“You can be forgiven for thinking that the world is a pretty terrible place right now: the downing of a Malaysian jetliner in eastern Ukraine and escalating sanctions against Russia, the Israeli invasion of Gaza, renewed fighting in Libya, civil wars in Syria, Afghanistan, Iraq and Somalia, Islamist insurgencies in Nigeria and Mali, ongoing post election chaos in Kenya, violent conflicts in Pakistan, Sudan and Yemen, assorted mayhem in central Africa, and the situation in North Korea, described in a 2014 United Nations Human Rights report as having no parallel in the contemporary world. Only in Colombia does it look like a multidecade conflict is finally staggering to its end. For investors, strange as it might seem, such conflicts are not affecting the world's largest equity markets very much.” Quoted from JP Morgan Asset Management, Eye On The Market, 21 July 2014

(This came across my desk today and triggered some thoughts. Nothing against JP Morgan at all by the way.)

It is no surprise nor strange to me how markets react or do not react to certain events happening in the world. The market is what it is, an aggregate of market participants’ sentiments and more importantly actions. “Mr Market” is always right. It is futile to second guess how markets will react to specific events. Outcomes of such geo political events are binary in nature and do not present a good risk to reward nature for trade setups. This brings me to the point that most financial news are non actionable. They are at best informative or entertaining.

I used to be rather obsessed with financial media. Looking back it’s just the addiction to the excitement of markets and the false perception that the more I know about EVERYTHING that is happening in the world, the more money I can make from trading capital markets. The truth is: there is hardly any consistently actionable piece of news that you can get out of financial media.

I was listening to a podcast the other day and it was an interview with Jack Schwager. They were talking about this rock climber featured in his new book, Hedge Fund Market Wizards (have not read this book, definitely on my reading list though). In short, the rock climber apparently does some dangerous feats and someone asked him about the adrenaline rush experienced during these feats. He basically replied that if he ever feels any form of adrenaline rush while he is attempting his feat, something must be very wrong. I guess he has a system that he performs religiously when he rock climbs and if he consistency performs the steps he will be fine. Isn’t this true for all sportsmen? The name of the game is consistency.

The important parallel drawn to trading is that succesful traders do not feel any form of adrenaline rush from trading. It is a very systematic process and they follow their process as they navigate the trading journey. Now that’s a truly important concept. By the way most successful traders and investors are systematic. Systematic sounds technical or quantitative but that’s far from the truth. All it means is that there is a process to guide proper decison making. When A happens you do X, when B happens you do Y. Warren Buffett and Benjamin Graham has a very systematic process in searching for their stocks. Ray Dalio from Bridgewaters Associates has a very systematic fundamental approach to capital markets.

An effective way to reduce adrenaline levels in trading is to have a clear set of rules to guide your decision making. To take it a step further automating the mundane trade execution process reduces the need to stare at screens. This definitely reduces the chances of your emotions wrecking havoc with your rules!