If you are having trouble achieving your trading goals, take time out to examine the real causes of your problems.
Working towards improvement will take a dedicated approach on your part. Identification of the problems are the first step. Attacking the problems one at a time is the first part of the solution. Doing the right thing at the right time based on the information you have should be your goal.
Sit down and have an in depth talk with yourself and ask yourself some hard questions. For example:
- do I have the emotional makeup necessary for this business?
- do I have the financial reserves so that I am not relying on trading to pay the bills while I learn?
- do I really enjoy doing this?
Coming up with honest answers will be the only way to ultimately overcome issues that keep getting in your way.
If you keep doing the same things, you will keep getting the same results, so you’ll need to change. Plain and simple. Best not to delay in sorting things out.
My preaching on the emotional context of trading is rooted in my belief that trading is a simple business. Simple, but it is not easy.
After you have crossed the void between developing an edge and your emotional psychology, trading will become easy for you.
After you have really accepted risk, losing decisions and losing money, trading will become easy for you.
After you have learned that the market only displays neutral information and that it is your psyche that tries to spin it in a positive or negative way can you trade without an opinion.
I try to keep trading as simple as possible:
- I don’t listen to any news, TV, people etc. I am not qualified to disseminate all the information available, take all the known and unknown factors into consideration and all the changes that occur minute by minute. I do however know that when a stock is going up, people want to own it and there are green candles, so I buy. When a stock is going down, people don’t want to own it, and so I short or sell it. Simple!
Waiting for the right moment to enter and exit definitely comes with experience. Correct order execution, taking profits when they are offered and cutting losers are also vital to your success.
My mind is not bogged down by indicators, rumours, conjecture or analyst’ reports. It is much easier for me then to concentrate on what really matters – recognizing what the charts are telling me and acting on this information.
Concentrate on the problems you might have. Hesitation, taking big losers, selling winners to soon, screwing up order entry, racing heart and sweaty palms.
Getting to the root of these may be like a journey of self-discovery. I would bet that most come from being afraid to make wrong decisions and lose money. I make wrong decisions and lose money many times a day. But I am quick to realize my wrong decisions and quick to cut my losers. This is a key ingredient of my trading plan.
Really think about why your problems are occurring. Delve deeply into them so that you can explore the way forward.
Take hesitation for example. Do you hesitate when you see a trading set up that meets all the requirements of your edge? Is it fear of being wrong? Fear of losing money? Fear of being right? Fear of making money? Get right down into it. Speak out loud and admit to yourself what it is. Accept it. Only then after acceptance can you work on improving your lot.
Maybe you view it as an overwhelming amount of work to do. Small steps, day by day can bring positive action to your trading and make it seem that the task is not so big after all.
Strive for a state of mind of ambivalence. The market is going to do whatever it’s going to do with or without your participation. It’s up to you to appreciate the known risk, unknown factors that can happen and just go with the ebb and flow of the markets. Simplify your trading style down to just candlesticks on your monitors. Turn off the TV.
Think about one thing to change today that can bring you a positive improvement.
Sunday, November 30, 2008
Friday, November 21, 2008
The risk / reward lie.
One of the biggest lies in the trading world I see is that the experts claim you should only take a trade if the risk / reward is 2,3, 5 or whatever times in your favour. Now, I think that establishing your risk is vital to your success but I have a problem with the reward part. Let me point out why in the clearest way possible - NOBODY KNOWS WHAT A STOCK WILL DO IN THE FUTURE.
All that you are doing when you discard many high probability signals is lose good momentum trading opportunities and hesitate when you on the verge of trading for real. Since you passed on 20 setups previously (16 of which went on to good profits by the way), now that little voice inside your head asks " are you sure"?
In today’s market especially, all the indicators at your fingertips don't work because the market views them as worthless. Anything can and does happen. These days, momentum is king and should be your deciding factor to pull the trigger. And I firmly believe that you must trade every setup your edge says is probable with no hesitation. As a side note to demonstrate anything can happen, I was trading SRS and SKF again today. When they started to drop from their highs of $300 I opened my mind up to if they could end up $100 lower. Certainly a possibility I thought, as earlier in the day the up swings in the market were violent and these 2 stocks would drop fast. Well, SKF went down $60, SRS $80. Pretty easy to make money when something drops $80 and you're short.
