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 trade in contemporary trading. Back in the 70s and 80s, it wasn't uncommon to risk as much as 2% per trade! That would be madness in today's environment, especially if you want to get an allocation from a global macro fund or if you want to work for a real prop trading firm.
[A real prop trading firm will give you funds to run without your needing to add your own capital and you'll be able to take the risk home with you overnight and over the weekend, for example.]
Take the humanity out of your trading. If you are looking at charts for subjective interpretation, more and more you'll be competing against trading machines that are "trained" to beat you. If you think trading is unfair already, in my opinion it's going to get worse.
Whereas I think you should strengthen your sense of self through yoga and meditation, at the same time I think you should begin to extract yourself out of the trading equation by coming to understand that you are the weakest link in your trading.
To put it in context, I think even if you had the self-knowledge and awareness of HH The Dalai Lama, you should still develop a set of computerized trading rules and manage risk systematically.
Two good books on yoga are Light On Yoga: The Bible of Modern Yoga by BKS Iyengar and Yoga: The Spirit and Practice of Moving Into Stillness by Erich Schiffmann. Disclosure: Erich is a long time friend and my yoga teacher of 20 years.
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" by placing protective stop orders on your winners and Stop Loss orders on recent fills.
Staying in good trades longer frees up time so that you can do more research, read, or go have fun doing whatever gives you pleasure.
Exercise: Go to your best trades and enter them in a spreadsheet. Column A is your Entry. Column B is your exit. Column C is where it is now. Column D is what the worst price was between the prices in column B and C.
Look at the percentage of those names where the price is Column C today is higher than Column B but also where the price is column D never went below Column A.
This helps you understand the opportunity cost of short-term trading and how it works against you.
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 (compatibility).
Traders who have a systematized set of rules love to trade bubbles because although we cannot impose our will on an instrument, we can take advantage of the amateurs and day traders who don't know anything about managing risk.
Trading is a voluntary action. Winning and losing is up to you.
Buy the time the bubble pops, I'll be long gone...
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 those as the entry and exit endpoints to your rules. Marry that with your position size given the size of your account and the volatility of security.
So the three crown jewels to trading are entries, exits, and position size. They are all calibrated to work with one another and rely on one another to help you create alpha for you and your clients.
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 to "make sense" I think you're in for quite an education if you're open to it
There are no external solutions to your internal issues. That should save you a ton of money in that you don't need a high clock speed computers, multiple monitors, nor televisions in each room.
One way to generate peace in your daily activity is to start using stop orders to enter and exit trades.
Professional traders use stops, not market orders.
Buy stops are placed above the market and are used to enter trades long or to cover short sales and minimize risk.
Sell stops are placed below the market and are used to enter trades short or to sell long positions and minimize risk.
Stop orders show your conviction in your process. If you're trying to read charts or you've been sold on something amateurs refer to as "set-ups," you can absolve yourself from that lifestyle choice and at least act like a professional on your way to becoming one.
Trading with a system will capture anything that is bullish or bearish and remove the need for your having to interpret charts. Plus, it's a lot less work as well so you save yourself a great deal of time. A third benefit is that you can eliminate having to trade frequently - something I believe is not necessary to becoming a professional trading.
I think trying to read charts every day is exhausting. Moreover, if you are glued to your monitor, you might be giving yourself a false sense of security that you can avoid "the big loss" by doing so.
You can't stop market volatility because you are sitting there hyper-vigilantly. What you can do is enter your stops are predetermined levels and let the market come to you. One benefit is that you won't find yourself chasing trades. Another is that if something unexpected does occur, your order will already be there to protect your capital. As a trader or speculator, job #1 is playing superior defense.
By entering your stop orders ahead of time when things are calm, you also have the added benefit of avoiding the errors that can occur when you have to act under the gun and you're not used to doing so. Errors cost money and you can assume that if you make an error, it won't add to your P&L, but hurt you.
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 of getting another King to make 3 of a kind (a set of Kings), or quads - four of a kind.
They know what the probability of making a straight if they have two connectors or making a flush if they have two cards of the same suit.
