All the price action in the world, all the indicators in the world, all the money management and technical analysis in the world is great.... but at the end of the day, what you are really doing is just trying to trade better than everyone around you. You have to out-trade the crowd in order to make money.
The saying is that 5% of the traders make 95% of the money (or so). In order to join the 5% crowd, you've got to trade smarter than your peers. It is "simple", because most peers are full of psychological and disciplinary problems -- they make inconsistent decisions and don't follow their own advice or their own trading plans. The "hard" part is for you to not fall into the same ditch.
The reason that learning price action is a powerful tool, and what I believe a strong step in the right direction, is because it can be done without indicators. And indicators are the devil. You would be far better off to have none than to have five or ten. Price Action is the closest thing to the "holy grail", because it is the most basic, the most pure form of analyzing the market. You guys have no idea how many private messages and skype messages I get daily begging me for indicators. Indicators, indicators, indicators! They see a new indicator on my screen and think "Shiny!!! If I had this, I could make money!!". Indicators can be useful, but they cannot make you profitable. If you aren't already profitable then please... PLEASE... just delete the indicators until you are!
Many traders feel they cannot be trusted to trade discretionarily after suffering huge losses. They look for some black and white answer in trading, "go long here", "go short here" and no such thing exists. They would be far better off refocusing that energy into learning how to re-condition their thought process and their minds to be better traders. Trading is a very intense process, it brings out a lot of emotions, it brings out the "fight or flight" response, it basically amplifies all the things wrong in your life until they are so pronounced, so unbearable that either you run away or you face your deepest fears and overcome them.
It may sound like hogwash, and you may laugh, but I believe in what I am saying and I've got experiences to back up my beliefs. Perhaps trading is different for every individual, because every trader has a unique set of challenges to overcome, and in doing so they learn to trade differently, being molded by these challenges like water flowing around a boulder. They adapt.
For me, I literally had to become a different person in order to succeed at trading. I had to curtail my impulsiveness, I had to learn to state my beliefs only when I had substance and factual evidence to back them up, and most of all I had to admit that I was wrong. That last part is key. Every few months I thought "oh, I've had a breakthrough... now there is no stopping me! Now I can make money!!". Wrong again. It wasn't that there were no breakthroughs, because in fact there were many. It's just that no single breakthrough was enough to make me into a successful
trader. It took many, many breakthroughs and many, many admissions of being wrong.
There are no short cuts in life. There sure as hell aren't any in trading. I know some "traders" who are making huge profits but they are doing so in a way that cannot be consistently maintained. They are averaging down. They are taking huge risks. They have no money management. They have no exit strategy. They never define a "I'm wrong if xyz happens" scenario, because they never plan to be wrong! These traders may come around every now and then and make a lot of noise with their big gains, but they will be gone soon enough. Stupid people can get lucky, too. But to be in the 5% of successful traders, you can't be stupid, and "traders" who trade with poor risk management, no money management, and no exit plan are quite stupid. The market will humble them eventually.
Yet still, even after I write long posts like this, and hundreds more, people still believe that indicators will solve their problems. If I have one mission, one clear objective with futures.io (formerly BMT) other than empowering traders to help each other, it is to try to reshape peoples energy away from indicators and instead focus that energy into proper risk/trade/money management and into overcoming the psychological challenges of trading. If only they spent as much time in these areas as they do playing with indicators...
Nothing so Impressive as Simplicity
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Mike I totally agree with your above post, but the point I was trying to make was that surely the guy knows mindset and all yet isn't doing well so there are many contributing factors to note to being successful?
Also in relation to your own trading, how discretionary are you? How fixed is your rule set, do you have to have 4 out of 5 boxes ticked to take a trade? Do you have a minimum R:R requirement to take a trade? Do you have daily targets and draw down limits? Do quit when you hit these? Do you anticipate the type of day ahead of time? I could go on all day many things to consider and each differs person to person and method to method...
I agree with you, rassi.
I only trade discretionary setups, I have no automation. Within my pre-defined method and plan, I have clear concepts of when to put on trades and when to exit them.
I am always evolving and hopefully doing so in a positive manner You can just read the first few posts of this thread to even see how my method has continued to evolve. I am more and more and more focused on price action solely, trading completely naked without indicators, and just focusing on what price is telling me, and pairing that with good money management and experience.
There is no hard fast rule of when to place or exit a trade. I just have concepts which are based on price action patterns. I prefer to follow trends and buy breakouts and sell breakdowns.
I don't use a calculator and say that this trade is 0.8:1 or 1.5:1 risk/reward. But, I do have a max risk, and if the max risk is not sufficient to properly place my stop, I don't trade that setup. I always aim for a big pay off. I position myself to reap rewards. By scaling out, I take some quick winners to help build my confidence and play to some psychological needs, and then I position other targets to reap maximum rewards. The targets are all based on pre-defined support/resistance areas. I know my targets before I ever enter the trade, and they are never a static amount.
I may take some trades that have a lower than 1:1 R/R, but I don't do so intentionally. They may just be something like 0.8:1 and I didn't judge it quite right. When you place a trade, you have no way of knowing if this trade is going to hit your target or not. Even if it does hit your target, you have no way of knowing if it will then blow through that support/resistance area and then continue running to the next level. All you can do is make smart decisions and position yourself to reap maximum rewards.
