SETTING YOUR MAXIMUM INTRADAY TRADING LOSS
First things first: set a max intraday trading loss. There will be days when you just do not have it.
Why do you think coaches pull their players when they are not playing well? They are more harmful on the field than off.
When you are underperforming, you are hurting your team and your trading business. You need a system to yank yourself over to the bench. A stop loss is your answer.
TRADING BASED UPON THE TIME OF DAY
A good trader makes note of what time of day it is, when he trades most profitably, and adjusts his trading to fit such times.
Your numbers at the end of the month will not reflect your true trading potential. Make the most trades with the most size during the trading periods that statistically are most profitable for you. Money saved during your weaker trading periods is money earned.
Consistency
The fact is that most trades you make will start working for you right away. But the new traders also hold stocks that are trading against them longer because they mistakenly believe this is how you improve. But common sense tells us that when a stock trades against your predetermined exit price, holding it only increases the chances that you will lose even more money.
Baby Steps
New traders mistakenly think that losing $5k is how they will learn how to make $5k. This is not true. To make $5k, you must first learn to make $500 consistently. Then you can gun for $800. Losing $5k in a day when you begin only teaches you how to lose $5k and how to trade irresponsibly. As Bill Murray said in the film What About Bob?, “Baby steps, baby steps, baby steps.”
Your goal is to make as much as you can as you are developing and improving, not to show how much you can lose by trying to be a trader you are not ready to be.
PROPER SIZING
Develop your trading skills, build your trading account, and slowly increase your size.
Alan Farley said it well, “Experienced traders control risk, inexperienced traders chase gains.”
When you trade with too much size, you do not prove that you can handle more size. All you do is prove you are not ready to handle this extra size. You should, as a trader, work on increasing your size with select trades. But again, this should be done incrementally. You cannot jump from 1k share positions to 5k without many steps in between. Again, do not pretend to be a trader you are not.
Sizing is a skill that must be learned, one that will impact your monthly results.
WHY COMPARISONS CAN BE HARMFUL
Comparing yourself to another trader is not in your self-interest. Traders do not focus on how well they are doing, but rather compare themselves to other traders. This can be very harmful
Let me be clear, the person sitting next to you, behind you, in front of you, a few rows from you is NOT you. They may miss trades that you don’t. They may wuss out of trades that you don’t. They may not see the screen as clearly as you. You are your own small business. How well you do depends on you, not comparing yourself to them. This should be your attitude:
BE MENTALLY AGILE
If you develop a bias for a stock, and it trades the opposite of your bias, can you still make money? Of course you can. You just need to be mentally agile.
The first thing new traders can do to improve their results is stop pretending they have a feel for where a stock may go.
Trading is not about making market calls and being reliant solely on the accuracy of your biases. Trading is also remaining mentally agile and quickly absorbing that the market is sending a clear signal for the next move in your stock.
Consistently profitable traders get shaken out and then find a way to get back in to a good stock. Poor traders complain about getting shaken out.
A good trader hits the bid during the shakeout and takes his loss.
A lesser trader’s “screw job” is a consistently profitable trader’s opportunity. Some traders will require a few failed trades before they catch the move. This is the game we have all chosen to play.
Understanding exactly what should make your stock move will enable you to load up at a given moment, and then if your stock does not start acting as you expect, you can lighten up immediately. Jesse Livermore counseled, “It isn’t as important to buy as cheap as possible as it is to buy at the right time.”
On the long side, the best catalyst that we spot is called a held bid in an uptrending stock. When a bid is smacked quickly and for significant size, and this bid does not drop, that is what we call a held bid. If the stock was not strong, the bid would have dropped and the buyer would have bought cheaper.
DEVELOPING IF-THEN STATEMENTS
If-then statements should be different for each individual trader. We all process information differently. Some are faster. Some have a greater tolerance for risk. Some are more experienced. Some trade a different time frame. But I have considered all the different ways my stock may trade before I enter. So if my stock acts a certain way, I am not surprised. I have considered everything the stock may do. I may find a move to be unusual. But again, I have considered this. And now I just react to the trade I am ready for.
With well-developed if-then statements your results will be more consistent. a very disappointing e-mail from a college student who asked his professor about HFT and received “a half-hour rant on how intraday trading equities is reckless gambling.” It can be if you do not develop thorough if-then statements. I will add a Warren Buffett quote here as well, “Risk comes from not knowing what you are doing.” If-then statements help to make your trading more uniform on a monthly basis. Your results will be less based upon being right on a few big plays. With if-then statements and active trading, you, in effect, are running your own profitable gray box or black box in the marketplace.
We are always tweaking, adjusting, and rethinking our if-then statements for each of our trading setups. And no one enters a setup without understanding specifically, comprehensively, and automatically how he will trade each different setup.
“To improve as a trader, you must determine which setups make the most sense to you! And then you must make more of them and with more size.” Well, I know this is going to sound simple, but not enough traders make more of their absolute best trades.
But how many traders truly understand their best trading plays and maximize the opportunities in these plays.
It is often in these other months that traders slump and dig big trading holes. Generally, this is because traders fail to adjust. They are trading with too much size for a slower market. They are assuming that setups that worked last month must work this month. They have unrealistic expectations for the present month. They are not making the best trades for them, and as a result they dig a hole for themselves.
You often just need to remind yourself that, yes, you can do it. You need to remind yourself of why you are a good trader. You must return to making only the trades that work best for you. Sure, the size of your winning trades may not be as big as they were in previous, better months. But you’re winning again. Back to the sum of your best trades, the best of your trading.
You need more experience. You need to see some more markets. You need to make some adjustments. You need to go back to the basics.
“The market offers you so much data to doubt yourself. And you must believe in yourself.”
Having a slump is all part of the learning process. It is not supposed to be easy. Did you ever wonder why so few get to trade for a living? It is like joining this fancy golf club. They don’t let everyone in. And to stay in, you must follow all the rules. Well, during this stretch those who were underperforming were not following all the rules. And the club doesn’t like that. So they imposed a substantial fine on your membership. And now you need to pay it. Follow the rules and you will be back in good standing. Don’t follow the rules and they will terminate your membership.
So, if you are underperforming, do not panic. The best part about this job is that the past is the past. And starting tomorrow, you can be positive every single day for the rest of the month. And have a great month. And then you can parlay that positive energy into an excellent quarter. And you are off to a great year. Along the way figure out the skills you need to better develop. Work on them every day. And the next time you underperform and need to go back to the basics, your list of trading plays will be longer.
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