Psychology is the most crucial aspect of profitable trading, requiring a balanced mindset and disciplined execution.
Trend following and systematic trading were key strategies at Trenstat, involving data analysis and positioning portfolios with market trends.
Maintaining a balanced approach to trading and life, including diverse interests and enjoying the journey, is essential for mental clarity and long-term success.
Deep dives
The importance of psychology in trading
Psychology is considered the most important aspect of profitable trading. Good trading involves three components: buying/selling decisions, portfolio management, and psychology. Traders need to develop a strategy and stick to it, regardless of whether they make money or lose money on any given day. It is crucial to maintain a balanced mindset, follow the strategy, and execute trades unemotionally to avoid second-guessing and impulsive decisions.
The role of systematic trading and trend following
At Trenstat, the trading firm Tom Bayso founded, systematic trading and trend following were key strategies. Their approach involved collecting and analyzing data on various markets to determine trends systematically. They focused on positioning portfolios in line with market trends, allowing for the potential of large profitable trades to offset smaller losses. Their success stemmed from following the strategy consistently, using volatility controls to manage risk, and maintaining a disciplined approach to trade execution.
Finding a balance and enjoyment in life and trading
Tom Bayso emphasized the need for a balanced approach to trading and life. He believed that being too obsessed with trading and constantly monitoring the markets can negatively impact one's psychology. Instead, he encouraged traders to have diverse interests and activities outside of trading to maintain mental clarity and serenity. Viewing life and trading as a movie, staying present in the moment, and enjoying a range of experiences helped him maintain a calm and collected mindset throughout his trading career.
Trend following as a systematic approach to trading
Trend following was a key strategy utilized in the podcast episode. The speaker emphasized that trend following allowed them to capture large market moves and secure profitable trades. They believed that trend following was a mathematically reliable method for trading, ensuring they didn't miss out on major trends. By adopting a systematic approach, they were able to focus on the long term and avoid being influenced by short-term market fluctuations.
The importance of self-responsibility and enjoying the trading journey
The podcast episode emphasized the significance of taking responsibility for one's own trading decisions. The speaker believed that success in trading requires embracing personal accountability and not relying on external factors or blaming others for failures. The mindset of enjoying the trading journey rather than obsessively predicting outcomes was also highlighted. The speaker encouraged listeners to view life and trading as a ride with ups, downs, and unexpected surprises, and to find peace and fulfillment by embracing the journey.
I had the honor of interviewing the legendary Market Wizard, Tom Basso, president of former money management firm, TrendStat.
Tom started his working life as a chemical engineer, often discussing stocks and investing with colleagues. As he started to experiment with trading from a $2000 account, there was no beginners luck in sight. Tom consecutively lost money for the first few years before things started to turnaround.
With a series of events that followed, Tom went from trading his own money, to forming TrendStat and managing other peoples money. At the peak of his career, TrendStat managed $600million dollars of capital.
And while Tom’s now retired, he still actively studies the market and continues to trade.
This interview covers many topics that range from trend following and systematic trading, to psychology and why you must never forget to ‘enjoy the ride’.
