You have to conjugate your feelings with what it is you think you know about trading. If they don't "feel" good, you won't take the signals and you'll spend a great deal of time second-guessing yourself.
When you do that, it's emotional not intellectual. You are insecure or lack confidence in what you do.
This book discusses how I failed my way to success so to speak in sometimes painful detail.
Persistence and determination have a great deal to do with your success in trading, and in most things in your life.
For a limited time, get the audiobook for free - no coupon codes.
Foreword by Ed Seykota.
A purchase of 5,000 calls could be part of a synthetic options position.
Why would it be bullish if the trader actually sold 500,000 shares short and used the calls to hedge?
You can use Tony Saliba's option trading simulator to backtest your ideas.
Don't cauterize your winners. Let them run.
Position size your trades so that you can stay with them as long as possible. You can trade smaller if the vol is bothering you. Then backtest to see how the results would have played out.
You can blend two or more systems to smooth out your trading curve. Adjust your positions by conjugating them with the ATR.
Trade smaller with higher vol instruments and larger with lower vol instruments. Always risk the same amount per trade.
Make sure you are taking on enough risk to meet your financial goals.
You can haircut your equity when you are in a drawdown.
Trading using tiers for position sizes is amateurish as you inadvertently trade larger or smaller than what your optimal risk should be.
Optimal risk per trade can be calculated from backtesting.
Trade with consistent position sizing so that you are only risking the same percentage for each instrument.
One or two percent per trade is extremely aggressive in today's world. Think more along the lines of .1 to .2% per trade.
You enter and exit the market with stop orders.
No need to be anal and use Limit orders - they make the order less liquid. Your goal is to let the market come to you. Trading otherwise is impulsive.
Love yourself and stop looking at 10 minute bars. There's nothing material there. Trading is about making money, not the action. Buying and selling is not trading.
Sometimes the best trades are ones you don't get filled on.
Don't chase the market.
If it stalls, you'll go head-first into the back end of it.
Use protective stop orders 100% of the time.
Trail the market with stops in winning trades and reinvest your gains into the stop order.
Your stop price is the point where you are willing to transfer the risk to someone else.
You are not smart enough to have price targets. Humans suck at prediction.
Technical analysis is no more scientific than economics at large.
Timing has as much to do with your success as does your trading process.
Just because you have a system, does not mean that you will begin harvesting cash.
The markets must be amenable and compatible with the rules that you are going to deploy.
This is true if you are a credit option trader also. Selling option premier doest not mean you will keep it.
Monte Carlo your system to see how it would have done if you vary the start date.
The trading year typically doesn't start on January 1… Features are not benefits…
You don't need to program "hot keys" or the buttons on your mouse.
I don't have real-time quotes.
You need to monitor your mental health, your amount of sleep, and your diet.
Don't be afraid to take a mental health day to reset.
This is a marathon, not a sprint.
You are responsible for all your success and failure.
That type of integrity will need to manifest in how you handle money - your money and your client money - your investments and your trades.
Until you backtest, you don't know your numbers. You need to know the expected value of a trade. You need to know what the probability is of your risk of ruin.
You can't get this without a simulator or backtesting software. If you have talked yourself into the Johnny Cochran logic of "If it doesn't fit, you must acquit," (no basis in law) you have sold yourself on an outcome that is not based on 100% integrity and is not a 360 degree outlook.
Your success as a trader will come from your knowledge of yourself - what you know, what you think, and how you feel.
You have to own everything you do and that includes all the results of the trades you take and the ones you don't.
The sum total of all your trading activity will accumulate in your track record. You can be successful and be making a great deal of money right now, but you still might not be a good fit for a particular allocator.
I know a few traders with 20+ years who cannot get big allocations in today's environment b/c their results are too volatile.
These traders have their own models and have been trading the same asset class in mostly the same manner for 2 decades.
Allocators are looking for very low daily vol today. Your daily volatility will increase due to market forces as well as the relative strength of your attachment to your rules.
You have to do your own simulations, backtesting, and research. This is an ongoing process.
Markets will evolve - so will you and your model will need to keep pace also.
And you thought that you can buy someone else's trading rules and make a career?
With options you can bet where you think something is going to go and also where it might not.
You can backtest and simulate option strategies for outright directional trades as well as multiple option positions.
This includes butterflies and condors.
Love the VIX? Don't fall in love...
You can create a vol trade around any instrument and perhaps better manage your risk.
Tony Saliba's new book shows you how you can do with while minimizing your risk. (I published the book).
If you are interested in studying this further, you can study with Tony AND get access to his proprietary options trading simulator.
The is a variance between what you think, what you know, and what you feel.
Thoughts are creative, knowledge can relate to intelligence, and what you feel is emotional.
Your emotions effect your judgement, your judgment effects your behavior, and your behavior effects where you end up in life.
We didn't talk about stocks or commodities in the Incline Village Trading Tribe.
We didn't talk about feelings either, except to get into the willingness to feel our feelings.
Then someone would "send" and get into showing us what it felt like to feel what they were feeling. We can relate to the feeling, not to the drama that got someone into the feeling. That was the "story."
This is why buying another person's trading system or "proven" rules is a mishap waiting to happen as you may understand some/all of the trading rules, but that you can incorporate them into something that you can replicate is highly improbable.