I do have daily targets. I've got a lot of other stuff I work on each day (forum, for instance), so I find that having a pre-defined target helps me trade to a goal, then stop. The goal is always evolving. The goal also does not have to be based on profit and loss, it can be based on how well I am trading, or how well the market is moving.
I don't anticipate the type of day. I do, in general, find Wednesday's to be some of the best days because of the increased volatility usually present due to the inventory reports (oil). Other than that, I trade what I see. I mark trendlines on bigger time frames and take note of key s/r areas. I then just focus on 'what-if' scenarios. If the market does abc, then I will do xyz. If the market instead does abc2, then I will do xyz2. I don't care which one the market does, and I have no interest in trading in the middle. I'm waiting for someone big to move the market, and I then hop on and ride the move. I don't want to be in the middle and try to do the moving. This method works with trend following.
Many people want me to say:
- Here is my magical indicator that says when to go long and short.
- Here is my stop and target amount.
- Here is why I entered the position.
- Here is why I exited the position.
- Here is when to trade.
- Here is when not to trade.
- Here is what your daily goal should be.
- Here is what your daily stop loss limit should be.
These answers don't exist in this way. And if you (not talking to you rassi, but everyone) are still searching for answers to these questions then I think you need a wake-up call because I personally believe you are on the wrong path.
Well I appreciate your thorough responses. At least I understand better what you are trying to do, now. I can't help but think: If Mark Douglas wrote a book promoting ineffectual approaches he used to try before learning better psychological methods, I would not buy that book. I can be ineffectual without any help But I see where you are coming from.
Regarding copying people, I'll also say that, to give an example: I didn't read Al Brooks to try to be him, but I saw benefits from reading his perspective on how he makes his money. So, while copying someone else's method may not be the answer, learning about the methods of successful people has had value to me personally. And again, to be useful to me, he has to tell me what he thinks works. Or, if he wants to tell me about his past mistakes, he needs to present them to me as such.
I see from your responses here, though, that you write about approaches you find useful as well... just apparently scattered around the site and mostly behind your pay-wall. As a casual user who does not spend the time needed to piece together all of the bread-crumbs, I didn't know that. And, I'm glad! I do think it's very inspirational for people to see that success is possible. It's a powerful way to help them shape their beliefs moreso than a way to prove anything to them about yourself.
I'm still working on finalizing my charts. I am close....will probably finish this weekend and then my next project is finalizing a written trading plan.
Regardless of what your chart looks like (you and only you can decide what you like or want), I do encourage you to NOT CHANGE IT for a period of 2 weeks. At the end of each day over two weeks, ask yourself specifically "Does my trading chart work for what I am trying to accomplish?", as well as "what do I like best about my chart", and "what do I like least about my chart". Record the answers to each question on a daily basis for 10 trading days (2 weeks). At the end of the two week period, you are allowed to make two and only two changes to your chart. This means you can change an indicator for something else, or change a setting -- any two changes, and only two. Then you repeat the process again.
I do show how I am doing it. I talk about my method and my setups daily. Don't get hung up on seeing a trade log.
The problem is anyone can talk about setups and talk the talk but very few can do it successfully real time (walk the walk). In my time I have been "suckered" by a lot of scammers posing as profitable traders.
An example, a trader posts his magic indicator which calls tops and bottoms. Shows examples all the time. I reverse engineer his indicator and find it does call tops and bottoms.. along with every little up and down in the market making it much less useful.
Another example trader posts his method and teaches people how to use it and when it doesn't work he says "well that's not what I'm really using I just try to make it easy for you".
Another example is a top trading guru who brags about how he really trades. I followed his system and my big loser didn't even show up on his track record.
Just yesterday I was investigating eminidaytrader.com. They have a great track record but when you google them you'll find their members got a ton of losers that weren't in the official track record. Puretick does the same and this seems to be the main way these "systems" scam people.
Those are just examples but the list goes on and on. So I'm going to completely disagree with what you write below.
My objective is not to prove to anyone that I make money trading. If I made 1 million last year, does it magically change something retroactively with my posts? Do you now start paying more or less attention to my future posts? What if I lost 1 million last year, do you now throw in the trash my prior posts and block my future ones? Neither answer would make any sense. As I've said before, you can learn from someone that is losing money just like you can learn from someone who is making money. I would focus on de-emphasizing the two. Your not subscribing to "Big Mike's Trade Calling Service". And as I've said before, attempting to copy someone else's method isn't going to work.
I got scammed a year ago. I signed up for a trading program and a month into it I realized that the coach wasn't profitable (even on sim). He was hiding his losers. So I abandoned the program right after a month despite the fact that I had paid for 4. I could stomach losing the tuition money but I couldn't stomach losing another 3 months of my time.
I realized I hadn't done my homework. I paid a guy without any proof that he was a profitable trader. It was then that I told myself I wasn't going to give much credit to anyone who has not proved to me that they are a profitable trader. Doesn't mean I won't listen to them, we can still learn some things. But I will question everything they say and even be skeptical about it. I'm actually skeptical of profitable traders too but if a trader isn't profitable I will say I'm very skeptical.
Take Joe Ross. I have no proof he is profitable. He writes books, I learned some things, but does his Ross Hook work? Ross is wanting to sell me seminars and even told me to come to his house for personal 1 on 1 training (at a very high price). He says that he gives away all the secrets in his 1 on 1 coaching, secrets that aren't in his books.
now take l2st. After 1 month in his room I doubted he was profitable until he put his DOM up for 3 weeks in the trading room and showed me he can really trade. Now I have no doubts about him or his material.
