NetPicks Interview with Anne-Marie Baiynd, Author of The Trading Book Part 4. In NetPicks’ Author Series, NetPicks President Mark Soberman sits down with the leading day trading authors as they discuss key concepts that will help individuals elevate their trading. Read this 5-Part series as Mark chats with Anne-Marie Baiynd, author of The Trading Book, and see what insights are in store. To listen to the entire interview, to listen to past interviews with top trading authors, or to be notified of future webinars, please visit: http://netpicks.com/authorseries. So I mean, I, know you mentioned patience is so critical, I mean is there anything that – I don’t – anything that traders can do or how do you convince yourself that you’re just going to have to sit tight for a long stretch of time when you trade? Anne-Marie Baiynd: Well, you know, that’s very hard to convince somebody to do because the level of anxiety, right, the kind of emotion that gets solicited out of us when we see a gigantic candle that’s moving with force, we automatically go, “Oh my gosh. I’m missing out,” right? It’s like running after a train or something. You don’t – you have to be in more control of your autonomic system. And by that I mean the best trader understands that visceral, that thing from the gut that makes us go, “Huh! I got to go.” You’ve got to learn to hear that and feel that and go, “Wait a second. What are you doing? What are you doing? How are exposing yourself to risk?” And the main thing that helped me along the way, because I was very, very impulsive and I did not realize that I was being emotionally manipulated by the site of the candles, right? I was manipulating myself – you know, just looking at it, I’d go, “Oh, no. I got to go. I’m missing out,” or whatever. And I would make me buy and high and sell it low just every single time. And so the thing I had to say to myself was, “All right. You’ve got to put some boundaries in place.” And the boundaries affect the psychology of making decisions. And most of us are impulse decision makers. “I think I’m going to eat that.” “What are you going to eat, sir?” “Well, I think I’ll have this.” Or something – everything that we do has general impulsive nature to it except for some very key elements that we might really focus a lot of time on. But in general, we don’t do that. So we have to realize that, A, we are impulsive about making decisions. And then B, we have to understand that the more controlled we are about making decisions, the less likely it is that we make poor decisions. And so it just took me really getting punch in the face with a bunch of brass knuckles over and over and over again before I finally went, “Nah-ah. No, you probably need to wait on that,” and then to understand that, “Hey, you have a system that works, just wait for it, just wait for it.” See, many times we are correct about a setup, we don’t wait for it, we get smacked, we leave and we start looking at another stock and we never come back to see whether the actual setup worked. Or when we do come back we go, “Man, look what the market did to me. La-la-la-la-la. I was right all the time.” We don’t think about, “Well, okay, if you’re right, how could you have done that better?” Many of us don’t really take the time to move into that secondary level of analysis that makes us go, “Oh see, you shouldn’t do that. You should wait.” And realize this; if you miss it, if you wait and you miss it, we’ve got a buffet with 14,000 items sitting on it. There’s going to be something else to eat. Just hang out, right? It is not a horse race. It is not a horse race in, you know, a 60-second sprint, not at all. This is a business that takes calculation and patience and perseverance. And so if you missed this one, don’t worry, there’s another one coming. Mark Soberman: Yeah. It’s like it’s not really breaking news that the markets are actually going to trade again tomorrow. Anne-Marie Baiynd: Exactly. Mark Soberman: They will be there for all of us. I would assume – you also have some sections which maybe weren’t always the – maybe it wasn’t the easiest chapter to put together, and that was on trade journaling. And coming to some of these realizations, I guess, in your trading, it sounds like you had to do a lot of sort of self-discovery. And you retrenched in some of those passages, I’m sure it wasn’t easy because it was admission, basically, of, you know, what I screwed a lot of things up in my trading. And you were actually well beyond just, you know, being a little bit upset about some trade results. I mean it seem to hit you physically and even emotionally. You were defeated, really, at one point — Anne-Marie Baiynd: Yes. Mark Soberman: — in your journals. I mean I guess – I mean you get to that point, I think all traders, we get to that point. I mean I had thought about quitting many, many times. You know, what was the breakthrough moment or, you know, how did you come out of sort of the dark despair a little bit? And what turned it around for you? Anne-Marie Baiynd: Very, very good, interesting question. And really, it is very true that it was the most difficult thing for me to write in the book and most difficult thing for me to replicate because it was really like I was filleting myself open and saying, “No, I have a look.” And it was extremely uncomfortable. But I thought to myself, you know, what’s the nature of this book, it’s to actually show that reality. And what happened to me was I said, “You know what? Your brain is so jumbled up right now, you’ve just got to take a break.” And so at my threshold of – you know, the worst trading day of my life was I traded the ISRG earnings a couple of years ago, three or four years ago, totally on one side. I was long and I was long via naked puts. And it was – I was stuck with $300 at the time. It was a humongous delta and was down tens of thousands of dollars at the open. And it just kept running. And after that day I went, okay — I am just about destroyed. I took some time off and I said, “All right. Either you quit or you figure out what you’re doing wrong because you are doing something wrong, Anne-Marie. So figure it out.” And I stepped away and I said, “All right. Do you have the emotional stability to match through the second part? Do you still have the will to win?” And I deemed that I did. And then I said, “All right. You’ve got to start at ground zero and start picking every single thing apart that you do.” And so I said to myself, “You know? You can’t go back in with baggage. You have to just come in clean.” And so I took two weeks