Trader Mindset

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.

What are your personal Mission Statement and Strategic Plan for your trading? If you have them, my guess is you have tasks and goals with specific dates.  Professional traders also have Emotional Plans to take into account the Relative Strength Indicator (RSI) of their feelings about what they do during the day. Our psychology and emotional makeup dictate how we act and behave during the day.  How...

We as humans love stories and our brains are great at putting pieces together and following logical sequences. That doesn't mean they are worthy of investment or for trading.  "Stories" as they relate to investment themes are a bad for of entertainment. When you marry this logic with fear or greed, you can put yourself in a very unenvious situation very quickly by losing a great deal of money quic...

The business of trading is going to AI and more algorithms in the hands of new traders and retail investors. If you are trying to figure out what headlines are going to drive prices, you're a better person than me. I would rely on computers to do that  Bill Dunn, a 100% purely systematic trader since the early 70s, has been incorporating all the data he can find and incorporates that into his mode...

If you want to be a professional trader, losses and drawdowns are part of the business. You have to learn to live with them and be at peace at the same time.  If you've backtested your rules as you should have, you can tell from the Monte Carlo simulated results where you are in your current drawdown with respect to where you are now. Backtesting can give you perspective on that is great detail. I...

Why do I practice yoga? It's impactful on my life and therefore it affects my trading. I had no idea what impact it would have on me when I began my practice. If you haven't started, I would give it a try.  One of my teachers Erich Schiffmann has called yoga a "moving meditation" - you lose yourself in the vinyasa flow and don't think about the choreography of the flow.  Become mindful of your bre...

Forget chart patterns and focus on price. Price is the only thing on Wall St. that will tell you truth.  Every chart pattern will be captured in the price and the values of price over time. You can hire a programmer to capture those price movements and design your own algorithm to enter and exit trades as well as the correct position size.  Chart patterns are supposedly created by plotting prices...

If any of our shows have resonated with you and you've gotten some valuable insight, please subscribe and leave a review. There's a lot more to come and we need your support. It feels good to have a winner when you are coming out of a drawdown. Trades, like hitting in baseball, will come in groups and segments. We are powerless over when and how those streaks will show up. All we can do is follow...

Don't cut your winners - add to them. They're hard enough to find in the first place. Even though they are trades, look to hold them for as long as possible.  Everyone sees the same moving averages, breakouts, and pullbacks. Everyone is looking at the same contracts and stocks. So how do you make the monster gains? You can be lucky, you can bet big, OR you can have a winning trade and decide to st...

Be open to learning new things and new ideas. They can lead you to garner insight on your trading. We make our money as traders in position sizing. I use position sizing to be analogous with risk management. I can always move my entries and exits to accommodate my trading size. It's the effect of volatility on my position that determines my open trade equity - which can be positive or negative. If...

Like your dog, your stop order is your best friend. Your stop orders stand sentry to your risk management program so learn to trust them. Broker-Dealers have great incentive to execute your orders when the price trades at or through the stop price so you can count on them to do a job for you. You don't want to be shooting from the hip and making decisions on the fly. Stop orders are the ultimate e...