This allows them to the knowledge to know how to bet given the odds and the size of the pot. Yet it's still possible that they can do everything correctly and still lose the hand. That's going to happen quite a bit if you play a lot of poker.
Like in trading, you can become emotionally invested in the outcome of a hand. If you have a pair of Aces, you can get beat from time to time despite Aces being a strong pair.
Professional traders can learn a lot from this type of knowledge. If you trade long enough, you will get beat when everything looks to be in your favor.
I've been long stock that beat earnings estimates, but was greeted with a down market because of some external factor that took everything down with it - including my stock. Not fair you say? No one cares what my definition of "fair" is when trading. Nothing is fair.
A good way to become mindful of what you could be in for is to study the winning and losing streaks from your backtested results. Most of them will tell you what you longest losing streak is (duration) and how bad it effected your equity (magnitude).
I think this will help you learn to build your confidence and put things into perspective.
The losing streaks that you'll have by trading a system will pale in comparison to those that you'll need to endure if you are day trading or trying to ready charts or "set-ups." Those are a thing of the past.
The modern trader - the trader who is going to set himself up to win for the rest of this decade and into the 2020s will have 100% of his trading rules backtested, know the expected values, and have rules to eliminate sub-optimal trades, and have rules built-in to trade for the marathon of the next 20 years. That does not now nor will include trading based upon charts nor intraday data.
Firms are investing tens of millions of dollars to trade against the short term lovin' traders as they are easy to pick off and bully. Plus, in that space, there are a million suckers born every minute so you've been warned: don't be one of them.
Trading simulation software will allow you to vary start dates, the instruments that you are trading at any given time, how to measure volatility, and how to cut risk during losing streaks.
A great book on how to understand what a poker player learns to contend with is "Getting the Best of It" by David Sklansky.
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 that you should have.
The Enigma code breakers had great motivation to crack the code: save English lives and end the war. Our motivation is to limit risk and be in high expected value trades.
You can use price as your main signal, but admittedly, in the short run, it looks like noise. It's not until you look back to see the statistical significance of today's closing price to the past that you can begin to ascertain whether it's signal or noise.
Your trading system is what you can rely on to decipher the data and create trading signals that you can rely on. Without a system, much of what you see can be construed as disinformation - even the price. This is especially true for short-term, intraday traders.
This is why I think you're in for a life of frustration if you're trying to day trade: all the intraday data are random. If you're lucky enough that today's intraday data is aligned with significant weekly or monthly time frames, you might have a good trade. If that's the case, keep the trade though and let the momentum follow through overnight and over the weekend. That is the only way you can fight the manipulation that you'll otherwise suffer from the hands of the HFTs and their criminal counterparts - the exchanges.
Keep in mind that most indicators only confirm what you already know the price is telling you. You can probably simplify your trading by removing all the overlays and indicators from your charts.
Compare your daily data with weekly and monthly data levels to confirm your signals, not trading indicators, overlays, or lines that you feel compelled to draw on your charts. If you find yourself needing to do that emotionally, you're grasping for something that's not there.
You can also test your models and from the ones that I've done, the tests that I've run without the technical indicators versus the ones that included them, the results weren't improved by having the indicators included.
I wrote in The Inner Voice of Trading that I felt (and still do) that they are for the most part "emotional bandaids." Indicators won't help you "not" feel the feelings that are trying to teach you something. They will also add another layer of frustration to the mix and I've yet to see one that is foolproof.
The best thing you can do is simulate your trading ideas over 10 to 20 years of data to see if they have any "rich" history.
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. Then, they divide that into the percentage of capital that they are willing to lose per trade.
If the Gold ATR is $2.50 (it's not) then the daily dollar vol is $250 since the gold contract is 100 troy ounces. If you have a $100,000 account and you only want to risk 1% per trade, you can figure out the maximum number of contracts to trade.
$100,000 x 1% = $1,000
Daily Dollar Vol on Gold = $250 ($2.50 x 100 oz)
Therefore, you can only trade 4 Gold Contracts since $1,000 / $250 = 4 contracts
You can also trade only 2 contracts and give them $5 of risk between your entry and exit.
Then to manage the risk, if you enter the gold market long per your entries at X Price and place your protective sell stop $2.50 (the Gold ATR value) below the entry price.