off and I said, “You know what? You’re going to give yourself a break.” When I came back, the first thing I did was turn of the ding that said you have a trade, because all my trades were so bad that I would hear a ding and I would get sick to my stomach. Truly Pavlovian, I’m not kidding you. And so the first thing I did was shut that off. I said, “That’s – you’re not going to have that kind of visceral event happen to you. You’re going to shut that off.” And then I went straight back to paper trading and started from scratch. Mark Soberman: Yeah. I mean I think it’s – I think everybody – I know when we do like surveys and we have new people come to us, you know, typically at that point, about 92% say that they’re not turning profitably. And, you know, 8% are. And so it’s usually the overwhelming number of people who aren’t. I think anybody who’s finally gotten to that 8% or that success point, does hit that low point, you know, it’s kind of how do you respond, you know, off of that. I would assume a lot of the motivation also for you is you’re just passionate about trading. I mean do you think you can be just passionate about making money and not really passionate about the markets? Anne-Marie Baiynd: No way, no way. You cannot do this job just for the money, I am totally convinced, or you can but you’re going to burn out. It’s just like being a physician or anything else, you know, you’ve got to love some element of the game or it’s going to destroy emotionally. It’s too difficult. Mark Soberman: Yeah. And I think some of that, you probably have to sort of figure out, like you mentioned, kind of what works for you. I know, like me, personally, I always turn off my PNL in real time. And I’ve had people sort of observed my trading and they’re like, you know, “Mark, you don’t know what you’re making on that trade.” And I’m like, “Yeah, I don’t know what I’m losing either. And I don’t want to know. I want to just execute my plan. And it’s going to work out the way it’s going to work out.” And so for me I know psychologically, I turn off the sounds because I don’t want to hear stop out or hit target, I don’t want to hear any of it. It’s just — Anne-Marie Baiynd: That’s so funny. I’m exactly the same way. I am exactly the same way. Here’s my philosophy; go after the execution of the perfect and the money is going to follow you. Mark Soberman: Yup, yup. I’m going to agree with that. One last question and we’ll sort of jump into some questions here too. Do you still, you know, get angry and frustrated with the markets, specific trades, or have you found this, you know, Zen-like balance, you know in trade __________ [51:12]? I know my answer but I want to hear it from you. Anne-Marie Baiynd: You know, I don’t get angry with the market. I get angry with myself because I can see when things are becoming unstable and I have a choice, “Hey, just wait it out, you know, it’s going there.” And then it’ll just come back and hammer me. And so I’ll be very mad. Or I won’t be paying attention and then, you know, I’ll get mad at myself there. I don’t normally get mad at the market because I know that the market is always trying to take my money. Mark Soberman: Right, it’s a conspiracy, I tell you. Anne-Marie Baiynd: Exactly. Mark Soberman: I’m with you on that. Let’s go to a few questions. I’ve got some that are in here now. And, of course, if you have something that you want to ask Anne-Marie, this would be the time. So I’ll just sort of kind of read these in real time so we’ll see how these go. From Mahesh goes, “The interview is already really good. I’d like to get a copy or download it once it’s over.” So Mahesh, as we get towards the end I’ll put up a link where you can go and we’ll have the replays posted there as well as the podcast that we do. We’ll take an excerpt of the interview and put it in there for you. So we’ll make sure that we get that out. Tim says, “I’ve read your book and it’s on my shortlist of valuable trading books.” That’s nice to say for Anne-Marie. Thanks for writing it. So Tim has two questions related to the moving average trade long. Okay. We’re going to get specific now. From chapter eight – but the question applies to both long and shorts. How do you filter crossover trades that rollback on you? For example, not enough volatility or follow through and the market goes range bound after entry. So basically talking about the crossover that you talked about, I guess. You know, what do you do when it fails? Or two, are there further confirmations that you need to decide? Obviously, just a crossover. Anne-Marie Baiynd: Well, there’s always more than the crossover, right? And here’s the rule of thumb, the steeper the slopes, the more important the crossover. Mark Soberman: Right. Anne-Marie Baiynd: The flatter the slopes, the less important the crossover. Now, here’s what happens, it happens invariably, we get a crossover, things look great, we jump in the trade and all of a sudden all the momentum falls out of it and it stays flat. Two things that you need to look at; look at those candles. Are they making higher highs or are they making higher lows or are they truly range bound? If they’re truly range bound, open up that Stochastic Momentum Index. That Stochastic Momentum Index, I use the parameters 8 and 15, those are the 8 and 15 levels. If you are in a flat space and you see that Stochastic trending sharply in one direction or another, it’s probably going to resolve in that direction and so that should give you an essence about whether to get in or get out. But that happens to all but sets a peril. Remember, a setup, a good setup, still has a probability of loss and failure associated with it. There is no sure thing in the market except that it’s going to go up and down and you’re probably going to lose money. That’s the only sure thing you can think about, but that’s what I would suggest doing if that happens. Mark Soberman: Right. So you put the odds in your favor but at the same time it’s certainly no lock or no guarantee. He also – part two of the __________ [54:42] about the exit because he’s talking about waiting for the cross-back over of the H1E for a component exit, you know, you can get a lot of profit. I guess besides – let’s say you got that positive crossover, you buy, everything seems to be okay. I mean what do you typically use for your bail out point besides waiting for a cross the other way? To listen to the entire interview, to listen to past interviews with top trading authors, or to be notified of future webinars, please visit: http://netpicks.com/authorseries.