For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Dr. Bruce Hong, an emergency room physician and avid trading psychology guru. I noticed Bruce from his insightful comments on Brett Steenbarger’s blog. Bruce writes on his own blog called TraderPsychology with the tag line: “How good people (traders) develop bad habits – and how to overcome them.”
Bruce has had an interesting trading background – he has ruined his account more than once. Perhaps what Dave Landry said about doctors in his interview was true.
Read on to find more about Bruce, his approach to trading, why he thinks keeping a journal is so important, and some great book recommendations (one about zebras and ulcers).
StockTickr: Tell us a little about yourself, Bruce.
Bruce: I am a physician (Internal Medicine and E.R) who is transitioning to retirement. Because there was a lot of down time, especially during the morning, I started watching Maria Bartiromo on CNBC. I had been investing mostly in LTBH stocks and mutual funds at that time but I started reading about trading, day trading and options trading. Eventually, after watching for a couple of years, I started trading on my own.
StockTickr: How did you get started trading stocks?
Bruce: Back in the 60’s, the mutual fund industry was just taking off. There were actually door-to-door salesmen for the mutual fund industry at that time! We started off with Dreyfus and T Rowe Price mutual funds when my brothers and sister were in high school. My father was also investing in commodities and later, land speculation. This was in Hawaii and land was the best investment he ever made!
StockTickr: Most traders have a horror story about losing their shirt when they first started trading. What’s yours?
Bruce: As a physician, I felt that I was bright and that trading couldn’t be all that hard. After all, I was a problem solver and was used to facing situations that would terrify or sicken the average person. Can you figure out what happened? I started out by making a few successful trades and then said, “This is easy!” So I escalated my trading sizes until I blew out my account – several times.
StockTickr: How have you prepared for the jump to full time trading? Were there goals you set for yourself to meet?
Bruce: As I said, I was a physician and so I just plunged into it. Minimal preparation, no trading plan, and vague dreams of wealth. This is what I suspect most novice traders do and this is why I’m emphasizing thorough preparation in my blog. I think that the average novice trader would do well to just sit and watch the market for a while. Only when he has enough “screen time,” so that he or she can feel the rhythm and pulse of the market, should he progress to trading real money.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
Bruce: Don’t be greedy; don’t be greedy; don’t be greedy.
StockTickr: Do you consider record keeping an essential part of your trading plan?
Bruce: Absolutely. It’s too easy to “forget” your bad trades and losses and only remember the trades that made you money. We all like to get rewarded and to feel good about ourselves. Facing the honest or even brutal truth about ourselves is never pleasant. But when you keep a trade journal and trade log, you lay it out in black-and-white. Then the truth is inescapable. You see your winning percentage, your win $ vs. your losing $, and what portion sizing, risk management and money management really means.
When it’s laid out in a spreadsheet, the truth about your effectiveness is inescapable. Then, as I point out in my section on cognitive dissonance, you can either refuse to accept the results, or you can use cognitive dissonance to help improve and turn around your trading.
StockTickr: What is the most common but easily correctable mistake you see traders make?
Bruce: I don’t work with traders, but from my own experience and from what I see on Woodiescciclub trading room, it’s to rush into trading without any kind of preparation. A close second is to rush into trading without any concept of risk management and money management.
StockTickr: What 3 books do you recommend traders read? (Note: see which books are most recommended by interviewees here.)
Bruce: I’ve enjoyed reading ALL of Dr Brett Steenbarger’s books (Enhancing Trader Performance and The Psychology of Trading) and blogs (TraderFeed). For basic preparation and an understanding of what we are and what our behaviors are made of, I would recommend Dr Robert Sapolsky’s works on Biology and Human Behavior: The Neurological Origins of Individuality. This can be purchased either as an audio or video lecture series from The Teaching Company (TTC.) I also like Why Zebras don’t Get Ulcers by Dr Sapolsky for a great discussion on stress and stress-related disorders. Finally, there are a number of books out on cognitive neuroscience, beginning with Kahneman and Tversky’s Judgment Under Uncertainty: Heuristics and Biases.
Notice that I’m not recommending any trading books, per se. Those are written in such a way as to make the average trader think, as I did, that trading would be easy. Any of those books will get you started, but to really progress as a trader, you have to learn how to think And most trading books never even address that subject.
