Trader Mindset

You have to always manage risk with the odds in your favor. Even if you lose, if you're sticking to your rules, it could be a good trade that just had a bad outcome. Keep putting on trades with high expected values and over hundreds of trades you'll come out ahead.  How you recover from a drawdown is more important that the duration or magnitude of the drawdown. Everyone has drawdowns. Therefore,...

Michael Martin answers the question "How would you trade X commodity or stock?" Also, he discusses how he trades laggards. 

Energy analyst Brynne Kelly discusses term structure in crude oil and natural gas, as well as what happens when markets invert. 

We all run two systems: our trading rules and our emotional rules. I think making money over the long term is about being a master of both systems. In the short run, your trading rules can benefit from luck.  Our habits or paradigms really tell us what we are feeling on a deep level and steer our behavior, and our behavior predicts where we end up in life.  I think this is why you can know some re...

Sometimes the best trades are the ones that you don't enter. I know this might sound cute, but entering orders around big announcements can be a big gamble.  Consider how you feel around trading the EIA, API, NOPA Crush numbers, quarterly earning announcements, and the FOMC announcements.  Are you keeping orders on the book or do you lift them? Is part of the payoff the excitement around the trade...

Advisors to HNW clients are in the business of gathering assets and wrapping them up in a "fee for service" asset management program built around an asset allocation model. I know they like to call themselves "money managers" but they don't know their asses from a hole in the ground about portfolio management. Their sole focus is to get in front of money in motion. That's why they have as many as...

You typically need to register when you are going to be marketing a great deal and holding yourself out to the general public. You can hold off from registration and take advantage of what are called "de minimus" exemptions and avoid paying the fees and doing all the paperwork until you have a certain number of clients over any 12-month period of time.  On the RIA side, you can register by state o...

Make sure you allocate funds to your marketing budget first. Don't skimp on the quality of your handouts. I'd create a nice 4-pager that folds over, in color, and have a bio about yourself, a summary of your trading style, and how what you do fits in with other managers. Unless you have 12 months of return data, I'd keep the performance in the Disclosure Document. Else, you'll be needing to update...

You need sales training to raise money. If you're afraid of rejection, you have to hire someone to do this for you. Money will not walk in the front door because you are licensed, have an office, or even a decent track record.  You need to ask for the business, ie, ask for the money. Clients will not decide unless you ask them.  In the beginning, you might not be able to hire anyone because of lac...

What do you do when you have all your capital committed, but you get a NEW trade signal before you get stopped for a loss or take a winner to free up some buyer power? This can happen when you have a smaller account. It can also happen if you have a larger account, but have a maximum amount of the account that you commit to margin.  If you have a smaller account, my recommendation is to sell the b...

When you trade with a system, you'll find that a few times a year the markets just stall right when you have a few positions on. Once this happens, it's important to remember that you have to play superior defense and protect your capital.  Professional traders sometimes use what are referred to as "time stops" to offset risk. Here's how to do it... If after you get long, for example, and the mark...

Backtesting is valuable for system design, as well as getting emotionally prepared for what's possible. It shows you what your gains and losses would have been had you followed your rules over the previous time period that you're testing.  There are more things to measure besides gains, losses, and drawdowns.  For all the trades that you make, you'll have commissions and fees that you can calculat...

The duration of your drawdown is "how long" it takes you to get back to the previous high. It's one thing to be down 10%, but how long will it take you to recover? If your losses are "in model" there's no reason to panic. You can get this information from backtesting your rules in a simulator. If you are trying to read charts, you're out of luck because your activity is based upon guesswork.  Whil...

If you want to be a professional trader, losses are part of the business. How you deal with losses, collectively called drawdowns, differentiate the amateurs from professional behavior. If you're down 20%, you need to do 25% to get back to even. This is important because you don't participate in the upside, ie, absolute performance, until you actually make the client money.  Your sharing in the pr...

Gains look like gains only to the extent that you keep your losses small.  Most traders lose and quit the business in frustration because they are underfunded, focused on short-term time frames, and trade to large for their capital space. You can gear your target RoR for a high number, like 100%, but you'll also have to endure a drawdown of 40-60%.  I'd focus on consistency in your approach and yo...

We make predictions all the time, so why not in your trading? Professional traders will backtest and then add new elements or parameters to their existing system(s).  Markets will evolve also, so you need to keep pace with evolving market environments. That means experimentation with something new.  You can also test your hunches within the discretionary percentage of your trading. For example, so...

Many of our students set goals based upon what they want the end result to be. Hard to have ownership of going from point A to point B if you don't know how to get there. Typical goals could be delineated accordingly: "I want to gain 15 lbs of muscle," "I want to lose 10 lbs of gut fat" or "I want to earn $X or X% this year." Instead, focus on what you have to do to get those results. For example,...

Frustration is the antithesis of confidence and euphoria. It can cripple you and distract you from your sense of persistence and determination. Unlike other teachers, I don't put a negative connotation on euphoria - as long as you don't abandon your trading rules, have at it.  You can avoid frustration in the first place by "not" having expectations of the outcomes of anything (or any trades).  Th...

Bitcoin Bandits Although most people speaking about Bitcoin or crypto currencies can't tell you what the significance of blockchain technology is, I've read stories about people quitting their jobs to become bitcoin traders because of what they perceive as the opportunity of a lifetime.  I remember the hubris during the dot.com boom very well. Regular Joes who had 9-5 type jobs were quitting their...

Stoicism can help you develop your overall philosophy and way of life around trading.  However, you can't philosophize your way into emotional intelligence. Trading is experiential and that is the only way you'll be able to learn how to conjugate your trading rules with your tolerance for risk and your level of respect for the markets.  A good site where you can learn a great deal about stoicism i...

Randomness is omnipresent. It's everywhere in your life and in your trading.  On any given trade, it's hard to determine if I had good or bad luck, if I have any skill, or if I'm in the right place at the right time. But once you have monthly returns from over several years of trading you can begin to run statistical analysis to get a better idea if you are good or lucky.  If nothing else, the con...

Please considering leaving even a 2-sentence review. It would help spread the word about the show.  You can eliminate the risks you can't see by removing names from your "watch list" or data that you've raked - the step before you run the data through your simulator. Carbon Monoxide of Trading Pro traders focus on "not losing" rather how much they can make. Of course we need to make money, but by...