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The Trader’s Brain

 Trader Education

y it’s beneficial for new traders to review their work, understand the emotions behind trading, and perhaps most importantly, find a mentor for much-needed guidance and support.

USING VIDEO TO REVIEW TRADES

make sure to point out spots where  traders are too aggressive. I mention trades that did not offer a good risk/reward and why.

What I most learn is what the trader most needs to improve. From watching a trader’s tape I can see what errors he is making. Also, our traders get to watch how his/her peers are trading the same setups.

Critical feedback is essential for trader growth. This is part of that process. Trading setups change. Trades that worked one year ago, one month ago, or one day ago may not work ever again. On the flip side, trades that work the next day may be only slightly different from the day before. But if you learn how to think, and this is no easy task, then you can make these slight adjustments.

To sweep means to pay the offer plus a little extra, with that “extra” determined by you. So if the offer is at 30, then your sweep key will take the first trade it can at 30 and to as high as your sweep key is set. So, for example, if your sweep key is .04, or 4 cents, then your sweep key will attempt to buy at 30. If you do not get filled exactly at 30, then it automatically tries to take the offer at 30.01. If it cannot get that price, then it automatically sweeps at 30.02, then 30.03 if it could not get 30.02, then 30.04 if it cannot get 30.03. You also have a sweep key to sell. So if the bid is 29.90 then your sweep key will try to exit at 29.90, then 29.89, then 29.88, then 29.87, then 29.86. If you get the 29.90 print, then you are done. The key allows orders to be sent into the marketplace to get you the best price possible up to 4 cents. With a fast moving market, this is essential. We watched some tape of G trading AAPL. He had found an important support level. And AAPL was trading a little above and a little below this support level. G was trading it on both sides. Below the support level, he was short, and above the support level, he was long. But we noticed in three quick trades that he had cost himself an extra $170 by sweeping when he should have been bidding or offering. To bid for a stock means you place a limit order at a specific price. For example, you place an order to buy AAPL at 75. You will only get AAPL if some market player hits your bid in AAPL. You can also offer AAPL for a specific price to sell. If you offer AAPL at 75.50, then you will not get this sale unless some market player takes your offer at this price. Instead of buying AAPL at 75, G was sweeping and starting his position at 75.07. Instead of selling out of AAPL at 75.05 he was sweeping out at 74.93. And he kept doing this around this support level. Mind you, $170 is not a lot of money to lose for a trader of G’s skill. But what was significant was that for the same trades, he could have saved $170. And this was three trades. Now, as active traders, we may write 2 million plus shares per month. Just to do some simple math, if you save just 1c every trade and write 2 million shares, that is an extra $20k a month.

So we pointed this issue out to G and he immediately started working on bidding and offering more. First, G eliminated his sweep key entirely. He just decided he would only bid and offer for the next few weeks. Doing this is like jumping out of an airplane without a backup parachute. You want to work on bidding and offering while also having your safety exit, your sweep key, but G chose a more extreme form of improvement. And improve he did.

Poor Position Sizing

Position sizing refers to how large a position that you take per trade. learning when to have the most size is a skill that developing traders must acquire. Poor position sizing can lead to inconsistent results.

Trading is just a game of math. If you are long 3,000 shares of a stock and your win rate is 30 percent, yet you are long 700 shares when your win rate is 70 percent, then this will skew your trading results. It is not that your trading is poor, it is just that you need to get better at this one skill, position sizing

You want results where you traded with the most size with your best setups. You do not want results where your good trades are mixed with other trades that did not offer you the best risk/ reward. This is an example of reduced potential.

And They’re Not the Only Ones

To improve my own trading, I record my screens during the Open and the Close. Personally I look for new algorithmic programs that I must conquer. I search for spots where I could have added more size. This is one of my trading weaknesses. I do a poor job of holding stocks that ought to be held. So I consider trades that I could have held longer. I am not going to get better at this unless I do the work required.Watching trading tape also shows me how easy trading is when I remove my emotions from a trade. When I review my work, I am not invested in a trade in real time. I, nor anyone else, can lose money watching tapes of my trading. Trading live, the market seems fast. When you watch back your trading tape, you see that the market is actually very slow. There are so many times when I think I am trading a lightning fast stock, then watch my tape and learn the truth.

For a developing trader, watching tape is one way that he or she can practice and develop skills after the market closes.

Also, developing traders need experience watching the markets trade. Watching their tape multiplies their trading experience and shortens their learning curve. Easy enough, no? All it takes is a little time.

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