investing

There’s A Word For That

/ Bill Sindel / 1 Comment

Finance. That’s it. That’s the word, and it’s actually pretty expansive and inclusive at the same time. When I left college, people actually used that word a lot. And it pretty much covered it. Banking, trading, much of the business world in general revolved around that single word, finance.

For those that know about the television game show Password, I think this goes from what once was probably an easy word to guess based on clues to now being a much tougher guess. Why? Well, we’ve added a bunch of words and abbreviations that people might use as clues or guess as an answer. Words like FinTech, TradFi, CeFi, and of course, DeFi. Let’s examine these terms that seek to draw hard lines between them rather than just use them as place holders while we work our way back to ‘Finance.’

First we’ll clarify the abbreviations: FinTech [Financial Technology], TradFi [Traditional Finance], CeFi [Centralized Finance], DeFi [Decentralized Finance]. I’ve listed them in what I’d consider chronological order so we’ll start with FinTech. I think this term really grew up when the ‘West Coasters’ helped make the internet a part of our daily lives. This crowd wanted to prove that they were different from their stuffy East Coast counterparts. You know, the ones wearing suits, ties, and wing tip shoes (yes, I owned a pair and still have them as a souvenir). Now mind you, as a futures trader in the pits, we really didn’t fit that mold, but we’ll leave that detail out of it. The story sounds better this way. Think about those people out there on the West Coast that were inventing all this cool shit that would make it even easier for you to constantly give companies your money…and unfortunately all of your most private information. The Steve Jobs of the world did not want to be grouped with the stodgy Solomon Brothers and Goldman Sachs crowd. They were way too hip for that.

When I think about FinTech, I actually attribute it’s start more to your credit cards and the ability to get cash from a machine. Here we may have nailed the first real example of the bifurcation or branching of this whole money and finance thing. Now you could go to companies working directly with people’s money, but in technological ‘Tech’ ways. But if you help someone transact with money and buy a pair of shoes, isn’t that something that really involves the same type of transaction as buying stock, which was clearly associated with ‘Finance?’

Next in my order comes TradFi. What’s interesting about this is that it wasn’t always part of the Finance vocabulary. It possibly took hold after DeFi, and while the logic of this order actually doesn’t necessarily make sense, that is how I remember using the terms. It’s pretty simple to understand these abbreviations. TradFi is traditional finance. It’s almost used in a derogatory manner by the crypto or digital crowd. Why? It’s just so yesterday. Paper money, stock certificates, bonds with tear off ‘coupons’ to claim your interest payment. How can anyone find that efficient. So it all went electronic; blackouts, internet outages be damned. We’ll come back to my core problem with all of these abbreviations in a bit, but let’s understand them first.

What followed next is part of the recent technological and digital (r)evolution of money that revolves around blockchains and digital currencies as well as other transferable assets, e.g. Bitcoin and Ethereum respectively. We’ll go with CeFi first. This one is interesting to me because I’m not sure I remember it being used really before people started saying DeFi. CeFi is centralized finance. Go back to all those old ways of doing things. Government control of the ‘money supply.’ International currency fluctuations. And everyone’s long-time favorite (including my own), Gold. All of the above are transacted and exchanged in a ‘Centralized’ manner. That centralization revolves around governments, banks, and exchanges. Transactions are conducted in such a way that the payment still passes through one of those government run, or at least affiliated and regulated institutions.

Last, let’s look at what can pretty much be thought of as the Wild, Wild, West. DeFi! This where the party is, or at least the place with the ability to do the most, sometimes not yet knowing if you’re really ‘permitted’ to transact that way. I’m not going to get into the crypto debate around whether or not this should really be permitted. That’s a Political Science discussion, yes, my major, around how to build your society. With all the people yelling about the future of DeFi being the new world, one could argue that the barter systems that supported societies for thousands of years were pretty much DeFi. You want something I have that has value, and I get some sort of value in return.

So why do I refer to it as the Wild, Wild, West? Because the rules that are beginning to be put into place by, yes, those same centralized government bodies and are being written more out of necessity than a desire to give up centralization. Crypto and digital assets have arrived and people are exchanging them. And many of them are now choosing to do it on a one to one, or peer to peer basis. Or, they’re doing it on decentralized exchanges, and I’m not really sure why that’s not an oxymoron at least. No matter, the governments are, as is their job, creating laws to protect people from each other and to some extent, themselves. Maybe we should discuss that last sentence in a blog around online gambling…another day.

