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Trading Lessons from TopstepTrader's John Hoagland (HOAG)
“If you can’t explain it to a six year old, you don’t understand it yourself.” – Albert Einstein
We are all faced with a common problem: we have too many choices and too much information. Perpetuated by the ever increasing speed of technology, traders are faced with more information, ideas, news, advertising, and persuasion than the mind can absorb and interpret. In the trading arena, not only do we have all this information, we have hundreds of tools to chose from to help us with our trading decisions.
I have seen many traders try to use too many tools and look for a confluence in the perceived signals generated by these tools. The more tools they use, the harder it becomes to make a decision. You probably have heard the expression "paralysis by analysis."
You have also probably heard the expression "KISS: Keep It Simple Stupid.” This expression is credited to Kelly Johnson, lead engineer at the Lockheed Skunk Works, among others. It is not to imply that someone is stupid, but that the simplest solution is often the best. Professional traders everywhere will agree with this. It is very easy to assume that more information must be better, but this is one of the paradoxes of trading, of which there are many. It has been my experience that the discretionary trader who masters one or two methods of organizing market information are the most successful, and the happiest. They experience much less internal conflict with their decisions, keeping much more of their energy focused on trading and making good, intuitive decisions.
How to simplify things in your trading:
1. Remain humble. It doesn't take a genius to be a successful trader.
2. Remain humble. When you start to see better results, it's not because you are a genius. It is the simplification of your process that is working.
3. Stay diligent in your work. Continue to do your analysis and journal the same ways you have been.
4. Define the most basic triggers for your trades and prioritize them according to importance for each perceived market state.
5. Don't expect miracles, there will still be losses.
6. When you don't have a trade idea, stay out.
7. Keep your expectations reasonable.
You may notice that I am not naming any specific charts or tools. Price charts can be very helpful, just remember that everything they tell you has already happened. Deciding on your tool of choice should be carefully researched and tested, even matched to you personality and learning tendencies. For example, some people are better visual learners. Pattern recognition or Market Profile might be the tool for them. The statistician may prefer pivot and support and resistance numbers. The point is that you need to find the right tool for you.
How you will benefit from keeping things simple:
1. You will be able to make decisions faster.
2. You will be able to solve problems faster.
3. Your intuition will increase at a faster pace.
4. You will expend less energy.
5. You will have less internal conflict regarding trades.
6. You will accomplish things you never thought you would.
Keeping things simple may help you accomplish your goals, however it can't manage your emotions. It can help you manage your actions. We are all still susceptible to the same self-victimizing behavior and we need to be aware of it. Having a simple trading strategy doesn't make it any harder to manufacture trade ideas out of the emotions we all feel. Simplifying your trading can help you succeed as I have seen it help many traders improve their trading and reach levels of consistency and success they never thought they could reach.
Trade well,
John Hoagland (HOAG)
TopstepTrader | Director of Trader Development
If you have any questions about our Trading Combine or the opportunity to get funded through TopstepTrader, please visit www.topsteptrader.com or contact us at [email protected] or 888.407.1611.
As the Director of Trader Development and as a trader for many years, I have known and spoken to hundreds, if not thousands, of traders about their craft. One of the most common things I hear is, "I was right and got stopped out just before the market followed through with what I expected!" Sound familiar? If you’ve been trading for awhile, you’ve probably uttered those words more than a few times. I know I have. I usually respond to that statement with a question: "How did you arrive at that location for the trade?" Most of the time I get an answer like, "Moving averages and Fib's” and the occasional "I don't know."
It is up to you how you want to look at the market and what tools you want to use. I believe the missing part of the equation does not have to do with the tools or studies being used. How we act is in direct relation to our belief system and is unique to each of us. This short list of suggestions contains some of the first things that need to be considered when facing the trade location issue.
With all the screen time, learning and journaling we should be doing as traders, I hope you are gaining an intuition about certain features of the market. I hope you are starting to recognize the difference between the impulse (emotional) trading and real intuition. Writing and reviewing your stream of consciousness while trading can help you recognize your mental and physical patterns and how you relate to and react to different situations in trading. This is time consuming and takes a lot of effort, but the rewards are worth it!