And now, I’m going to preach a little. Too many websites and trading “coaches” and “gurus” talk about lack of discipline and lack of emotional control. I don’t see that as the primary problem. Rather, it’s secondary, and a result of poor preparation and poor thinking skills. When we enter a trade without proper analysis, a good trading plan, and well thought out contingencies, then when the trade goes against us, of course we’re going to react emotionally. See, it’s a symptom, not a cause!
StockTickr: What is your typical R value per trade? i.e. what % of your portfolio do you risk with each trade?
Bruce: I’m sot sure how to answer this one. I generally only have three or four open positions at any one time and I only have a small amount on money in my trading account. As I make money, I tend to withdraw it and put into savings or other investments. That way, I can generally recover form a losing streak without depleting all my capital.
StockTickr: What technical indicators could you not live without?
Bruce: Another difficult question to answer. I like the CCI, but as Jack Schwager’s books on Market Wizards notes, a successful trader can do well in any market and with many different indicators. Again, this goes back to the basics. It’s what’s between the ears, not what’s on the screen that makes a good trader.
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
Bruce: I started trading ES when it was really good. Now it’s lousy for the day trader. So I stopped trading it. Simple as that. No need to keep banging your head against the wall.
StockTickr: Do you backtest and if not, how do you instill belief in your system?
Bruce: I’ve taken some flack by recommending that new traders not paper trade or back test. The reasons are that if you paper trade without an understanding of trading principles, then all you are going to do is to LTP or learn bad trading habits. Similarly, most people don’t have any background in statistics, and have no understanding of the markets, and so they can’t set up any reasonable parameters with which to back test. GIGO, as the engineers like to say.
Also, as your last question suggests, the market is always in flux. What was true and worked well even a few hours, days, weeks or years ago may not hold true at the moment. If you back test, how can you be certain that the conditions under which your back test model held will continue to hold true? I’ve tried some AI auto-trading programs and, every few weeks, the programs would be updated to reflect the “current” market conditions. Actually, they were reflecting the previous few weeks, and not the current market at all. And so, a few weeks later, the programs would be updated again.
As you can see, I have some definite opinions on this subject. So how then do you validate your trading plan? Well, that brings us back to your trade log, doesn’t it?
StockTickr: What advice can you offer traders who are just starting out?
Bruce: Don’t be greedy and don’t be impatient. We doctors go through a long training process. We recognize that the stakes are high and that we need to be thoroughly prepared. Ask yourself: “Would you want a doctor to just read a book, or go to a week-end seminar, and then operate on you?”
StockTickr: What do you like best about trading?
Bruce: Thus far, surprisingly, it’s been the intellectual challenge. Once I was humbled and started the process on preparing myself, I’ve had to re-think and re-learn much about cognition. And because the field of cognitive neuroscience is so new and so fascinating, it’s been a real pleasure bringing myself up-to-date. This last was the motivation for starting my blog. I want to expose traders to a new way of looking at themselves and at trading.
StockTickr: Thanks for taking the time for this, Bruce.
Bruce: Sure, Dave!
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Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.
- Toni Hansen, Trading Coach
- Gary from CalmTrading
- John Forman, Trading Coach
- Tim Knight, Prophet.net
- Chris Perruna
- MC, PinoyTrader
- Joey Fundora, DowntownTrader
- Brian Schumacher
- Doug Hischhorn
- High Patterns Chart Group
- Zoomie, retired fighter pilot
- Trader Gav
- Will Fisher
- Tom C.
- Michelle B.
- Elliot Dole
- Jon Tait, the Fickle Trader
- Bill Rempel
- Roger Nusbaum
- Dave Johnson
- J.C., the NYSE Scalper
- Brian Shannon, AlphaTrends
- Jamie, Wall St. Warrior
- Howard Lindzon
- Kernan of TRADEthemove.com
- Richard Todd
- Andy Swan
- Steve Nison of Candlestick Charts
- Dan Mirkin, Trade-Ideas
- Bruce Brotnov
- Eric Cahoon
- Ugly from Uglychart.com
- Alan Farley
- Declan Fallon
- Smita Sadana
- Bill Cara
- Van K. Tharp – Free autographed copies of Van’s book still available! Get yours now!
- Brett Steenbarger
- Eyal Maoz
- Gary B. Smith, the Chartman
- Nusair Bawla (alibawla on StockTickr)
- Dave Landry, Swing Trader
- Jeff White, the Stock Bandit
Do you have suggestions for other traders you’d like to see an interview with? Let us know!