Now to one of my pet peeves about all of these terms. ‘Fi’ always comes second. Maybe it was a way for the ‘cool kids’ to differentiate themselves; bring the focus to the technology side of things. And that’s a problem. Why? Because it allows the builders of these products to de-emphasize the Fi part and that’s a bad thing. Fi is people’s money. And I have tried to always remind my teams that after their family, people probably put money as the second most important thing. Not everybody, but on some level we all have to think about our money. Very old fashioned like gold, or just old fashioned like government-controlled currency, or new age money; digital currencies. People care more that it’s money than they do about any of the ‘Fi’ differentiators. And if you are building a product involving money you better care about your customer’s money as much as they do. I’ve seen the other side. Companies blow up.

I once spoke to someone about a job at So-Fi and asked point blank whether they considered themselves a Tech company or Finance company first. The answer was a Tech company. Tech was definitely the wrong answer. I immediately knew it wasn’t a match. Even the company tagline is ‘Get Your Money Right.’ It isn’t, hey play with all this cool technology on the phone. They’re selling money services, not tech. Tech is merely a means to an end, so why focus on that first. We’re talking about money here, the time for jingles and cool commercials is over. Is my money safe with you? Can you help me make more?

And that’s it. That’s what? That’s FINANCE. One long established, well understood word; finance. It means money. The sooner we start looking at all of this stuff as just that, the Less confusing it will actually become. And the more accepted. After all, isn’t that what all these companies say they really want? I’m waiting, and I’m ready. Hopefully, if no one else has gained anything from this installment, I’ve at least made all the Finance majors out there happy.

Step Away From The TV

/ Bill Sindel / 1 Comment

…Or the computer screen, or the cell phone. Unless it’s to put on some meaningless background noise. That’s what we did in the prop trading shop. We rarely had CNBC or Bloomberg TV on. Generally, we tuned into sports, Netflix, that type of thing. Something you could ignore. Business channels? Maybe if there were interesting things going on. This would probably have been one of those times.

Traders have often latched onto the saying attributed to Confucius, ‘May you live in interesting times.’ Blessing and a curse. To a market maker like I was, volatility was something we looked forward to. But as you’ve probably gathered from previous blogs, we were a different breed. Like people that love the biggest roller coaster you can find (me), vs sane people. And it’s not just the old pit traders from the floor. The early days of screen trading had tons of opportunity for that style of trading. Now? It’s awfully tough for a person to compete with the speed of machines. It’s really why I preach to you, my readers, to not gauge your success on a daily basis. Look at trading, or investing is an even better term, as a long-term game proposition. That’s something that has yet to go out of style.

Meanwhile, back to the television. The thing about our prop trading office was that we didn’t trade off of the host’s discussions that tried to explain sudden news or even, for the most part, off of the news headline itself. We would switch to CNBC, however, when something new did come out (flashing on our screen), so you would at least have a basic understanding of why your trades, win or lose, went the way they did. You’d hear someone say something and stop to listen briefly. It’s a bit of a talent to filter noise while still being able to grab the occasional important tidbit. Or maybe it was ADHD. But either way, the stops were in. Now move on to the next trade.

Other than the very, very small community of insane traders, the thing that virtually everyone that interacts with markets does not want is extreme volatility. Pick a direction. Progress, up or down, over time. I’ve been asking friends/colleagues in the finance world how their necks are. It’s really a type of mental whiplash. The constant knee jerk back and forth will destroy any trading strategy. In crypto, people look at how many positions, or how much nominal capital losses were stopped out, or ‘liquidated.’ I don’t consider watching others lose money a sport. I will say that crypto has not been shielded from what’s going on in traditional markets right now either.

But it’s exactly those traditional markets moves that are leading to stories you’re reading. I’m not passing judgement on tariffs or any other current market moving news. I am passing judgement on surprises. They’re bad. And when they rock the bond market, they can be really bad. Why. (Yes, I know there should usually be a ? to end that sentence; this time it’s a statement)

Because bonds are different. Interest rates are different. I’ve written a blog on the slow movement of interest rates. I followed up by admitting that, in that instance, I was wrong. The Fed moved one way then shortly later moved the other. When thinking about interest rates, it’s easy to understand why these are generally long term ‘trending’ markets. Because long term decisions are made based on the expectations of interest rates. Should I buy a house now? Will lower mortgage rates a year from now position me to buy a larger one? Or in my first choice of neighborhood? Or, will I be upset if I don’t pay over asking for this house now because next year interest rates may not allow me to buy it at all. Everyday decisions for everyday people.