Now who am I going to believe more? If I'm going to invest 40 hours studying someone, should I choose Joe Ross whom I have no proof is a profitable trader or Kam from L2ST whom I know without a doubt is a profitable trader?
Common sense tells me I can learn something from Joe but my time is better spent on Kam's material/method. If someone can give me an honest reason why I'd be better off studying Joe than Kam then I'm very interested. And "to learn what not to do from Joe" is not a good answer for me. I learn by example, by imitating successful people. Not by studying losers.
Now this is my point of view and everyone may not feel the same way. I'm skeptical outside of trading too. When I sense something is bullshit I call it bullshit. And a few times I've ended up being wrong but this has kept me out of trouble far more than it has caused me missed opportunities.
I'm profitable with my swing trading for 8 months now with a profit factor over 20. I have no problems showing someone my IB statement which shows every trade I took and the result. if that helps someone make a decision in their trading education process then I'm happy to help them. If it gives them more confidence in studying my trades or reading my journal, why wouldn't I share the statement? I got nothing to hide.
For my daytrading, that has been a challenge for me. I'm not yet a consistently profitable daytrader. I don't hide this either. I publish my P/L almost every day. I'm improving and this month will be my first month profitable on real money daytrading (as long as I don't screw it up next week!). And once I establish a few months of profitability I'll share the results. Others who read my journal or watch the real time trade videos on my blog will at least know that I'm not bullshitting them and that I'm not a scam. They may not find anything useful in my method, that's fine. But at least they will not have doubts.
When my wife & I were backpacking in Southeast Asia we stopped in Krabi Thailand. There was a diveshop there and being an avid diver I asked about the dives and they sold us a 2 dive day trip. It was the 3rd worst dive of my wife (worst was when I had to swim through a million jellyfish in Puerto Vallarta Mexico and the 2nd worst was when a big storm came during our dive in the Florida Keys). Visibility was terrible and there was a current and nothing to see!
So after the dive I talked to the divemasters for a while and then casually asked "where's the best diving in Thailand?" They told me "similan islands". So when we got back to the beach I told my wife "we're going to the similan islands". I didn't know where they were or anything about them, but that's where I wanted to be.
We ended up on a dive boat for 6 nights (it's far from the mainland) and we did 16 dives in 4 days. The islands were beautiful and while it wasn't the best diving of my life (Cayman & Maui are much better) it was 10,000x times better than our dives at Krabi.
While 'resting' after a dive I hiked up to the top of the island where I took this photo. We lived on the water in Paradise for 4 days.
Many chose to dive at Krabi. We chose to dive at the Similan Islands.
A few weeks ago I mentioned how important psychology is in trading, and if I remember correctly you disagreed and said the method is more important than psychology (or at the least, you de-emphasized psychology, but I am tired and lazy and am not going to find the exact post right now).
And I see that my posts were in vain because you completely missed my point. I invite you to go back and read them.
I want to be perfectly clear about my post: I am not making any judgements about your trading or your profitability. All I'm saying is that for me, I will give more credibility to a trader whom I know is profitable than I do to a trader whom I do not know is profitable. You believe that profitability doesn't matter and that we can learn from unprofitable traders. I disagree. Sure I can learn something but I feel my time is better spent learning from profitable traders.
Here is another one... knowing what you know today, if you could change only ONE single thing about your past trading, for instance the one biggest thing that caused you the most pain or to lose the most money, or the one biggest thing that hindered your progress in becoming a consistently profitable trader, what would it be?
I'll go first.
First, it's hard to list just one. But I would have to say the one biggest thing that held me back or kept me down, or hurt the most -- however you want to phrase it -- would have to be... indicators.
If you didn't see that one coming, you haven't been paying attention!
There are so many things that I screwed up in the beginning, things that looking back are now so clear to be huge mistakes, but the one that 'cost' me the most would have to be indicators. It wasn't until I finally committed to myself to look past indicators that I became consistently profitable. This process started somewhere around nine months ago, but I continue to learn more and more each day (at a much faster rate than before) now that I've ditched indicators.
In the beginning, I kept creating indicator after indicator, tweaking old indicators, trying new ones, looking for patterns and combinations. I was barely paying attention to what price was doing. And we trade for price. We don't trade for cross overs, we don't trade for overbought or oversold, we don't even trade for volume. We. Trade. For. Price.
Once I finally focused all of my energy on just looking at price -- and believe me, it was a long hard process that I struggled with for a long time -- then everything, and I mean everything started falling into place. Everything started making so much more sense. In fact, it was now easier to trade.
Easier because I was trading based on something that actually had relevance, so any decisions I made based on price had a direct correlation with price! Before, I would make decisions based on some indicator being +/- 0, or rising or falling, or above/below price, or oversold or overbought, and there is no correlation with price and these things. You may disagree with me, but this is my opinion and my belief. Does a stochastic rise when price is moving up? Sure it does. But it also can move down when price moves up. Rinse, repeat for every indicator out there. If you don't believe me, fine. I wish you the best of luck using your indicators
The thing is, once I finally decided to study price and all the things that go along with it, I call it price action, I started to see instant feedback that actually made sense to me. All my hard work to generate a 'signal' based on price, in my head, was now paying off. There were no complications. There were no "why did that happen??". This is what I mean by saying it become easier. Before, I was just beating myself up because I would look at indicators and find signals, and I would wait for my rule which told me when I could or could not trade, and then I would get my ass handed to me if you sampled enough trades (say 100 or more).
