Trader Mindset

"Mental stops" are not really stops, per se, but thoughts. It's a price where you are losing money, but aren't emotionally ready to take the loss, so you don't take it. Maybe you're not willing to take the loss because you've done a lot of work to research the trade and you feel it's not fair that you didn't get paid. Well get used to it. Neither the market nor anyone cares about what you put into...

Challenge your own way of thinking and let other traders help you uncover your blind spots. We all have them. I'm looking for people who think differently than I do so I can learn. I don't have a monopoly on ideas and I can be a bonehead at any given time. I rely on systematized trading rules and by gaining new insight from other people (who are mostly much more intelligent that I am) I am better...

It's impossible to imagine the value of the blockchain and crypto currencies, so I'm a long-term investor at this point. I think the value is in my process, not the instrument that I'm trading. Two, I'm not going to let any one security put my trading process in jeopardy. I've talked before about what I look at and how I rake the data to include instruments within my trading system. I'm not going...

Goals need to be realistic and attainable. You also need to consider the growth in competing areas of trading.  If you're making money, how do you know it's not random luck or a bull market?  I'd love it if everyone could turn $10k into $1,000,000 but the majority who try will lose all their marbles. Those that do will be lucky having been "in the right place at the right time."  Think of it's thi...

Whenever you have a margin call, offset the instrument that is generating the margin call. Don't meet a margin call with cash. CTAs with margin to equity ratios of 12-15% are considered aggressive in today's day and age.  Margin is set by the exchanges, but can be made more stringent by the IB or FCM. Margin levels are set to protect investors as well as the integrity of the exchange mechanism. Ma...

Favorite Yoga Pose - Ardha Chandrasana You have to practice your yoga the most when you're off the mat and not in class. That's the whole point. Like great trades, you have to take them home at night. Time Blocking Trading begins the night before. I run my systems at 6 pm Sunday night for Monday's trading. Call in the orders by phone. The orders are worked during the day and all I do is wait for t...

If the average person cannot explain to you what the blockchain is, how is the recent level of bitcoin a bubble?  I've seen this before in the commodity markets and although we're likely to see volatility that's uncommon in the markets, you can study the spread of viruses to get a better feel for this type of growth.  You can control the effect of volatility in your portfolio by decreasing your po...

Focus on process and stay out of the results. Performance will show up if you trade a system with positive expected values. By focusing on the process or your system, you become the casino. Each time your system is open for business [trading], you are making money. You should strongly consider investing in a backtesting simulator.  When I started trading, I put a high level of emotion of making mo...

The measurement for volatility takes into account the magnitude of the vol, not the direction. You obviously don't want to be in high vol, directionless markets, unless you are trading option butterflies or condors that can take advantage of those types of markets.  For equities, you can deploy what's called a "pairs trade." Anyone can gear their portfolio for 100% RoR, but you have to be willing...

By trading a complete trading system, you solidify places in your trading where your success can break down. Relying on system-generated trades, you get to focus on high expected value trades and eliminate the sub-optimal trades.  Benefits of a complete trading system: A good cure for daily set-ups is a systematized set of rules. It takes out all the uncertainty around your decision making process...

Price targets cut your profits. Let the market tell you when the move if over.  Price targets are about predicting the future and human beings are horrible at that at best. Read Expert Political Judgment by Phil Tetlock to get an idea of what I'm speaking about. Intraday data is not statistically significant, so uptime your charts and begin to focus on daily, weekly, and monthly time series. Longe...

Look at your equity curve like a price chart. You want the slope to be positive and upward. What the trajectory? Your equity curve can help you target your goals.  Start by putting all your trades and the costs into a spreadsheet: Column A is today's Date Column B - Entry Column C - Exit Column D - Commissions Column E - Fees Column F - Final Balance Then you can chart the last column against the...

Use your breath to control your breathing. In the process, you will quiet your mind over time and not need to fill your day with kinetic energy.  For me, that includes making too frequent transactions. If you're in good trades, keep them, take them home with you overnight and over the weekend.  First Technique: Inhale on a 4-count and exhale on a 4-count. You can increase your breath to a 6 or 7-c...

Enter Buy Stops above the market and let the market come to you.  Do this for every trade you have and then sit back. The good news is that you don't have to look at the chart once you're Buy Stop is entered. This is huge in that it frees up your time and energy.  You'll get an alert once the order is filled. Then place your protective Sell Stop at your predetermined price level.  Don't use price...

Develop a systematized set of rules that you can count on. You can calculate your levels the night before and execute the rules the following morning. The key is that you don't want to have to think in the morning - just focus on executing the plan. That means entering your buy stops to enter long and sell stops to protect your equity. Here are the components of a complete trading system: Breakout...

History is not going to repeat itself the way it did for my mentors and colleagues.  Investment into the trading business is going to Artificial Intelligence and Machine Learning. If you are doing things by hand, you are putting yourself in a very disadvantaged position.  You can't work orders on the floor anymore. There is no floor. How's that for a development?! Another example is the risk per t...

Risk is an asset class. Keep in in your portfolio when it pays you to do so. That means overnight and over the weekend.  When you day trade, you are churning your own account. In a recent interview with Chats With Traders, my friend Aaron Brown said that traders generally leave way too much money on the table.  The real money is holding the best risks. You can define where you are going "risk off"...

Value is what you assign to something, not an analyst. What others assign to bitcoin are none of my business. What others assign to speculation in general is irrelevant.  There is no value per se in bitcoin anymore than there is in corn futures.  Bubbles are what speculators (like me) pray for. Professionals know themselves and know how to express risk in a manner that is best for them (compatibil...

Exits and entries are perfect compliments to your trading system. They are siamese twins that should not exist without one another - nor should they be separated at birth or otherwise.  Risk management defines your P&L and the distance between your entry and exit is critical to how you manage risk.  You can define that distance by calculating the ATR of the security that you're trading and using t...

You cannot shield yourself from struggle. It's what helps shape your trading rules and over time turns them into a complete system. No psychologist, coach, or mentor can do it for you. You have to want to take a punch and learn to feel what it feels like to lose money and then use those emotions to affect your behavior accordingly. Very little of it is intellectual or logical. If you need things t...

Professional poker players know (as best they can) the expected values of every hand they play. The best of them know what hands to play from what position. Like traders, poker players have to make decisions under uncertain conditions with imperfect information.  They know what the percentages are of their hands improving. For example, if they are dealt a pair of Kings, they know the probability o...

Go check out The Imitation Game on Netflix if you haven't seen it yet. It has many analogies to trading Good trading is about being able to distinguish signals from noise. In the short term, everything is noise though - even potential signals.  When you don't have a plan, everything looks appealing. Any big move that you're not in gives you the emotional feedback that you've missed the move and th...

Calibrate the risk that's appropriate for your account and your emotional constitution.  Normalize risk across all instruments so that you can create risk units. This way, every instrument will be the same in terms of the risk that you'll represent in your portfolio. Many commodity traders use the 20-Day ATR (Average True Range) in order to calculate the daily dollar-volatility per instrument. The...

You have to plan for 10-baggers in your portfolio and position yourself tactically and psychologically.  Two things need to occur regularly: 1) big moves don't typically happen intraday 2) you have to believe that you are capable of doing it emotionally and psychologically Tactically speaking, you need to let time and money work for you for best results. A 10-bagger has to have been a 4-bagger fir...

Here is chapter 2 of the Audiobook version of Inner Voice of Trading.