Businesses, from small to large corporations, also can end up successful or not based on interest rates. To put it in business or economic terms, what is my cost of money. If I borrow to buy some new equipment for my neighborhood store, or build a new factory for my large industrial corporation, how much does it cost me each month? Business decisions for business people. Same thoughts, just different scale.

So that’s it. That’s why what’s going on around us is, to me, more f’d messed up than usual. Because it’s surprise after surprise after surprise. Usually when these types of things happen, it’s one surprise. Granted, one BIG surprise, but then it’s done. Mortgage meltdowns. The Bernie Madoff events that cause instant selling (or buying) before cooler heads prevail. So what’s the answer?

Where we started. Don’t make trading decisions based on the news of the minute. How do you avoid it? Watch, read or listen as you would to other news stories. Crazy weather occurrences. Royal coronations. Your town’s high school won the state championships. P-Diddy; well, maybe not that one. But you get the idea. This is important news, no denying it. It can and will impact all of us. No denying that either. But we can’t let it impact our outlook on a momentary basis, because in the next moment, whatever ‘it’ is could be going the other way.

This is one of the times where you have two choices; well, three if you count losing all your money as one of them. The other two choices are, Sit on Your Hands or Shut Out the Noise. Sitting on your hands means you’ve made decisions before based on information gleaned over time, technical charts or fundamentals, so expect them to still play out, over time. Unfortunately, that time may be longer and a much bumpier ride than you initially expected.

Second, shut out the noise. Like when we’ve spoken about Discipline being SIN’s #1 Rule, this one is much easier said than done. You can start by turning off financial television, radio, podcasts…or at least just use them as background noise, as I mentioned earlier. Keep following the people you followed before we hit this volatility, and give them the same respect they’ve earned over time. The ones who just shout out how ‘right’ they were? Yeah, drop ‘em like that bad habit on New Year’s. But stick to this resolution. Or look at it as entertainment. Like professional wrestling. You know they’re full of shit, but it doesn’t mean it can’t be fun to watch.

So that’s how we handle the Surprise of the Day atmosphere we’re living in. Take a step back like always, plan your approach, and stick to your plan. I’ll check back here in the near future and see how everyone’s holding up.

Only 10?

/ Bill Sindel / 2 Comments
Only 10?

With the recent melt-up of bitcoin and much of the crypto/digital asset universe, I decided I’d write something. Wasn’t sure I would do this again, mostly because it’s been so long, but with the rally I decided to write a kind of Part II to my previous blog https://billsindel.com/2021/05/13/trading-is-hard/. In that edition I posted my SIN’s 10 Rules of Trading. I realized I’ve never really addressed them, and while they don’t necessarily need much explanation, I thought I’d go through them anyway so you can understand why I picked these 10. Most traders could make a list far larger than that, all learned from mistakes.

While many people making these lists start at #10 and count down, I’m going to start with the most important one, in case you decide to stop reading before the end. And so, with no further delay, here’s SIN’s 10 Rule of Trading:

Rule #1: Discipline [ dis–uh-plin ] noun – behavior in accord with rules of conduct; behavior and order maintained by training and control.
That definition was one of nine listed and was actually used in a sentence related to the military as an example. It makes sense to me since it’s not generally an instinctive trait; it’s something you need to focus on until the ‘behavior’ is second nature. If you’ve ever spoken with a successful trader, you will have heard them use this word. No matter how you go about your decision making, be disciplined. A disciplined trader with a mediocre strategy will be far more successful than an undisciplined trader with a great strategy. Don’t change your outlook because you want the asset to go up (or down). Or because you’re wrong. Just repeat the same habits that lead to profitable trades. Don’t talk yourself into or out of something when you know it’s not what has previously been effective. This one word, discipline, sounds so simple, yet when you have skin in the game and the success or failure of the trade or position will impact your life, it can be extremely hard to maintain your discipline.

Rule #2: Don’t Add to Losers
The point of this is not necessarily to say if you bought it at 10 don’t buy more at 9. What it really means is that if you have a position that goes against you enough that you know you should get out, don’t add to it just in case there’s a 50% move back and you can get out even. Could it happen? Of course! Does it happen? Of course, again. Will it work when you try it? Probably not. Why? Because you’re not adding because of support or resistance, you’re adding out of hope and prayer. Hope is most definitely one of those four-letter words you need to avoid when it comes to trading. Oddly, I think so is love; I love this position oftentimes doesn’t end well. We’ll get to this later in Rule #9.