The most commonly used tools have a downside-- a large number of traders over many time frames use them. For example, moving averages are among the most popular tools. Simple or exponential, other traders are viewing them. Other traders are making trading decisions based on their positions and crossovers every day. Moving averages can be very effective when used as part of a greater consideration of overall trade location. Always take into consideration whether the short time frame traders you are competing against are getting in with you. If you gain that sense, you stand a great chance of getting better trade location. You want in when the last of the herd is getting out. Remember, Jim Dalton says it best: "Most of the people you are competing against are almost always wrong."
For me, one of the best tools for finding better trade locations has always been the Market Profile. Being able to recognize where the market is finding acceptance and rejection has kept me out of more bad trades than all other tools combined. Acceptance is where the herd trades. Areas of rejection are where the professional traders trade. Initiating trades in areas of rejection can give you an advantage in many ways. You never have to pay a lot when you are wrong. Trading close to areas of failure gives you cheap trades and great information. When you are right you will usually see price action in your direction quickly. You won't need to hang around in a trade that is going nowhere, taking time and perhaps costing opportunity.
Fear of missing out is probably the biggest reason for compromised trade location. One possibly fatal mistake is the inability to wait for the market to come to you: the need to get in early in case the market doesn't get to your entry. It only serves to increase your risk (your stops need to be further away) and decrease your profit (target is now closer to your entry). Remember, as traders our job is to limit risk, not just take trades. So if you miss a couple of trades, that's good information. Perhaps you need to refine your market state identification.
As much as I don't like this excuse, the fact remains that there are predatory traders and programs that sense order flow and recognize very short time frame imbalances in the market. They will squeeze traders out of good positions in this way, so be aware of them. Recognizing their activity is not easy, but just remember: they are going after the herd!
Take a good look at these concepts and find something you can use. Do you recognize yourself in any of these ideas? I know I do. I think most traders would have a much greater chance at success if they would just give their plan a chance and trade the plan.
Trade well,
John Hoagland (HOAG)
TopstepTrader | Director of Trader Development
If you have any questions about our Trading Combine or the opportunity to get funded through TopstepTrader, please visit www.topsteptrader.com or contact us at [email protected] or 888.407.1611.
You have been looking for this move all day. The market is finally lining up for your trade entry, but seems to be stopping short of your preferred trade location. That feeling starts to come over you, you know the one. It's the same feeling you had when you were a kid at bedtime: all the adults are awake and you’re sure that you’re missing a great TV show or a party. As this feeling sinks in, you move your entry up. There’s no way that this move is going to happen without you!
You enter the trade with compromised trade location and your thought process changes instantly. Your tolerable risk in the trade is now somewhere close to your original entry location. Now what? Do you add to the position? ‘Scale in’ is the popular way to say ‘Add to a loser’; I have seen many good men and women find new careers after attempting this. If you do add to the trade at your original level, your risk on this trade has tripled and you have taken a good trade idea and turned it into a mess. Thank you, FOMO. Now you are stopped out of the trade, perhaps where you should have been entering by the original trade idea, and you miss the opportunity anyway.
FOMO is a problem that is becoming worse, not just in trading but in society as a whole. Thanks to technology and social networking, we have become a society of people always looking for the bigger, better deal (BBD in text message language) and living in great fear of missing something. We seem to have this need to know what everybody is doing at all times, and we all know that plenty of car accidents are caused by this addiction. What is on your phone this second that is more important than your life or the lives of other drivers? What are you really going to miss? This is a dangerous addiction.
FOMO can certainly make a wreck out of your trading account, too. You must demand your price at good trade locations. Jumping at trades rarely works out and the damage it does to your account, not to mention your mental capital, creates major setbacks in your trading. It’s just too easy to make that move. I suggest that you always try to get your best trade location, every time. Get used to the idea of missing a trade once in a while because the market didn't give you good trade location. I know it doesn't pay the bills, but learn to revel in the fact that your trade idea was right and journal about it so you can recognize it the next time a similar opportunity arises. Managing your risk properly and preserving your mental capital will pay off in the long run.
