Transcript: CIBC Investor’s Edge — What do the best traders have in common?

[Title Name: Mark Herzog, CPA, CA, CFA - Head Global Markets Equity Trading, CIBC Capital Markets.]

[Music plays.]

[CIBC logo. CIBC Investor’s Edge. What do the best traders have in common? A graphic of a mobile phone with a line graph and data on the screen. It scrolls, showing various graphs and data.]

[Mark stands in an office area and speaks. A banner is shown with his name, title and information that this was originally aired on November 23, 2022.]

Mark: One big thing that's helped me a lot, and not just with trading, with a lot of things in life, have always been: who's done this and who's done it well, and who can I learn from? And that's always the best thing, in trading. Markets are probably the quickest place to be humbled, because you have to learn to be wrong. Because I'd say on average I'm wrong at least 50% of the time, if not more. So you really have to learn what being wrong means.

[Text beside Mark titled: “What do the best traders have in common?”. The first point is shown: 1. “Risk management: cut your losses short.”]

So putting that back in risk management: for me, cutting my losses short. First and foremost, I need to stay in the game. I want to be there tomorrow for my clients. I want to be able to trade more with them and I don't have the same capital to be there the next day. So if you look at people like Warren Buffett. If you look at the Renaissance guys, you run all those algos that are in a “black box”, different investment styles, like I said. But that doesn't mean they don't have similar risk management.

Anyone at Renaissance knows where they get in and out of a trade, they just do millions of trades a day. And Warren Buffett, he buys a company, he's a value investor, but he knows when he pulls the trigger, and then he has an idea when it's working. And when it's not, he gets out. So he has risk management applied to his theory.

[The list then slides in to show the second point: “2. Consistency”. The list then disappears again.]

And that brings to the second point - consistency. When you're coming out and putting these things on, you do the same thing over and over. Good trading is actually quite boring, which you realize is a good thing. I don't want my emotional roller coaster going all the time. I want to have my process, my investment plan in place laid out, so I can stick to it. So when the event happens, I'm either adding to it or I'm lightening up or whichever applies to your thing. But doing the same thing over and over repeatedly is what gets you there in the long run.

[The list again appears and another point is added: “3. Patience”. The list disappears.]

Patience: exactly the same thing. That's very similar to the sitting-out power that I alluded to. Like, if I don't see a trade, not doing a trade is probably the best trade. Take, for instance, the bear market. If you're a momentum trader and unless I’ve decided to take the short side, which I find is infinitely more difficult than the long side. I don't trade. There's nothing wrong with not doing a trade and not being at risk. I mean, you have a GIC now for 5%. I love the GIC. We haven't seen that forever. But my point is, you don't always have to be in the market if it doesn't fit your discipline.

[The list appears and another point is added: “4. Discipline”. The list then disappears.]

And that is the other part, is that discipline and patience almost go hand in hand. Where you have to have a plan going in. So, I never like to be at the screens without a plan. I like to, when the markets are closed, and you can think clearly. You come up with your plan and what trades you like, what stocks you want to monitor. So, you know, at that point in time, when the markets are open and the price level gets hit, I know what I'm going to do. It goes against me? Then I know where I'm going to get out. If it goes up 10%, I'm probably going to sell half and let the other half ride.

So when the markets open during trading hours, I shouldn't have any surprises. Because pre-market in my head, I've gone through all scenarios that can happen. If I.T. goes down, what's my backup? If the markets freeze, am I exposed? Do I have another executing discipline? So every single scenario you want to have in your head when you're a short-term trader to make sure you can, again, manage your risk.

[The list slides in and another point is added: “5. Always keep learning”. The list then disappears.]

And always keep learning. That's one of the biggest things I love about this job is my background as a “bean counter” was very risk-adverse, where there’s a lot of repetitious stuff that you can manage from auditing. But as you get into this, you're always learning from the markets.

It’s a huge psychological lesson. “I'm buying this.” Well, then why did someone just sell it to me, if it's such a great idea? There's so many facets that pull in the market. So many people involved in so many companies. So many good traders out there that we can learn from. And the ascension of social media, well, maybe not Twitter anymore, but a lot of the other areas we can use now, where we have so much information available that we can learn.

[The list slides in and another point is added: “6. Record and review”. The list then disappears.]

Point six here is one that I find is what helped me the most. Where, if you look at any other facet, when someone does something wrong in a job, you would kind of sit back and self-evaluate. But very few people I've seen over the years really record and review their trades. And what helped me with that is if I'm sticking to a discipline of momentum. If I go back and review my trade, and I literally print off a chart. Chart my entry point, chart my exit point. How can I optimize that? What did I do right? What did I do wrong? Did I obey my criteria for getting into a trade? Did I, or not? So what worked? What didn't? What can I improve? If I go back and look, there is William J. O'Neill, a huge fan of him. Why? Because he prints out tons of charts. And history does repeat itself in trading.

You know, I keep it simple with price and volume. Price and volume are the two basic fundamentals of trading. You can really, you don't need anything else, because all other technical indicators are usually derivatives of that. Anyone who trades in the market has to leave a footprint. So the “black boxes”, through Citadel, Warren Buffett accumulating OXY, whatever he's doing, those footprints are there. So if I'm going to make a trade, I want to look at those footprints that all the big “institutions” and whales are moving, because me as a little guy, we have an advantage.

If someone like Buffett needs to go in and out of a trade, it takes him weeks, maybe even months to move a position in some cases. Or me, as a little guy, I can be more nimble. I'm just trying to find a momentum trade, where I can ride that wave of the money flow going in and out. And where is that information located? Right in front of me on the price and volume chart.

[The list appears and the last point is added: “7. Physical, mental and life balance”. The list then disappears.]

And the last part is physical, mental and life balance. I am a, how would you say, an excitable person. So, I can find where I get too much into things and I'm swimming into things and I don't pull back enough. When I come home, my level of downtime is a little bit different than my wife and three kids. So I've got to realize that I’ve got to balance myself, take a chill, and just relax a little bit. Both mentally and physically, because I've found with trading, given the state of information in the market, it becomes all-encompassing. So I’ve found finding that balance, whatever that is, is very helpful because again, when you're trading, the more emotions you can have out of trading, the better trader you will be.

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