Now if you believe anything can happen, then you can also clearly see that predictions, expectations, hopes and wishes are all meaningless to the smart momo trader. If you trade on the probability of a stock moving in a certain direction then the only signal you should use to take profits is one that shows you the stock has stopped moving or profits are large enough that it is prudent to take it instead of bailing out at your hoped for level.
All that you are doing when you discard many high probability signals is lose good momentum trading opportunities and hesitate when you on the verge of trading for real. Since you passed on 20 setups previously (16 of which went on to good profits by the way), now that little voice inside your head asks " are you sure"?
In today’s market especially, all the indicators at your fingertips don't work because the market views them as worthless. Anything can and does happen. These days, momentum is king and should be your deciding factor to pull the trigger. And I firmly believe that you must trade every setup your edge says is probable with no hesitation. As a side note to demonstrate anything can happen, I was trading SRS and SKF again today. When they started to drop from their highs of $300 I opened my mind up to if they could end up $100 lower. Certainly a possibility I thought, as earlier in the day the up swings in the market were violent and these 2 stocks would drop fast. Well, SKF went down $60, SRS $80. Pretty easy to make money when something drops $80 and you're short.
Now if you believe anything can happen, then you can also clearly see that predictions, expectations, hopes and wishes are all meaningless to the smart momo trader. If you trade on the probability of a stock moving in a certain direction then the only signal you should use to take profits is one that shows you the stock has stopped moving or profits are large enough that it is prudent to take it instead of bailing out at your hoped for level.
However on the flip side, setting your risk, the point at which the trade will be proven wrong, is of great importance. This is the thing that you need to focus on instead of the reward. You can set this point exactly and prepare yourself for this loss in advance. It's part of your job description to take losses during the day. Get used to it.
When you prepare to withdrawl amounts from your psychological bank before the trading day starts then you can minimize or eliminate any damage those losses would normally inflict on you. In a sense you can put a step between you and your losses. They become just a cost of doing business like damaged inventory in a store. If you trade your edge 20 times a day and 5 trades are going to be losers and you know you can set the losses at .25 each, you know exactly what to expect. When you balance that against the winners that you typically produce, it becomes much easier to take every trade that comes your way.
These are days of unparalleled opportunities. Don’t let them pass you all day as you wait for the perfect setup. The perfect set up can just as easily fail as a dog.
Wednesday, November 19, 2008
How I trade reversals
Todays market had another great example of the signals I look for that a reversal is probable.
The markets were weak on the day so being on the short side or playing the inverse ETFs was the smart play. Both the QQQQ and S&P 5 minute chart showed a slowing on the down trend with dojis, so I sold and went short. 15 minutes later both indexes showed another doji along with dropping volume. That said to me the pop is probably finished and to trade it the other way.
Chart #1 shows dojis on S&P and QQQQ after the market pop has stalled.
How I trade reversals
I changed my original post as the images did not line up with the text . See above for the revised post.
Monday, November 17, 2008
Fine tuning the machine
You've got the latest, greatest trading platform. You've got new flat screen monitors. You've got support, resistance, candlestick patterns down pat. You've got a trading plan that you think is easy to live with. Now you need to work on the most important market interface...your body/your brain.
A Ferrari won't last too long without proper oil in the engine or air in the tires. You as a trader won't last long if you are stressed, out of shape, weak minded, sluggish or off balance.
View trading as a tough arena that only the fittest will survive. Each trading day becomes an opportunity to hone your skills and develop yourself. How can anyone attempting to perform against seasoned pros in any type of contest have a hope of success if they don't prepare themselves in every way for the coming conflicts? They can't. Period. They will blow through their account and be left with angry recriminations that the market screwed them. The only thing that screwed them was themselves with a failure to adequately prepare.
You have to have an undiminished focus. You have to immerse yourself in the market. You have to trade your plan automatically.