Keep in mind that measuring ATR can be done with a computer and you can backtest all your entry and exit rules with the risk across all instruments normalized.
In doing so, you remove all the guesswork. You have the added benefit of not falling in love with any one instrument risk management wise since each trade will be the same percentage risk in your portfolio (at first, if you don't add to your winners).
More importantly, you won't want to jump off the bridge when you lose money on any one particular trade since they all represent the same risk and therefore you'll not be married to the outcome of any one trade.
It's hard to remain objective, especially if you are looking at the headlines of the day for your trades. Trading a system can remove all of that for you, but you'll still have to a) put on the trades and the protective stops; b) not over-ride the system and "not" take the signals; and c) not over-ride the system and put on trades that were not system generated.
If the volatility in the commodities markets are too great for outright trading, you can consider trading intra-commodity spreads. In a spread, you are simultaneously long and short two contracts of the same underlying but of different expiration months.
Instead of trading for an up or down directional trade, you trade the relationship between the two contracts for them to narrow or widen.
You are afforded lower margin with spreads, so if your account is smaller, it might be a good fit for you to get going in commodities. The good news is that most professional traders know the spread markets very well so it's a good idea to learn them anyway at one time or another.
You typically have lower risk since you are long and short at the time time and the seasonality of physical commodities tends to be very reliable.
We have some free educational training videos for you on this topic.
Go to MartinKronicle and set up your Free Account to get access.
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 first. Don't cut the 4-baggers at the knees. Place a trailing sell stop order and let the trend continue (if long). Don't impose your will on the trend.
Sit on your hands and let the market forces work for you.
Think in terms of percentages and not dollars. If you risk 0.50% per trade and it's a 10-bagger, you'll add 5% to your overall portfolio. What will that do to your Incentive Fees?
If you're smartly abandoning day trading (smart move), you need to find a better way to deal with the discomfort that you feel when you don't take short-term winners at the end of the day or before the weekend.
What is the discomfort trying to teach you? For each of us it's different.
nwiUllingness to feel the discomfort in your trading is also denying the the feeling of what you'd feel by having a 10-bagger in your portfolio.
In other words, the feeling of having a 10-bagger is on THE OTHER SIDE of not taking short-term profits.
Why don't you want to feel the feelings around getting a 10-bagger? Aren't you worth it? I think you are...you are willing to do the work - you might as well get paid as much as you can for it.
You can release that discomfort in yoga class or in your Trading Tribe - and replace the satisfaction you get and not sabotage your trading and still get to feel the feeling that you seem to want to have (because you're seeking it everyday - you must love it, unless you're a masochist.)
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 do you plan to feel good? If "I feel good when I make money and I feel bad when I lose money" is the ethos, we need to rework this a little. All you can do is follow your backtested rules. If you have the discipline to do so, define "happy" as "I followed my rules today which was the best I could do, therefore my thoughts, feelings, and behavior are in alignment and that alignment will lead to superior performance over the next year."
We can't predict when the profits will show up, so having a monthly goal of 5%, for example, might provide you with the goal of frustration because that is the result. [Intentions equal results.]
Rely on "Best Practices"
Best Practices in trading does not include day trading, intraday trading, or anything short term. Behavior predicts where we end up in life. What we do today provides us with the trajectory to where we want to go. We need to be mindful of the quantity and quality of the work we do.
Go through your activity with a fine-tooth comb. How do each of the points add up to profitability? Or, what 2 or 3 items in combination add up to to a positive slope on your trajectory.
What do you want trading to do for you in your life? What does it fulfill?
What do you want your money to do for you?
Making money is the end result of a big technical and emotional system.
"Discipline Equals Freedom" - from the book Extreme Ownership
We need to work hard, but also work smartly. If we focus on bad habits, we will be working hard, but not smartly. That's what day trading is to me: hard work for no money and a great expense of time.
Notice where your behavior breaks down and diverges from what your Mission Statement delineates.
If it's technical, take a class and read up. If it's emotional, take a yoga class, learn to meditate, or join a Trading Tribe.
We are all students over the entire duration of our trading. The best traders are mindful of everything they do and don't do. Everything they want to feel and not want to feel.