Sure, many trades worked great. But overall, when I used indicators I lost more than I made. Many traders go through the same thing. They keep adding "filters", more indicators to help them filter out the bad signals from their other indicators. That want an indicator to tell them when not to trade in chop. They want an indicator to tell them it's too late to enter a position, or when to get out. Maybe you can find these tools and make them work for you. I could not.
You can come look in the price action thread to see how simple things can be if you focus on learning to read price. This involves trends, this involves "waves", this involves patterns. But I use the terms waves and patterns in a very general sense. I do not trade Fibonacci's, I do not trade Elliot Wave's, I do not trade 1-2-3's, I do not trade Head and Shoulders. I trade price.
All you have to do is just look back to this very thread and see the tail end of my journey in progress. In the very first posts, I was already streamlining and eliminating virtually all indicators from my charts. Now I have eliminated even more. I still have one or two, but I believe I would be better off without them. One day I will be, because now I know that I can break the mold. Now I know I can trade without them. They are no longer a crutch. My goal is to remove the final indicators soon.
Was catching up on some journal posts tonight, since I can't sleep (worst sinus headache ever, for days and days and days now)...
Anyway, something caught my eye. The number of posts that contained the words "missed trade".
I am guilty of this too. But I think we all have to stop using that kind of terminology or phrase "missed trade". I am talking about in the context of "I was at dinner, and I missed these three trades".
Let me clarify. If you are 100% ready to trade -- you are calm, focused, etc... and then something occurs such as fear, greed, or even if you are in a trade and instead of reversing you stay and get stopped --- these things are truly missed trades, provided that the "missed trade" meets your rules.
Now, let's go the other way. If you are eating, if you are in the bathroom, if you are asleep... and less obvious, such as if a big huge move happens but it really wasn't your setup... none of these are missed trades!.
The first ones are missed trades because they were your setup, and due to a mistake or misstep, you did not take it even though in practice you were supposed to.
The second ones are NOT missed trades because you have to eat, you have to use the bathroom, you have to sleep, and you cannot catch a move just because it is big. Even if one of these trades did match your trading plan, it is still not a missed trade!
I think the distinction is very, very important, especially on a psychological level. How many of you think that if you have a winning attitude, it will improve your success? How many of you think that if you are constantly beating yourself up or demeaning yourself that your performance will suffer because of it? The same thing is happening here. If you keep saying "missed trade" when the truth is, it isn't a missed trade, it just causes you harm.
Like I said, I'm guilty of this too, but now that I've written this post I'll try to be more observant. That is the beauty of posting, once you commit something to writing you are far more likely to remember it.
Below is taken from Beth's thread. I copied it here because it is worth repeating.
I did another profitable Long when price broke DT. How can I simulate my real-trade emotion when doing sim ones? Or better still - how can I simulate my sim-trade emotion (so much calmer and fearless) when doing real ones?!!!
Beth (Let me think .. )
First congratulations on your first trade the other day
I see you've taken a couple since then.
The emotion and energy is going to be very different with cash vs. sim. This is the struggle. A very large number of people find it very easy to make money on sim, but when they go to cash they blow up.
There are a bunch of things you have to do, too many to list in one post, but here are a few off the top of my head:
- Treat sim like cash. No funny games. No 10 or 100 contract orders "just to see" what happens. Trade sim EXACTLY like you intend to trade cash. That means if you intend to trade cash with 1 or 2 contracts, you must do sim the exact same way.
- No resetting the sim account. If you blow up your sim account, it means you have a lot to learn. First, your sim balance should probably be only 10-20% of your cash balance. Ask yourself, how much of your cash balance would you blow/lose before you started "losing it" mentally. That's probably 10-20% for most people. Set your sim start balancing to the same level then, because if you lose that money then you need to find a new better strategy for sim trades before you go cash, otherwise once you do go cash if you are placed into a similar situation you will "lose it" mentally, which naturally is disastrous in the market.
- Trade sim like you trade cash. Same times of day. Same entry/exit methods. Same signals.
- Trade cash like you trade sim. Now this is harder. What do you do in sim after you have a loss? You need to do the same in a cash trade. What do you do in sim after you have a winner? You need to do the same in a cash trade.
The mind tries to minimize pain. I've read over and over and over again, and I've lived it, too, so I am a firm believer that your mind and body will "trick" you into doing things as a mechanism to end the pain. Let's say that you lay awake at night telling yourself you really, really, really want to be a successful trader. Your heart is in it. It means a lot to you. Now, during the day you keep losing more and more money. This can very easily be your mind coping with the sheer amount of stress of the situation. In your mind, the best way to end the stressful situation is to "get out", and the fastest way to get out is to blow your account so you stop trading, and the stress ends. There are countless other examples of this.
You specifically asked about trying to simulate emotions in sim like you would experience in cash. I think unfortunately you can't do this. But, with enough time and experience, you can treat cash like you treat sim. I hope that makes sense. It is the way I feel about it anyway. With enough experience taking those trades, and enough work, you can overcome your built-in reflexes and control them. You can be in a cash trade while still being in a calm and relaxed state. It takes a lot of experience in cash trades to master this, however. You can prepare before the trade, naturally, doing a bunch of mind and body techniques like meditation, hypnosis, all kinds of things. Even just simple stuff like working out and eating healthy and eliminating distractions around you. But the real experience comes from doing. The best way to re-wire your mind is by catching yourself in the act of something you want to change, and then willfully overcoming it and making the change happen.
