The Mind of a Trader – Brian Winterflood

“The hope of making money will not provide adequate motivation to succeed in this business. Hope can only take so many knocks before it evaporates taking motivation with it. To last in this business, to persist in the face of losses, to be committed despite being wrong, to hold on despite debts, requires something more powerful than hope. To truly succeed you need a love for what you are doing and a passion for doing it.”

Chapter 9 of Alpesh B. Patel’s book The Mind of a Trader is an interview with Brian Winterflood. In this interview, they focus their conversation around three main topics: Motivation, Hard Work, and Self-Accountability. I found each of these areas interesting and was able to use Winterfloods examples to reinforce my own thinking on these topics.

Motivation

Patel and Winterflood spend the first third of their interview discussing motivation for trading. Winterflood points out that one must “have a natural passion” and explains that he has never woken up not wanting to go to work. According to them, in order to achieve great success in trading, you have to be obsessed with the market. You have to want to put in the extra hours late at night or early in the morning and you will never be able to do that if you aren’t insanely passionate about it. They also suggest that if you are only in it to make money that you will have a much more difficult time accomplishing that goal.

I don’t believe motivation is a problem for me. For as long as I can remember I have been obsessed with stocks. Although I sometimes struggle with confidence issues and not being convinced that I am ever going to get where I want to be, I never have the issue of not wanting to put in the effort. If anything, my work is limited by time constraints, not motivation.

Hard Work

In this section of the interview, they discuss the importance of doing your homework and putting in the time studying whatever strategy you decide to employ. They also ask a question that I found interesting: “What is your edge?” The clarify this question a bit by describing the long hours being put in by analysts who are being paid to study the markets. How do you expect to compete with them on a part-time basis?

I hope this blog is evidence that I am willing to put in the time. I reverted back to my O’Neil schooling to answer the question about my edge. I have the advantage of being a small, individual trader. My competitors, trading massive funds, have to scale into their positions over weeks or even months. I can jump in or out of a position with a single order. I believe O’Neil compared it to a small speedboat vs an aircraft carrier, but for the sake of the Ohio River, I will say it’s like I am a jetski and the large fund are barges.

My competitors are also generally required to be almost fully invested in something. I have the luxury of using cash as a position. This is exactly what I am doing during the current choppy market.

Self-Accountability

In this section of the interview, Winterflood says that “successful traders remain accountable and answerable to themselves for all their decisions.” He also advises against falling in love with a position and recommends a quick loss cutting strategy. I would say this is pretty much common knowledge for anyone who has even skimmed an O’Neil book.

One thing I did wrestle with is where to draw the line between understanding why you made mistakes and making excuses. Also, what if your decision making process was completely fine but the outcome wasn’t good. I dealt with this on both of my last two trades. I feel like every reason I bought was correct, but I still lost money. I am comfortable accepting responsibility for the loss, but I also would like to know if anything I did was incorrect.

Falling in love with positions is also something I have struggled with. At one point, I didn’t want to ever sell PCLN because I was having so much fun calculating my paper profit ever few minutes and it had a cool story. I obviously have more of an issue in this department when dealing with a winning position than a losing one. I have always been good about taking quick losses.