If you find yourself with drifting thoughts at crucial times, you'll need to find a way to counter this. In todays fast paced world there are many distractions. Take some time out to slow down and think. Try this little exercise in concentration: close your eyes and think about what an apple hanging on tree looks like. Visualize the colours and texture of the skin and stem, the size, sheen, shape, curves, imperfections, any flowers on the bud. Can you think about only the apple for 10 seconds, 30 seconds, or a minute before some sports score or bill payment intrudes into your thoughts? If you’re got too much noise going on inside your head to think of a simple apple for a minute then perhaps wait until you are free of whatever distractions are affecting you before you get deeply involved in trading situations that can scar you for a long time.
A Ferrari won't last too long without proper oil in the engine or air in the tires. You as a trader won't last long if you are stressed, out of shape, weak minded, sluggish or off balance.
View trading as a tough arena that only the fittest will survive. Each trading day becomes an opportunity to hone your skills and develop yourself. How can anyone attempting to perform against seasoned pros in any type of contest have a hope of success if they don't prepare themselves in every way for the coming conflicts? They can't. Period. They will blow through their account and be left with angry recriminations that the market screwed them. The only thing that screwed them was themselves with a failure to adequately prepare.
You have to have an undiminished focus. You have to immerse yourself in the market. You have to trade your plan automatically.
If you find yourself with drifting thoughts at crucial times, you'll need to find a way to counter this. In todays fast paced world there are many distractions. Take some time out to slow down and think. Try this little exercise in concentration: close your eyes and think about what an apple hanging on tree looks like. Visualize the colours and texture of the skin and stem, the size, sheen, shape, curves, imperfections, any flowers on the bud. Can you think about only the apple for 10 seconds, 30 seconds, or a minute before some sports score or bill payment intrudes into your thoughts? If you’re got too much noise going on inside your head to think of a simple apple for a minute then perhaps wait until you are free of whatever distractions are affecting you before you get deeply involved in trading situations that can scar you for a long time.
Trading is a thinking person' marathon, hours long in duration and requires your precise attention. Try mediation. Simplify your life. Dump whatever garbage is in your life dragging you down if your goal is to become a successful trader.
Having an active life away from trading is vital as well. Challenge yourself to become better at what you do. Being in good physical condition will pay you back big dividends in all parts of your life. Being disciplined to maintain a healthy weight through exercise can become a transferable skill to being a disciplined trader. If you can’t stick to a simple plan of regular exercise how can you expect to be able to be really disciplined in other areas? Eating right and cutting out the junk food will help you become a better trader. I’m very active in mountain climbing, back country skiing, mountain biking. I’m 46 years old but my climbing and skiing partners are 20 years younger. They push the hell out of me.
I take fish oil supplements for my brain, drink “greens” to help my body, eat good food and get plenty of exercise. I am confident in myself and of my abilities.
If you don’t view all this behind the scenes work as important to being a successful trader, ask yourself this: do you think an average football fan who is out of shape, has no plan, no practiced skills, no confidence in their abilities, can go head to head against a pro player in the championship game for several hours? Probability says no.
Thursday, November 13, 2008
Keep your head on tight
Well I thought I'd be away longer than this , but today was such an awesome trading day, I have to comment.
Trading days like today come few and far between although there have been 2 or 3 already this fall. These are the type of days that are an open invitation to let as much cash fly into your account as you can handle.
The action never stopped so it was important to keep focused and put your brain into machine mode. Sorry I don't have any realtime charts to post as the action was too fast.
I played the inverse ETF's, EEV SKF SRS all day and was rewarded at first with some $5, $ 10, $14 runs long. Caught the top of the turn and rode them down, took profit, went long, took profit went short, long short until the last hour as per my usual style. Then the selling was ferocious and unrelenting until the close. I banked almost $22 runs in EEV, $26 in SKF, $29 in SRS shorts. I was in with everything I had.
Some people were reeling from the staggering moves of the market and I feel sorry for the traders who coudn't come to grips with what the market was doing. But this is your reason for being here, learning all this stuff, suffering through the flat market tedium. Times like these need to taken full advantage of. A lot of money was left behind by those traders who were onl;y staring at their screens.
I have a very strong belief that the market has the capacity to do ANYTHING. And it is best to condition your mind to accept this as a trading truth. Trying to predict levels, bounces, bottoms and tops is an exercise in futility. It can have no positive outcome for you, only distraction. It is out of your control. When you realize that ANYTHING can happen, then you open your mind up to all possibilities instead of rigid expectations based on folly. I was looking at the SRS daily chart instead from 10/28/08 and it had a $70 trading range. The way things were going I thought that could be a possibility for today as well. Turned out to be $50.