Let me try to give some examples. Put a sticky note on your monitor that says "WHAT TO DO IN A CASH TRADE:" and list some things. Here are two that come to mind. #1: Ask yourself, are you calm and your heart rate normal? #2: Ask yourself, is your back touching the chair or are you leaned over?
By forcing yourself to ask questions, like if you are calm and heart rate normal, or if you are hunched over in your chair or not, you will force yourself to be aware of the answers and the state of things around you. That is step 1, awareness there is a problem. Then step 2 is to try to remove the anxiety that is causing you to do things you do not want to do. This takes a lot of work and practice. Breathing techniques are usually recommended to slow your heart rate and put you back into a calm state. I also find that simply taking my hand off the mouse, and forcing myself to plant my rear end as far back in the chair as it will go, and forcing myself to make by back touch the chair, that just by doing this I immediately relieve a lot of stress.
Gary also recently started a thread on biofeedback devices. I have a lot of interest in this because Dr. Brett talks about it a lot, and I think it is a great idea. The principle behind it would be that a simple machine is going to be able to tell you much faster than you may recognize by yourself, that you are not in the zone -- your anxious, not calm, elevated heart rate, sweaty palm, etc etc. Again, awareness is the first (required) step in the process of overcoming it. Unfortunately, it seems no one on futures.io (formerly BMT) has any good recommendations for biofeedback hardware. I am still looking around and I know Gary is too.
You learn the most from challenging situations. You learn the most from losing trades, and days. When it comes to trading, you have to remember that anyone can make money trading. You can invite the mailman in to your office, and tell him to place a trade. He can click the mouse, and find himself in a winning trade within minutes.
Experience is not required to have a good trade. Skill is not required to have a good trade. You can even string together a series of trades.
However, to truly be a "trader", implying your profession is trading, and thus implying that you have experience doing it -- you need consistency. You can learn the most from losing trades and losing days, because those are the experiences that stick with you. Think of it as building character. Now, the hard part is taking all these experiences and having them form a positive ultimate outcome.
You can examine 10 losing trades or 10 losing days and be in no better shape for doing so. You can be lost, frustrated, angry. You can place blame elsewhere. You can, in essence, learn nothing from the experience.
Or, you can examine 10 losing trades or 10 losing days, and benefit greatly from the experience. You can accept the responsibility of the trades. You can look at the situation analytically, and rationally. You can identify your own strengths and weaknesses. And then, ultimately, you can develop a plan to play to these strengths and minimize these weaknesses. That is a good, positive, learning experience.
I usually trade 3 targets
All targets based purely on price action, just look to the left on the chart to know where to target
Stop based on price action, just look at chart, it will tell you where to place your stop. Stop is when you are wrong on a trade. It is not some preset limit "all you can afford", market doesn't care about that. You know ahead of time the maximum you can risk on a trade (ie: 1%, 2%), don't exceed this ever.
I usually go all-in. I usually scale out. It depends on the market and price action and volatility.
I very rarely move my stop to "breakeven" the way you are probably thinking. The market doesn't care about "breakeven". Your stop should be placed where you believe the trade has failed. I reduce my risk by scaling out of positions at key price zones based on price action.
Only experience can help you determine if it's a breakout or a fake out. I also don't care so much about if I am wrong or right about which one, it's more about what you do, how fast you recognize you were wrong, and your response to being wrong. That is how you make money, it isn't about being right.
Nothing so Impressive as Simplicity
Last edited by CRM5096; March 3rd, 2012 at 09:05 PM.
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Why do most traders find it so difficult for their winning days to be larger than their losing days?
Why does it seem like a losing trade can very quickly run to your stop loss limit, lets say 20 ticks, but yet it is so much harder for a winning trade to reach a profit target of 20 ticks?
The truth is: these are just your perceptions, and those perceptions eventually become reality in some way. It's a form of self-sabotage. Do any of you have friends or family members who are constantly negative about their life? Always complaining about something, and it seems like the amount of "bad things" that happens to them just keeps piling up and up and up, more and more. To a big extent, they are causing this own behavior within themselves. Self-sabotage.
It is similar in trading. The truth is, if you ignore commission costs for just a moment, it is no harder to have a winning trade than a losing trade. Yet most traders struggle so much to have their average winning trade exceed their average loser. This then makes them struggle to have their average winning day exceed their average losing day.
At some point in your trading you've probably experimented with a stop loss that is bigger than your profit target. In other words, you were willing to risk 20 ticks to make 10. While you may have had a higher win percentage, you probably soon discovered your losing days far exceeded your winning days. The strategy is not profitable for most traders.
Why is it so hard for most traders to imagine that they can just reverse this, making their profit targets larger than their stops? From my experience here on the forum and talking with hundreds of traders, I think the biggest problem can very easily be described as "trading with scared money". This has a lot of ramifications, but one of the biggest ones is that when a trade is profitable a lot of traders continually self-sabotage by taking the trade off too soon, not allowing it to hit the target. Another big one with scared money is most traders make stupid decisions about where to place their stops. They let their own fear and account size dictate the stop, which is stupid. It is absolutely true that you need to use prudent money and risk management. But, just because you can only afford to risk 15 ticks does not mean your stop should be 15 ticks, or more accurately, it doesn't mean a 15 tick stop will work or makes any sense whatsoever in the market. Most traders have no clue when it comes to this. They see a setup, they take it, even though some of those setups with proper risk management should have been skipped.
