Alternative Market Briefing

Psychology of a master trader

Tuesday, April 11, 2023

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B. G., Opalesque Geneva:

Having trained more than 100 traders, veteran macro trader Chua Soon Hock says he rarely finds this "dual personality" which combines a propensity for both risk-taking and risk aversion - which he himself has.

The reason why he can be a good trader, he tells Matthias Knab during a recent Opalesque TV interview, is not only his obsession with producing the best risk-adjusted returns but also this peculiar personality trait.

You need to be bold and yet you need to be humble

Most people are predominantly risk-takers or risk-averse, he says. The risk-takers are courageous and bold. After a season of good results, they tend to be complacent. So the results are not sustained over a long period of time. The risk-averse traders are careful and meticulous. Because of these characteristics, they will miss investment or trading opportunities.

Chua Soon Hock displays both characteristics at the same time, like two arrows flying in opposite directions.

"I like to take risks, but I have a healthy respect for risk and I am sensitive to risk," he explains. "I take risks and I manage risks actively at the same time. You need to be bold and yet you need to be humble."

He respects risk not only intellectually but operationally. When he makes a loss, he moves on to the next phase: he admits the mistake and quickly takes measures to mitigate it - and if possible turn it around quickly. "I find that important," he notes. "That means, my mind is trained in such a way to look for opportunities, take risks, manage risk."

He has a third "phase", he adds. While managing risk, he looks for short-term opportunities to turn it around and make a small profit. "So in that sense, my mind is quite systematic."

He has trained about 100 traders over his 39-year professional experience and feels it is hard to find someone with these dual personality traits acting in harmony, as most people are predominantly one or the other.

"In a sense, I am a maths guy, I'm a science guy, but I'm very sensitive to the feelings of the market, the art of it."

The edge: the psychology of each product

Besides his experience, Chua Soon Hock's edge as a macro thinker, operational strategist and tactician is that he concentrates on the products he knows best. Those that he trades today, he has traded in the last 30 years. They include interest rates, stock indices, and Forex.

He does not only study the fundamentals of the market and the fundamentals and technicalities of each product, but he also puts a lot of weight on the psychology of each product.

The Nikkei, for example, his "Japanese lover," has some typical local characteristics. As does Hang Seng, his Chinese girlfriend. The Nasdaq is like an innovative, aggressive young man who can be exuberant; when he gets punished, he comes down sharply. The S&P is like a wealthy middle-aged man, knowledgeable and stable.

"When I look at all these products, to a certain extent, I think of them as a person, like a lover. I try to understand them very well."

Akin to a long marriage where one can guess one spouse's mood in the morning, he is alert to the mood of the market when it opens.

Unlike the machines which are always engaged in the market, he thinks it is wise to sometimes pull away from the market. If he does not feel up to it, he takes less risk. If for example his direction is bullish, and early signals indicate the market might not be so, he might not participate because he does not fully understand it. The market might be in the mood to throw a tantrum. "Sometimes, it's just like a relationship with your spouse," he says. "On certain days, she's just unreasonable and you don't want to do anything with her that day, because anything you do, you're going to get it wrong. You just need to walk away and let things cool down and come back."

And then there is the desire for good outcomes - which is profits. If he sticks to discipline, only looks for good risk-reward trades, waits for the right timing, uses the same sizing, does not get carried away and bets the house, he knows that if he applies all these principles, most of the time it will work. "The probability and the maths of it will work so I just need to focus on being patient and skilful in identifying good risk-reward trades for that time frame and then control myself in the bet size… The maths will work." By sticking to his process, he has not had a single down year since 2002, whether he manages money for investors or his own.

As the fast-changing world will eventually be reflected in the markets, he believes he must be more sensitive as a thinker, a strategist, more flexible and nimble as a tactician, and a better operator. "That means having the attitude of trying to be a very skilful craftsman within the tools that I have."

Asia Genesis Asset Management, which was founded in 1999, was one of Singapore's largest global macro managers when Chua Soon Hock closed it in 2009. After a 10-year break during which he continued trading, he relaunched the company and started a new flagship global macro hedge fund, Asia Genesis Macro Fund, in May 2020, which returned +15.3% in 2022.

You can watch the whole interview here: brightminds.tv/chua-soon-hock-asia-genesis-macro-fund/