Am I brilliant just because I caught the tops and bottom of the moves? NO. But seeing, recognizing and acting on momentum change is what I am good at and focussing only on what the charts were doing paid big dividends today.
Keeping your head on during big moves, trading your normal plan and not letting the big dollar signs cloud judgement was the key today.
If you were one the focussed traders who made 2, 5 or 10 times what you normally do, it doesn't mean you are super , mega , brilliant though. It was only the market conditions giving you that. Contain your ego, trade humble tomorrow.
Trading days like today come few and far between although there have been 2 or 3 already this fall. These are the type of days that are an open invitation to let as much cash fly into your account as you can handle.
The action never stopped so it was important to keep focused and put your brain into machine mode. Sorry I don't have any realtime charts to post as the action was too fast.
I played the inverse ETF's, EEV SKF SRS all day and was rewarded at first with some $5, $ 10, $14 runs long. Caught the top of the turn and rode them down, took profit, went long, took profit went short, long short until the last hour as per my usual style. Then the selling was ferocious and unrelenting until the close. I banked almost $22 runs in EEV, $26 in SKF, $29 in SRS shorts. I was in with everything I had.
Some people were reeling from the staggering moves of the market and I feel sorry for the traders who coudn't come to grips with what the market was doing. But this is your reason for being here, learning all this stuff, suffering through the flat market tedium. Times like these need to taken full advantage of. A lot of money was left behind by those traders who were onl;y staring at their screens.
I have a very strong belief that the market has the capacity to do ANYTHING. And it is best to condition your mind to accept this as a trading truth. Trying to predict levels, bounces, bottoms and tops is an exercise in futility. It can have no positive outcome for you, only distraction. It is out of your control. When you realize that ANYTHING can happen, then you open your mind up to all possibilities instead of rigid expectations based on folly. I was looking at the SRS daily chart instead from 10/28/08 and it had a $70 trading range. The way things were going I thought that could be a possibility for today as well. Turned out to be $50.
Am I brilliant just because I caught the tops and bottom of the moves? NO. But seeing, recognizing and acting on momentum change is what I am good at and focussing only on what the charts were doing paid big dividends today.
Keeping your head on during big moves, trading your normal plan and not letting the big dollar signs cloud judgement was the key today.
If you were one the focussed traders who made 2, 5 or 10 times what you normally do, it doesn't mean you are super , mega , brilliant though. It was only the market conditions giving you that. Contain your ego, trade humble tomorrow.
Wednesday, November 12, 2008
Tuesday, November 11, 2008
I think the the following posts from todays trading session clearly illustrates my style.
- simply follow the charts and momentum
- trade the probabilities
- no CNBC news
- no VIX, fib lines or lots of moving averages
- don't know/ care where the DOW is
- no hoping, wishing or predicting what the stock and markets will do.
Trading is much easier when you can break it down into it's simplest form, charts and momentum. You can see that they are the only important items to consider. The rest is just plain garbage invented to fog your brain.
Don't get distracted, overloading yourself with too many indicators. When you see and can feel the momentum changing, don't feel the need to wait until you have 6, 8 or 10 different things telling you the moment is ripe. It'll be too late by then. Use your edge and trade the probability.
Look at my edge. It's not some super secret, undefinable mystery. Green candles mean a stock is rising. Red means they're dropping. Long candles means lots of momentum. Shorter candles mean less momo. Check out what the overall market conditions are doing. When I see a convergence I make my play. What's your edge?
- simply follow the charts and momentum
- trade the probabilities
- no CNBC news
- no VIX, fib lines or lots of moving averages
- don't know/ care where the DOW is
- no hoping, wishing or predicting what the stock and markets will do.
Trading is much easier when you can break it down into it's simplest form, charts and momentum. You can see that they are the only important items to consider. The rest is just plain garbage invented to fog your brain.
Don't get distracted, overloading yourself with too many indicators. When you see and can feel the momentum changing, don't feel the need to wait until you have 6, 8 or 10 different things telling you the moment is ripe. It'll be too late by then. Use your edge and trade the probability.