What can you do to break out of the cycle? A lot.
Step back. Instead of going smaller and smaller, 3 range, 133 tick, etc, you need to look at the bigger picture. By going smaller you think you are making trading more affordable. What you are really doing is trading noise, which is not really trading at all.
Make sound decisions. Your plan must include a way for your average winning trade and your average winning day to exceed the losing trades/days. If you cannot formulate a plan to do this, you haven't tried hard enough or lack proper experience.
Be accountable. Stop blaming your surroundings, your broker, platform, sleep, wife, kids, day job, news, the fed, etc. Own your trading. All of it. Top to bottom. If your internet is not reliable and you choose to trade, this is not the fault of the internet company. You must own every single trade. The outcome is solely and directly your responsibility in every way.
Measure yourself. 100% without question, your mind will project images and memories to you that are false. You will be tricked into remembering trades in a different light than how they actually occurred. If you don't wish to study psychology and how the brain works, you must at least accept it. You must record your trades as they happen while the truth of the trade is fresh. You must then measure yourself daily in such a way so you can account for your progress, or lack thereof.
Accept reality. If the reality of your situation is that you are trading to pay the bills, yet you are not a profitable trader, you need to accept the reality that this is a foolish decision. Many great traders failed several times before they became successful, but you must set yourself up for success - not failure. You cannot simply hope for it, you must make it happen and to do this you need a true fighting chance. This means you cannot throw risk management out the window, you cannot trade your mortgage money, etc.
The moral is this. Most traders make trading much more challenging than it needs to be by focusing all their energy into the wrong things. They have one excuse after another, yet at the end of the month they continue losing money. Don't make this mistake.
How to change a pattern:
Step 1: Identify the problem.
Step 2: Create a very specific yet simple plan.
Step 3: Implement the plan consistently.
Step 4: Measure yourself, how well did you execute the plan.
Step 5: Make adjustments until the problem is solved.
Let's take two examples. First example:
Step 1: The problem is you want to stop drinking all soda. No more soda, ever.
Step 2: Your soda is stored in your fridge. You can't throw it out, other family members drink it. Instead, you will create a very big sticky note that goes on the front of your fridge: "I PROMISE TO MYSELF, I WILL NOT DRINK SODA". It is helpful to also remind yourself why.... "BECAUSE I WANT TO LOSE WEIGHT AND I KNOW SODA IS TERRIBLE FOR ME". It is also helpful to propose an alternative action... "I CAN HAVE WATER OR GREEN TEA INSTEAD"
Step 3: Each time you walk to the fridge you will see the note. You will be reminded as to why you want to stop drinking soda. You will be reminded of what you should be drinking instead.
Step 4: At the end of the day, how many sodas did you drink? If more than zero, your execution is not 100%.
Step 5: If your execution was not perfect, you must fine tune the plan. Lets say your weakness was during dinner, you really craved a soda and you broke down and had "just one". You need to alter your plan to prevent this from happening again. If you do not take action to prevent it, it will just occur with more and more frequency.
Now, lets look at a second example.
Step 1: The problem is you are taking trades that are not in your trading plan.
Step 2: Create a post-it note and put it on your monitor right next to your DOM, "IS THIS TRADE PART OF THE PLAN? IF NOT, YOU MUST NOT TAKE IT NO MATTER WHAT". It helps to remind yourself why... "IF YOU TAKE AN UNPLANNED TRADE, IT WILL BE A MISTAKE". It also helps to provide an alternative... "BY REMAINING FLAT YOU WILL BE PROPERLY POSITION TO TAKE THE CORRECT TRADE WHEN IT COMES".
Step 3: Each time you are about to click the DOM, you will see the note. It is helpful to work on only one problem at a time, so clear of all other notes and papers away from your monitors and desk. Make sure this note is highly visible, you cannot help but see it when you are about to place a trade. You will be reminded what has happened in the past if you take an unplanned trade.
Step 4: At the end of the day, how many unplanned trades did you take? If more than zero, your execution is flawed.
Step 5: If your execution was not perfect, you must continue to refine the plan to combat your weaknesses and play to your strengths. Do not allow yourself to simply take the unplanned trade without consequence, or you will just do it more and more often without ever making progress to solve the problem.
Yes Mike well said, I have found in 10 years of trading that the internal battle that we have will either make or break you. Its similar to having an argument with the wife then trying to trade. Becouse other thinhs occupy your thoughts you make undisplined desissions and invariably lose. I for one dont mind admitting my weakneses and disipline is one of them that needs work. A clear head and sound principles and disipline, all very important. Thanks for the tread.
Nothing so Impressive as Simplicity
The following user says Thank You to CRM5096 for this post:
As I mentioned in the first few posts, I've been reading Brett's newest book and have felt a connection with what he is saying. So I am excited to write about it, and you'll find these next few posts will be mostly about concepts from the book.
- A losing trade is never a total loss as long as you learn from it
This is a hugely important item for most traders. Don't allow yourself to become angry or upset at a trade, it will cloud your judgment on future trades and occupy your mind with negative feelings. You'll be focused on not losing money, instead on focusing on trading well!
If you trade well, money will come. Don't put on a trade saying "I can make $200 on this trade". Instead, put on a trade when it meets your criteria for entry! All you can control is how well you trade, how well you follow your rules. You can even control the rules themselves! You have all you need, within, to be a successful trader.
