Viewpoints of a Commodity Trader is a little known book written by futures trader Roy W. Longstreet (1968). It is a good book in the sense that it contains a lot of wisdom on the psychological aspect of trading. However, the content was put together in a casual manner which might be perceived as unorganised by critics. This is perhaps the reason why it was not very popular and you cannot easily find a copy today. Since it is a waste to let the wisdom of Mr. Longstreet fade away without getting noticed, here is my attempt to summarise his ideas in a organised manner.
Grow yourself and your account will follow.
Mr. Longstreet quoted philosopher Emerson who stated that a man is as a tree and his wealth is as a vine. The vine can grow no higher than the tree. In a similar sense, your character is the tree and your trading account is the wine. If you do not strengthen your character, your account will never enlarge itself.
A successful trader must be able to know and to think. Mr. Longstreet pointed out that some traders die from too little knowledge. Many think that to seek advice indicates weakness, but the contrary is true. However, it is also true that others die from knowing without thinking. Some analysts have great knowledge and that is all they have. They know so much about the past, but a successful trader must be in tune with the present. History never repeats exactly and it is fatal to expect two markets move similarly in minute detail. Those who depend on learning alone sooner or later prove that learning without thinking is time wasted.
Another a trader needs is courage. Courage is two-sided in trading. One side is when you back your knowledge when things are going your way, and the other side is when you have the courage to quit when things are going against you. The greatest courage is the one that lets you graciously admit that you are wrong when you no longer have a good reason to trade. Mr. Longstreet had witnessed cases where temporarily successful traders have lost their touch because they lost their courage. They became uncertain of their judgements so that they make wrong decisions. This comes back to the point in the beginning that you make money only if you are able to.
Strength is to bend when appropriate.
Mr. Longstreet has a Japanese gardener, who told Mr. Longstreet that water is the symbol of strength in the East. It conforms to everything that it touches, yet has the power to force its way through rock. Another symbol of strength is the bamboo. It bends with the wind. When the wind passes, it regains its upright position.
Mr. Longstreet believes that mental strength is like the spider’s web, which remains there after every storm while oaks have fallen, simply because it yields to the storm. A successful trader therefore never marries his positions when it becomes costly. Many people wrongly confused strength with brittleness that it breaks with the wind instead of yielding. Over-confidence in your knowledge of the market may deprive you the grace necessary for success. One must have faith in his knowledge, but that faith is not adequate unless it is faith that permits doubt.
Another form is mental strength is being able to take time out when you are not in good form. Mr. Longstreet knew some successful traders who refused to take a vacation in the fear of missing something important. They eventually lost their “touch” and their money. When faced with such a situation, it’s time to ask, is this the only opportunity that will ever come my way? And if this is such a great opportunity, am I mentally and physically prepared to take full advantage? If the answer is no, it’s time to stop and rest. It’s time to let the soul catch up with the body, to give yourself the chance to think clearer and better.
Live slightly beyond your stress point.
Mr. Longstreet believes that we all have a “stress point” in life. The stress point is defined as a degree of pressure with which challenges start to mount. Living too far off the stress point will make life boring, and too far beyond it will be stressful. The optimal way is to live slightly beyond the stress point to be “running scared”, but a person feels challenged but not overwhelmed. It is very similar to the modern idea of comfort zone.
While taking a refresher commodity trading course with Mr. Longstreet, his friend Bill spent weekends at a ranch riding horses. Mr. Longstreet noticed that Bill picked the slowest "nag" at first time. When chided about always bringing up the rear, Bill commented that he had never yet been thrown from a horse. However, it was also obvious that each time out he picked a horse with a little more spirit. In other words, he increased his challenge every time he was successful the previous horse.
Mr. Longstreet believes that one should “ride the horse, but don’t let the horse ride you”. Whenever difficulty comes, it is wise to follow Bill’s practice to pick a horse you can ride as it takes time to push further away the boundaries of one’s stress point. Even successful traders may see profits in trading sometimes come in windfalls. Limit your trading capital to what you can manage with your confidence and your energy. As suggested by Professor Theodore H. Brown of Harvard, “Split your profits right down the middle and never risk more than 50% of them again in the market.” If a trader is able to do it, he will go a long way toward solving the age-old problem in trading: "It is easy to make money but difficult to keep."
Specialise in one approach.
Mr. Longstreet knew a successful, experienced trader. During his early struggle, he found himself beset by so many possibilities that he became distracted by them. He owes his success to specialisation. His speciality is soybeans – and only on the long side. Mr. Longstreet also knew two brokers. One specialised in hedging and another in spreading. They were both successful despite of different methodologies.
As the saying goes, “Bulls make money. Bears make money. Pigs got slaughtered.” Some by nature are suited to the bullish side; some produce best as bears; others can do best as spread traders. Each trader in his own way has to find the activity best suited to his skill. Moreover, a different market may require a different technique to trade. One who is successful in wheat, corn, and soybeans may not be in potatoes, bellies, and eggs, and vice versa.
In trading it is known that one man’s meat is another man’s poison. Even if there is an evidently good trade, not all people can get the full benefit of it. The ultimate truth in trade selection is to match the character of the trade with the character of the trader. Too many traders assume that one can be a concert pianist and a museum painter simultaneously. However, to be a great trader it requires the same concentrated effort as any other art. The constant switching of approaches can destroy the power to concentrate on what suits one’s nature best. Just focus on one thing and do it well, and only move on after it is achieved.
REFERENCE: Longstreet, R. W. (1968). Viewpoints of a Commodity Trader. New York, NY: F. Fell.
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