Look at my edge. It's not some super secret, undefinable mystery. Green candles mean a stock is rising. Red means they're dropping. Long candles means lots of momentum. Shorter candles mean less momo. Check out what the overall market conditions are doing. When I see a convergence I make my play. What's your edge?
Again a continuation from todays first and 2nd posts.
Notice S&P and QQQQ stopped downward trend. That was signal to sell EEV SRS which are inverse ETF's. and go short. These are probably not the best examples since they move contra the market but I prefer shorting so I like to trade these. Usually a small spread and large ID moves.
SRS + $ 9.75
EEV + $ 5.20
Momentum acceleration points
One of my main trading techniques is watching for times when the markets seem to accelerate and I can get a jump on the trend.I pay close attention to 5 minute charts of the QQQQ and S&P 500. Here is a snapshot from today. Green means markets are rising. * (This turned out to be the starting point of a 250 point DOW pop and drop)
At the same time here is the 5 minute chart from EEV;
and here is SRS
A few minutes later the market momentum is slowing and is offering up the money, so it's prudent to take it and trade them the other way until the signal says not to and go the other way again
SRS + $ 6.00
EEV + $ 4.00
Thursday, November 06, 2008
Prepare for the day
How do you prepare for the upcoming day?
Since no one knows what the markets will do, it makes sense to me as a day trader to concentrate on the things I can control instead of worrying about market support, resistance, VIX, RSi, tops, bottom calls and the like.
What I can contol are:
1. emotion
2. expectations
3. my trading plan
All 3 of these can be wrapped into 1. When you wake up in the morning, take a few minutes and go over in your mind what the market is capable of doing today. When you come up with the correct answer - "anything", move onto thinking how you will trade those up, down and sideways moves.
Visualize uptrends, downtrends and stalled flatline patterns.
Remember the success you had yesterday buying the pullback after the new daily high, remember the short sell when the trend moved below the consolidation. Think about your exit when probability was proven wrong and you cut your loser short instead of taking a big hit. Remember how you immediately saw another opportunity to trade and were successful . Remember how you took a big profit when the market offered it to you.
When you can replay the days trading scenarios calmly in your mind you will be better prepared to act on the right side of things when they are rolling across your screens in real time.
This preparation can give you an edge over the hoping, wishing and predicting crowd. They're watching the brain rotting CNBC and calling the bottom because stocks have "already dropped too far". You can become a consistent winner by eliminating emotions and thinking ahead.
It's very much a mind over market type of thing and the objective is have your trading plan firmly entrenched in your mind so that your actions are automatic. You have the appropriate responses because you anticipated the various scenarios in advance.
Recognize what the charts are telling you and trade the probabilities like a machine.
Since no one knows what the markets will do, it makes sense to me as a day trader to concentrate on the things I can control instead of worrying about market support, resistance, VIX, RSi, tops, bottom calls and the like.
What I can contol are:
1. emotion
2. expectations
3. my trading plan
All 3 of these can be wrapped into 1. When you wake up in the morning, take a few minutes and go over in your mind what the market is capable of doing today. When you come up with the correct answer - "anything", move onto thinking how you will trade those up, down and sideways moves.
Visualize uptrends, downtrends and stalled flatline patterns.
Remember the success you had yesterday buying the pullback after the new daily high, remember the short sell when the trend moved below the consolidation. Think about your exit when probability was proven wrong and you cut your loser short instead of taking a big hit. Remember how you immediately saw another opportunity to trade and were successful . Remember how you took a big profit when the market offered it to you.
When you can replay the days trading scenarios calmly in your mind you will be better prepared to act on the right side of things when they are rolling across your screens in real time.
This preparation can give you an edge over the hoping, wishing and predicting crowd. They're watching the brain rotting CNBC and calling the bottom because stocks have "already dropped too far". You can become a consistent winner by eliminating emotions and thinking ahead.
It's very much a mind over market type of thing and the objective is have your trading plan firmly entrenched in your mind so that your actions are automatic. You have the appropriate responses because you anticipated the various scenarios in advance.
Recognize what the charts are telling you and trade the probabilities like a machine.
Subscribe to:
Posts (Atom)
Posts