Hi Mike and all.
I've decided to start my exploration of this site by reading this entire thread because for me, self-understanding has been one of two critical factors in success in my career as a professional trader (the other being identification of a bonafide edge). I've made my entire living being a trader for my own account since 1986, trading in the interest rate pits at the Chicago Board of Trade and trading interest rate products on the screen since 2002. I was a pretty big pit trader, trading up to 1000 contracts at a crack. For several years when I was hitting on all cylinders, my basic unit was 500 contracts, but I would trade up to 1000 if I thought I was getting an exceptional edge. I went many years without having a losing month. Trading on the screen has not been overly successful, but since I won't take significant risk if I don't feel I really know what I'm doing, it hasn't hurt anything but my feelings in a meaningful way.
Mike, you've probably changed how you feel about some of the things you have written here, but since I'm reading the thread sequentially I'm just going to comment as I see something I really like or something that has been at odds with my experience.
My experience with anger was that it sometimes motivated me to become a better trader. After my first few months in the pit, I got to where I could recognize some opportunities, but I was frequently too intimidated by the size of an order to trade with it, or was hesitant for some other reason to make the trade. When the market would do what I had thought it would do and I wasn't on board, I would get furious with myself for a) being such a pussy, and b) missing a clear chance to make money when chances didn't come along all that often. Finally the anger motivated me to make trades even if they made me uncomfortable as long as I really liked them. Eventually I got to the point where most of my peers would have considered me to be a fearless trader, which was pretty accurate.
Also, for me at least it's wrong to take clear mistakes (such as breaking my most important trading rules) in stride without getting PO'd at myself. If I feel real psychological pain because I screwed up bigtime, it will be a long time before I make that mistake again. Understand, this is not the same thing as being mad just because I lost money; losing money is part of the business. I agree that if you get mad every time you lose money, pretty soon you'll be totally unable to trade, or at least there'll be an awful lot of broken stuff lying around your office. But the psychological pain that comes from anger can be a very important teacher if you use it constructively.
Psychology...No thanks! Here's the solution for me...Just Be It!
Since my first trade in 1985 this game has changed many times. Now it is screen trading and mouse execution. From day one every trader has warned me of the psychology of trading. After a string of early winners the experienced traders would say, "Wait till you get a real loser." And, yep they were right. So eventually I gathered all the books, tapes and rubbish in the name of mental trading. Brilliant they were, or were they? Like the dozen newsletters and 10 indicators and squawk noises, what happened when I got rid of them. Answer, nothing different.
So what is going on here? Broking, software, psychology, newsletters, indicators, chat rooms, webinars, seminars, fund managers and tipsters are all on the gravy train looking for a risk free lunch. Losing $300 in the market is a sensation few enjoy, so they get others to do it for them. Buying lunch for 5 or taking a losing position for the same value have totally different feelings.
Finally after years, the solution popped. What are all these indicators, psychology of trading webinars trying to help me achieve and failing miserably if I am truthful to mySelf?
Here's my technique....On the in breath....."Winning Trades".....On the out breath....."Nice Profits"....on the gap between the in and out breath "Just Be It"
That's it folks! Works a charm. If I am not in the State of Winning Trades and Nice Profits...why would I ever trade? When I am in this state guess what trades I am drawn to?
When I go for a walk the steps are "Winning Trades ... Nice Profits" ...on repeat...
When you finally BElieve this...you will experience winning trades and nice profits consistently.
Just be It!!!
I've had a lot of sayings in the last year, such as the "2 for 2" rule -- only change two things at a time in your trading, and don't change them more than once every 2 weeks. That means colors, indicators, instruments, bar types, entry rules, exit rules, risk rules, all of it. I also say that a "Master" trader is only a trader who has already made all the mistakes and learned from them. The key there is learning from mistakes instead of dooming yourself to repeat them, so make certain that you have a really sound plan for evaluating yourself on a routine basis and objectively deciding if you are going in circles or not. I would say without a doubt the "going in circles" syndrome is the most dangerous and most common phenomenon in trading.
Going in circles doesn't mean static or without change -- you could be changing stuff left and right and still be going in circles. What it means is you aren't moving forward, you aren't making progress. So to make sure this isn't happening to you, you absolutely must constantly evaluate yourself, measure yourself in such a way (hint: net profit is not the best way) to make it clear you aren't making forward progress. A simple idea is to simply read the last two weeks of your trading journal at the end of every week. This gives you a quick review of this week+last week to see if you've improved.
Everyone wants to make money, but you can't make that your own goal or the only way to measure yourself. It would be like saying that NASA had a goal to get a man on the moon, but they didn't have any intermediate goals in between. Of course they did, there were a lot of steps in between. So set some intermediate goals for yourself.
Nothing so Impressive as Simplicity
Last edited by CRM5096; March 3rd, 2012 at 09:43 PM.
The following user says Thank You to CRM5096 for this post:
I wanted to create this thread to draw the attention of struggling traders who have examined last years trading and found they lost more than they made. While personally I made more than I lost, my goal here is to help others.
First, I've been there. So have many others on the forum. I'll also start by saying that trading is not easy. I have said before that becoming a successful trader was the single hardest thing I have ever done in my life, and that I literally and to become a different person in order to succeed.