Rule #3: Make A Plan and Stick To It
If you buy something and say I’m going to sell at ‘A’ profit or ‘B’ loss, then do it! If, as part of your plan, you buy half figuring it could go down a bit and you can buy more but at least you’re in, then do that. Don’t get this one all mixed up with Rule #2. A negative P&L isn’t necessarily the reason to get out, it could mean the asset has traded all the way down to a support level and you decided in advance that you would buy more there. That’s a plan. So do it. And if you say I’m going to sell ½ when it goes up to a certain point, do that too. Greed kicks in when your trade is going your way; same way Fear sets in when it’s going against you. Just stick to the friggin’ plan!

Rule #4: The Market Is Always Right – You’re Not That Smart
Too many times someone will say, ‘why is this going down? The news is great! The market is wrong, they’re all going to lose money. I’ll be right in the end. That’ll show them.’ Yeah, OK Einstein. Seriously? Maybe it’s a ‘Buy the Rumor, Sell the News’ situation. Everyone expected the news that came out and bought before it was official. When it came out, the buyers had already done their thing and now were taking some profits. Or maybe there was a small nuance in the news that you just missed. Or, or, or…too many reasons for you not to be the smartest one in the trading room. Sorry if I hurt your feelings. On to the next trade, er Rule.

Rule #5: That Feeling In Your Gut Is Indigestion
I’m pretty sure I’ve covered this one previously in a less definitive way. People very often trade on ‘their gut.’ And I’ll be the first to say that for a very small number of traders it works. Now I believe this is because they get the same feeling each time a specific setup presents itself and for some reason, they feel it physically. Really, it’s the result of years of seeing the same thing over and over, doing the same thing in reaction over and over, and making money over and over. For the rest of us, it probably means we’re wrong and the feeling in our gut is nerves telling us we’re fooling ourselves…or it could simply be the fish you ate last night.

Rule #6: Don’t Chase A Trade – There Will Be Another Opportunity
Sometimes you’ll have a plan to enter a trade and you miss it. Oh well. Shit happens. Move on. You will always miss trades. That’s actually the good news. It means there are enough opportunities out there that you don’t have to wait long for the next one. But wait for it. If you ‘chase’ a trade you’re changing your initially planned risk/reward setup for the trade. Now you’re changing the plan you thought would work. Refer back now to Rule 3. It’s about the plan. Stick to it. If you missed this trade, make a plan for the next one. Better use of time and energy.

Rule #7: Let the Market Dictate Your Exits – Not Money
This one may be a bit more esoteric, but it’s a rule nonetheless. What I mean by this is, when you put on a trade don’t say I’m putting this on to make my rent for the month. Or just enough for dinner. Set your exit the same according to your rules. Saying ‘I want to make $100’ doesn’t justify your entry or exit spot, unless it’s coincidental. Get in the trade. Enter your stop and target (if you have one) for the same reasons you always do. That’s how you make rent money.

Rule #8: Learn From Mistakes or Repeat Them
Kind of a general life rule, no? I’ve always told new traders to keep a detailed trade log. Write down why you got in and out of every trade. Then review it at the end of each week. What sucks is writing the same stupid mistake down multiple times, because as you’re reading it again and again you feel like a total idiot. The good news is I never told anyone to read it out loud to friends or family, even if may have thought about it…lol. Seriously though, this practice reinforces good habits and helps drive home the bad ones that continuously lose you hard earned profits and should therefore be avoided forever more.

Rule #9: Save Emotions For Your Family
I’ve always believed that getting out of trades, winner or loser, is harder than getting in. Why? Because every tick of the market means you have more or less money. That can get emotional. When I left the trading pits, I started writing computer trading models so my exits would be calculated automatically and my emotional state at any moment would not interfere with the successful execution of my trade exit. As I’ve gotten older, I’m finding it easier to trade unemotionally, but I still won’t trade without a Stop order in place. I just don’t trust my own emotions during decision making times. To me, this is all numbers. Price, Volume, derivative indicators, e.g. Moving Average, are all just numbers. It’s binary. Up/down. Profit/Loss. Where is there room for love (or hate) or any other feelings in there? There isn’t. But there’s plenty of room for love and other emotions, pride, admiration, etc. when you’re with your family. Just please keep both your feelings and your family out of the trading room.

Rule # 10: Remember Rule #1
‘Nuff said.

Will following these rules guarantee success? Of course not. But it sure will increase your odds of success, and as a Technical Analyst looking at charts, I’m really just trying to maximize the odds of success in my favor. So, start with these rules. Add or substitute more of your own as you go. Just don’t forget Rule Number 1…or Number 10.