Keep in mind that the feelings that you don't want to feel have as much power over your behavior as the feelings that you actively seek out.
Don't judge your feelings, seek the wisdom that they are trying to teach you. If the feeling of public Pride is the "heads" side of the coin, realize that "tails" is public, abject humility. Use this rule to help target the feelings you want in your emotional system.
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 quickly or worse.
Looking for a promise in a world of prevarication. Why would you need to be alerted to an idea from mass media instead of doing your own research? Who's accountable for the gains and losses?
Own Your Own Process
You must think along the lines of being your own person - that's how you have a principle-centric life. You are in control and own all your gains and losses. Picking ideas from the media isn't a trading process anymore than chart reading is.
And following an on-air personality and trading alongside them is no different than betting that King Charles is going to hit his next shot or Houston Astros' Center Fielder and World Series MVP George Springer is going to hit another Home Run. Go look up the Hot Hand Fallacy.
Ask any real trader and they'll agree with me: traders live in a paradigm of personal responsibility.
In the end, you need to own your own process. If you don't have one, don't trade until you do. You cannot delegate the key aspects of a trading system to someone else nor make key decisions based upon someone else's philosophy.
Here's what you're missing if you are sourcing your trade ideas from TV or from the charts you see published via the Twitterati:
1) entry price
2) exit price
3) position size & risk management
4) stage of trend (if there is a trend)
..."and the grandaddy of them all..."
5) correlation risk to what else is in your portfolio
We can add another once we add you to the equation:
6) the best way to express the risk for your psychological makeup
That means, do you rely on the the equity, options, or futures markets to effect the trade? Which is most suitable for you and your emotional constitution, years to retirement, and tolerance for risk.
Develop your own fundamental ideas from your daily life. That is something you can witness by yourself. Then, marry up what you see for yourself with the direction of the trend.
If there is no trend, you might be wrong or you might be early to the trade. If the trend has begun, that's not a bad thing - there might be much more left to it.
Don't be turned off from this situation as most trend followers are "fast followers" and adapters than inventors, so to speak.
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 model.
Since 1974, he has taken only 1 discretionary "trade" and that was in advance of December 31, 1999 or the Y2K issue. The trade was to go flat and offset all his positions since he had no historical information to base his decisions on - including existing positions. This trade was taken to protect his clients' funds. Other than that, he has only traded system generated orders for over 40 years.
If you are trying to raise capital, you'll have to have a good answer for prospective clients as to why you think you can shoot from the hip and make clients money as a discretionary chart reader
In that regard, you are the share price and security. What information does the potential / allocator have based upon your behavior around security selection and trade management that will give them enough confidence in you to give you an allocation.
You'll make more money by managing OPM - Other People's Money and taking an Incentive Fee.
Ray Dalio feels that you should learn to code regardless of the industry that you're in else you'll be replaced by a computer. The computer can make the decisions faster, without emotion, and without error. Ray makes his decision in parallel with the computer and it provides "check and balances" between his thinking and what the calculations can show. He also won't leave out a key piece of data.
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.
If your current results on "in model" - meaning the current results are within the parameters of what you have now - there's no reason to pull the fire alarm.
You might be on to something and not know it because you quit too soon. If you take 10,000 coins and flip them 10 times each and keep only the ones that come up heads, and keep flipping them you'll have 9 left after those 10 iterations. What can you say about the quality of those coins? Moreover, what can you say about the 9,991 that came up tails at least once and were discarded? Nothing really - those are random results.
Likewise, when you are trading, sometimes you'll just open an account and begin trading at the wrong time or a time of "bad luck" where the market is not conducive to your systematized rules.
You're not a losing trader if your system is in a drawdown because you are following best practices. All you can do is follow your rules and put your trades on by entering your stops.
There haven't been any backtests that I've seen on Bullish Flag patterns, for example, that tell you what the winning percentage is and what the expected values are by risk unit size. If you trust the person you've learned this from and you blow up on a pattern, that's on you.
I get it, being a chartist is cheap and all you need is a web browser. That might be all you can do to get started trading, but keep in mind that this type of trading does NOT fall into "best practices" anymore when the lowest common denominator can do it. You nee to dig deeper to define your trading edge.