If that scares you, if you don't know for sure you have the resolve to see this through, then probably some of the best advice I can give you is to stop. Stop trading. Find something that you truly do want to do. Finding the thing that makes you happy and that you are good at is very important. Life is short, don't spend it struggling.
For those of you who have decided that trading is what you want to do and have the resolve to see it through, then I'd like to ask a few questions as I feel the answers will directly impact your chance for success.
1) Do you have your life outside of trading in order? If you don't, then you are not doing yourself any favors by focusing on trading. Don't think that if you can just pull your trading together that suddenly you will be able to pull together the other things in your life. It's the other way around. I am speaking from experience. You have got to position yourself for success, and that means you need to work through any other challenges in your life outside of trading and get them into a good place before you can tackle the new challenge of becoming a successful trader. For many, this will mean the best thing you can do is stop trading, focus on these external things, then come back to trading later.
2) Are you actually able to trade, financially? If you are trading with rent money or the kids college money, retirement money, etc then the answer is no. See item #1. It won't work! Please, for the sake of yourself and your family, stop trading. Come back to trading once you have a dedicated set of funds that you can use for your trading education and training. This is money that you will pay out and you need to accept that 100% of it will be gone. It's your tuition. You also then need a separate set of funds after you have "graduated" to fund your actual account. In both cases, these funds should not impact your life if they are lost.
3) Are you actually able to trade, time wise? This is more of a question of selecting the appropriate market to trade given your schedule. If you are working a 8-5 day job, then you can't be a day trader but you could be a swing trader. Make sure you have set yourself up for success, position yourself so you can succeed! Your trading style should make trading painless/effortless, no conflict with your job, no "rushed" feeling because you are squeezing it in before work, or during lunch.
4) Does trading make you happy? I figure that for the majority of traders that make it this far down the list, the answer is yes. But you should pause and really ask yourself if trading makes you happy. I don't mean only when you have a profitable trade, I mean the whole thing. All of it. If trading is causing you nothing but stress, nothing but problems in your life, nothing but strain on your relationships, then the answer is likely "no". It may be that you need to go back to item #1, #2 and #3 and work through some things so that the answer to #4 can be a resounding yes. Until that time, don't trade!
5) Are you willing to make dramatic changes to yourself to be successful at trading? It's not an exaggeration when I said earlier I had to literally become a different person to be successful at trading. I was previously a high power C-level executive, with lots of money and a lavish life style. I was good at problem solving, forward thinking, planning, and leadership. I was confident in myself and my abilities. This made me a great executive and great for the corporate world. It also made me an absolute terrible trader. I have read, and firmly believe, that people like me that enter trading blow up their accounts more/bigger/faster than other types of traders, for example a blue collar worker may find success much more easily in trading than a white collar worker. This is because a blue collar worker is generally better at following orders, where as a white collar worker doesn't like following the rules, he likes making them. In trading, the market is always right. You are simply along for the ride. If you cannot adjust your personality and style, you will blow up your account. You cannot overpower or "will" the market into doing what you want, and worse - if you try and occasionally find what appears on the surface to be "success", you will be creating and reinforcing some of the worst trading habits that exist. Don't take #5 lightly. If you've always been a big success in your career, it is likely you will have the hardest time in trading. You will have to admit defeat and admit you were wrong many, many times. And you'll have to be OK with it. And you'll have to learn from it.
6) Do you have the time and patience to become a successful trader? Let's take an example of a college kid fresh out of college that has a huge interest in the markets. If he has only given himself 3 months over summer to prove that he can be a successful trader, then he has already set himself up for failure. You cannot force a time table on success. Success happens on its own schedule. The more you try to rush it, the less likely it will come. A good number that most people agree with is 10,000 hours of screen time. That's a lot of screen time. What you are doing is making trading second nature. Another reason it requires so much time is that trading is a career only for the best of the best. You might relate it to becoming an astronaut. You'll have to beat out a lot of other traders in order to be successful and make it to the moon, figuratively or literally. That also means you will need to allow yourself to make all the mistakes that any trader can make, yet position yourself so that you can keep coming back. Mistakes are inevitable. A "master" trader is simply a trader who has made all the mistakes you can make, and has survived. You must have the time and patience to allow this process to unfold.
If you've made it this far down the list then congratulations. You will find yourself in rare company. If you are still struggling with your trading then you need to "step back" and examine your trading as impartially as possible so you can find your weaknesses and strengths, and then you need a plan to eliminate the weaknesses and reinforce the strengths. One of the best ways to do this is by creating a public journal on the forum, and posting your trades to it each day. You'll find the accountability to be a great motivation in improving your trading, and you'll find it is easy to see your mistakes when viewed in this light. You are also free to ask for others advice and opinions so that you may consider them and either reinforce what you already believe, or call into question what you believe and possibly make changes to it.
This is a brand new year. What will you do to become a successful trader this year?
Nothing so Impressive as Simplicity
The following user says Thank You to CRM5096 for this post:
had rough nite sleep , I have a bad cold and get sneezing fits , even having one now making this post .
I see the need for a restful nite sleep for trading , Well I traded anyhow and started out down on first trade and then spent the rest of the day till 12:00 noon eastern till i stopped . I clearly over traded I moved stops to fast in an attempt to get back positive. If i would of give trade room to work I easily would had a profitable day with 1/2 less trades. I also missed a bear mat hold candel pattern that is one of my favorites . I was long off S1 support and was confident , got stopped out long and missed the short set up , that got me upset with myself that i missed the short off candel pattern
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