Their rules are not backtested despite there working for some people. Our teachers and courses teach proven, backtested rules and include what the emotional tradeoffs are at each point.
Denying your feelings around trading and risk leaves you with a blind spot that will reveal itself just when you are most insecure.
See how we can help you learn to trade for long-term success.
If you subscribe to get NYSE data, you literally get everything that trades there.
You're not likely going to need all those names running through your simulator.
I removed all the nonsense that I knew I didn't want to be in. I called that process "raking the data."
I removed the following from the data feed:
-stocks below $20 per share
-stocks above $100 per share
-shares with less than 1 million ADTV
You can figure out what is best for you. What is left is what you will run through your simulator. This also helps you stay objective and can stop you from obsessing about one particular name.
Also, it's fantastically hard at best to keep track of all the potential names to trade.
This process can help you stay open-minded.
Use equity pairs trades to stay in trades longer.
If you are trying to increase your holding time but are scared, you can buy one long and sell another short against it.
Ideas to Test
Look at the strongest equity sectors from a relative strength standpoint. You'd buy the best name long and sell the worst short. You are looking for the long to outperform the short.
This is a relative value trade.
If the market crashes or corrects, the sting of the down move will be offset by the short position.
You have to test these ideas, but this is a creative way to get your testing ideas going.
Human beings are emotional beings. We all have emotional systems.
If you are not connected to your emotions, you are likely to see them emerge when you are under the pressure of trading. A system is a set of rules that you can follow.
After you get the system generated order, you have to enter the trade into your platform. That's where the fun starts.
The Trading Tribe was set up by Ed Seykota to help traders understand the emotions that would derail one's trading.
Scenario 1: you get a system generated order, but you do not enter the trade.
Scenario 2: you have no orders for the particular day, but you enter an order on the fly. In both scenarios, there is a variance between your trading system and your emotional system.
Befriend your emotions and make them allies not antagonists. They are trying to teach you something.
Discretionary chart reading is problematic as you can't backtest it and calculate the expected value of a trade.
Only trade set ups (the combination of entries, exits, and position sizes) that have positive mathematical expectation.
Get a simulator and backtest your trading ideas to find the expected value.
The software I spoke about in an earlier episode will do the calculations for you.
Expected Value Formula
E = (Ave Win)(% Win)-(Ave Loss)(% Lose)
The Average True Range (ATR) is a measurement that professional traders use to adjust their position sizes to normalize risk across all instruments.
Normalizing risk allows you to look at Gold the same way you look at Sugar or AMZN for that matter - they are all the same percentage risk to your portfolio.
Don't make the mistake of trading with "tiers" as no one optimizes their trading for the number of shares. You are trading like an amateur if you are trading a security risking $2 if the daily volatility is $6.
Downtiming to intraday time frames is a foolish endeavor and even in doing so, you can't change the fact that the daily vol at $6 is too big for what you're trying to do at $2.
Gorilla Glue #4
Don't write covered calls.
Don't come up with a strategy on the fly. You need to know the math before you put the trades on.
Backtesting does NOT predict the future, but it gives you an idea how the idea(s) would have worked out over the last 20 years. What is past is prologue, but at the same time history rarely repeats itself the same way.
I encourage you to backtest b/c you can use the hypothetical results in your marketing and discuss how bad the "bad" would have been in the past.
Most investors or backers want to know the worst case scenario. Backtesting can give you an idea of the magnitude and duration of the drawdown, the worst loss, the expected value of a trade, and the best run of winners.
Knowing these numbers can help you build confidence in your ability and also give you great insight on your emotional intelligence regarding trading performance - gains and losses.
Go to MartinKronicle.com and look in the top right corner for the details.
Access to his options trading simulator is here: choose "options." It's for students only.
I don't trust stocks.
Commodities are so much more reliable.
David Stendahl - Signal Trading Group
You have to backtest at the portfolio level - not one security at a time. Simple models are best.
If you are testing on Trade Station, you can only test one idea and one security at a time. That might lead you to try 45 indicators or studies onto the name - that's your ego talking and you'll not likely have the same scenario show up the same way they more overlays you have.
Again, simple is best.
Test one simple idea across hundred of securities. Why would you spend weeks trying to find a model to trade only the ES or TSLA? That's myopic...
Tradingblox Mechanics (the follow up to Trading Recipes) I used CSI Data as the data source.
Seasonality in commodities is VERY reliable and it applies to both outright directional trades and spreads.
MNNAX was the ticker for Munder Net Net Fund. I said MMNAX which was not the ticker.
Entries don't mean anything unless you know your exit and position size. Entries are just prices. Entries, exits, and a position sizing algorithm are the 3 crown jewels to a basic trading system.
Don't look at intraday charts - they are worthless and contain the most random data compared to Daily, Weekly, or Monthly charts - in that order. Trading is a game of failure - like baseball.
You simulate your trading rules to a) see if they would have been profitable; and b) give you an idea if you have strong feelings about the frequency of losses and the drawdown.
Trading is systematized attrition of your capital until a winner hits. Risking 1-2% per trade is insane. Start with 0.10% or 1/10th of 1%. Break your capital up into 1,000 units. Don't trade size in your initial entries. Wait for the market to show you which way it's going to go before you add more.
Forget price targets. That's ego talking so that you can be "reasonable" with yourself around greed and fear. How do you know that what is a 3-bagger can't become a 10-bagger?