Advice is like mushrooms, the wrong kind can kill you.
Relying on chart patterns is becoming a thing of the past as the computers are becoming more and more powerful to compete about and interpreting chart patterns is subjective and subjective trading is not trading with a definable edge.
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 breath and you calm yourself, lower your blood pressure and level of stress. Surrender to the process and notice over time how you feel better the longer you practice yoga. I admit, I did not feel this way within the first 3 months of practicing yoga. But there came a point where I didn't want to go a day without it. The blissful hangover you have the day after a yoga class is worth the effort.
When you feel better, I think you'll trade better. You won't have the knots in your lower back, the stress in your shoulders, or tight hamstrings that distract you during the trading day.
You can also just meditate and forget the yoga altogether, but the benefits to you overall body with yoga are superior to that of just
You can also tap into your subconscious also by going with the flow and seeing where you are holding stress in your body and all the feelings that you are holding on to that you don't know you are holding on to...you'll release all the energy that your body is blocking mentally and physically.
You'll also develop a stronger sense of mental stamina because you'll condition yourself to quiet your mind - and that means focus. When you focus, you'll be able to harness all your mental power and put it on the task at hand. You'll also benefit by NOT spending energy on things that don't matter anymore. That's how your life will improve.
You can watch yoga lessons on YouTube. You can also buy some DVDs to practice at home. IMHO, you'll benefit more if you are a beginner because your teacher will help you make the adjustments so that your postures are picture perfect. Like for baseball pitchers, you want to have great yoga mechanics so that you don't inadvertently hurt yourself by trying to go to deep into a pose.
My good friend <a href="https://yogisanonymous.com/discover" rel="noopener" target="_blank">Ally Hamilton has an online yoga school</a> where you can stream lessons for $10/month and have access to some amazing teachers - many of whom I know.
<a href="https://martinkronicle.com/ally-hamilton-yogas-healing-power/" rel="noopener" target="_blank">Listen to my interview with Ally Hamilton</a>
<a href="https://martinkronicle.com/norman-rosenthal-super-mind-transcendental/" rel="noopener" target="_blank">Listen to my interview with TM master Norman Rosenthal</a>
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 over time. Some believe that patterns repeat themselves. Some believe that history doesn't repeat itself in exactly the same manner.
Human beings are emotional beings, even if they run systems. Even the most grounded and mindful individual has to interpret the chart patterns to "make something out of it." Then they have to figure out where to put on the trade and where to exit.
We are feeble at best and relying on subjective views is not the way of the future. Today, firms are spending tens of millions of dollars on AI and trading platforms to feed off of discretionary traders. It's job security to them.
There will always been someone who thinks they can beat the market by trading things off the top of their heads. Everyone is against you these days. The exchanges, the Broker-Dealers, the trading platforms - they are all the enemy in this day and age. They are encouraging your to make transactions as if making frequent transactions is the key to trading success. It's not.
Your f*** you money is their Earnings per Share. They look at the quality of your money in a more material way than you do. Don't give it away by making amateur-like decisions.
Charting is becoming a thing of the past. You have to evolve now so that you'll be in position for the new market that will be in full force in the next two years.
Sal Arnuk of Themis Trading told me that there are over 2,000 algos and trading rules that are already set to beat you and induce you into sub-optimal and losing trades. That number is growing by the day.
In the next two years, AI-based trading platforms and exchanges will have a rule to trade against you that says "7 out of 10 times, this guy (you) put this trade on when we pushed the stock by x% in this particular chart pattern. Each time he was good for $0.50 per share to us - minimum was $0.20 and the max was a whopping $1.00 per share. Each time he does this we must trade against him because he is a high, expected value sucker for our setups." So what you think are trade set-ups and reliable chart patterns are really nothing more than trade bait to get you to give over your money.
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 our rules that we know have positive expected values.
Follow your rules even if you are in a drawdown - here's why.
If your model generates trades that have positive expected values, and you DON'T put on the trades, you are effectively giving that money away each trade that you do not put on...so you're still losing.
