to be on point or on task. To put it another way, the WHAT, WHEN and HOW of our trading system.

Ask yourself these questions the next time you’re ready to put capital on the line to assess whether or not you’re on task:

It’s the third item I’d like to focus on for the remainder of this post. Checklists are vital to trading success yet they are widely overlooked and even shunned. In his book “The Checklist Manifesto” Dr. Gawande writes “Under conditions of complexity, not only are checklists a help, they are required for success. There must always be room for judgment, but judgment aided – and even enhanced – by procedure.”

Trading is a high-pressure environment where simple mistakes can be costly. The biggest benefit of using a checklist is the process itself. Creating a checklist removes the potential of simple mistakes caused by missing a mundane task (forgetting to check the earnings date or clicking the buy button instead of sell button). In addition, a check list frees up vital working memory which can then be allocated to the discretionary side of our trading system.

Another benefit of a checklist is that it forces us to be detached and systematic about certain key aspects of our trading system. Aspects such as calculating trade size or stops (managing risk) which should be systematic rather than discretionary. Just as a pilot would not fly until they’ve gone through a rigorous checklist, we shouldn’t trade unless we’ve gone through our checklist. In a sense, checklists are a form of discipline which is something we can all improve upon.

Excerpt from chapter 1

*ht marketfolly

While the research will help to clarify, my hunch is that trading (especially active trading) will improve through training working memory. If you have any interest in helping with the research, please contact me. You will be anonymous to all but me. I anticipate a start date of 2/4/13.