Think in terms of percentages, not hard dollars so you don't get hung up on what you're missing out on. There is a trade-off between what you lose on a trade and what you could have bought with that money, but remember that there is a "quality" to your money.
The money you save is not the same as the investment capital you have. In Economics, "saving" is the act of "not consuming." Investing is looking to outperform cash.
Remain objective and let go of the need for one specific name to bring you to the pearly gates.
Focus on process and the results will come. You are powerless over WHEN they come. Surrender and let whatever name your system generates bring you to the holy land.
I'm often surprised that what I thought would work out as a trade did not, but some obscure name that my system generated was a 5-bagger and made up for a lot of other losses. Trust in your process and your system. The less you impose your will on a trade, the more sane you'll be and probably more profitable also.
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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 stick with it and add to your winners.
If you are using ATR to measure your risk you can add a new risk unit every .5 ATR away from the previous entry. Base your new entry on the previous fill, not the system generated price.
For example, if you got long at $60 and the ATR is $2, then the next entry will be at $61.
This is discussed in detail in Way of the Turtle by Curtis Faith.
The Turtle Trading Rules generate very erratic returns. In today’s environment, the results are too volatile to garner allocations from global macro hedge funds. You will be measured on your daily vol. Back in the 70s and 80s, traders were evaluated on creating large gains. That’s not the case today.
IF you consider trading these rules for yourself - beware. The drawdowns are large and can range from 30 to 60%. You will still have to modify them.
You can vary the size of your second entry and add a smaller size to your existing trade.
The Turtles added the same size risk unit at each entry point. That means they’d enter the market at 60, 61, 62, and 63 - using the example above - all with the same size.
With the market vol being where it is today, you could likely go home long 3 risk units at 60, 61, and 62 and the name would pull back to 62 and you’d be at break-even with 3 risk units on.
In order to avoid that, you should consider adding smaller risk units to your initial trades. If your first risk unit has 4 contracts, consider adding 1s or 2s to the existing position. In the event of a pullback, it won't hurt as much. Of course, you need to test these ideas to get a feel for how such trades will behave and see if you are compatible.
Another method is to add to your winners above the next level of resistance.
In order to win big, you need to know yourself more than any other part of your trading.
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 the dollar-volatility of the instrument you’re trading is large than your risk unit, you might have to pass on that (and several other) instrument. If the daily vol on a gold contract is $4,000 and you only want to risk 1/2% on a trade on your $200,000 account, gold is too volatile for you to trade.
If gold’s daily vol is $40, then the dollar volatility is $4,000. You can change that. Trying to trade gold within the range of the normal vol and only risk $10 per ounce will likely get you stopped out for a loss much more frequently as the vol is non-directional and random on any given day.
You can't change the vol anymore than you can change someone's personality or behavior.
Free audiobook - Listen to your Inner Voice
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 employees. They never leave, have unlimited stamina, don’t call in sick, don’t have bad relationship drama, and are very reliable…
You can enter Stops GTD or GTC - good for the day or good ’tip cancel.
I use GTD stops to enter and exit the markets exclusively. This gives me a state of calm and not chase any market. The markets come to me. That puts me in a place of power. Why? I place my stops at places where I project there will be other buyers and at which point the market will have initiated an upward move. I don’t want to be long an instrument that’s not moving or trending.”
By acting this way, I let the market determine when I should get in or out. I’m never shooting from the hip
“If it’s not going up, don’t buy it in the first place.”
Enter your stops for the day and readjust as the market moves up. You’ll get into a groove of entering and resetting stop orders.
If your Buy Stop above the market doesn’t get hit, think if it as a good thing. “Rejection is God’s Protection.” No sense in getting into a trade if it’s not going to serve you. There’s only one reason to get into a trade and that’s because it has high expected value. You can test your ideas to figure out which ones are high EV trades.
I don’t use Limits as further price qualifiers. They make the trade less liquid and the last thing you want to be is long in a rapidly falling market when you could have gotten out. Slippage and skid is a part of life and if your need for such is great, get that feeling from throwing darts and keep it out of your trading. It’s better to incur small slippage, rather than larger losses b/c you had a Limit on your Stop.
Listen to your Inner Voice - or mine if you don't have one yet