How will you learn to keep yourself from caving in to FOMO? In my experience and the experience of many traders I have known, what has worked is designed distraction. When you feel the urge to take an action you know is out of fear, take another action. Get up and stretch. Make a journal entry. Grab your guitar. Every time you have the urge to make a trade due to FOMO, make a note of it. I believe you will see your risk decrease, your profits increase, and the development of habits that could carry you to success. Make the effort to form the habits that will keep you from being controlled by FOMO. Do whatever it takes to ONLY take trades in your best location. Nobody can do this for you, it is up to you to know yourself and to understand what makes you tick. Understand that while your emotions may be telling you to act, they don't tell you how to act. If you're anything like me, your emotions will lie to you. When you begin to succeed with this, you will then begin to be able to differentiate between impulse and intuition.
If these thoughts have somehow made a difference to you and your trading, then my goal is reached. This is each trader’s personal journey and we are all different, yet so much the same. Success is in your reach, just do the right things and trade well.
Trade well,
John Hoagland (HOAG)
TopstepTrader | Director of Trader Development
If you have any questions about our Trading Combine or the opportunity to get funded through TopstepTrader, please visit www.topsteptrader.com or contact us at [email protected] or 888.407.1611.
As a floor trader, we were limited in the markets we could trade. Most floor traders specialized in one market. We had to physically be in the pit to execute trades, and it was at times impossible to leave one pit in order to run to another pit to execute trades. Sure, we could use brokers, but what if something changed quickly? Would we make it to the correct pit or broker in time to adjust or cancel an order?
Today, speculators don't face that problem. They might be faced with a different problem, quite the opposite of the floor trader, and that is too many choices. Electronic trading has made any contract readily available to trade at a seconds notice, allowing traders to jump from product to product like a honey bee moving from flower to flower. It's not as easy as it seems.
The simplicity of the trading proposition, just buy low and sell high, is very attractive but misleading. It takes great focus to achieve consistency and even the most experienced traders face more information than can be assimilated when trading one market, not to mention more. This makes trading decisions hard enough without trying to trade many products.
I believe a market is a market, and many "set-ups" might "cross over" into other markets. This can be great for a trader who enjoys the "hunt." Looking for and trading only a couple of specific set-ups in many markets could be one way to limit the decisions and the amount of information a trader must absorb in a short amount of time. Perhaps your hunt should be for a market state that agrees with your set-ups. Think of this as a way to keep trading simple because in many ways, simple is the best route. Are you trading too many markets, all day, all the time? How does anyone make a decision? Are we just trading every impulse?
Take the time to become an expert in one market with a couple simple tools before expanding your horizons and dividing your attention. You may find that you are a one market trader.
Trade well,
John Hoagland (HOAG)
TopstepTrader | Director of Trader Development
If you have any questions about our Trading Combine or the opportunity to get funded through TopstepTrader, please visit www.topsteptrader.com or contact us at [email protected] or 888.407.1611.
Our markets are made up of participants with widely varied goals, motivations, expectations and requirements. Add to that the varied opinions and actions that create the price discovery while traders attempt to decipher, and predict or react to all the events and news that can have a profound effect on the auction process.
If you are only looking at the market from your time frame, and I would say most of us as day traders would be defined as very short term traders, you are missing out on valuable information that might bring to light actions taken by traders with far longer time frames and far greater influence on the marketplace. While these longer time frame participants may hold positions for weeks or even years, the day or days they execute trades, they are a day trader. These "other time frame traders" may take days or weeks accumulating positions. Making yourself aware of price levels that could bring these players into the market, devising a way to detect their participation, and at least not fighting them can save great losses.
So always be thinking about the market in context. What looks like great trade location in the day time frame might be terrible trade location in a longer time frame. Good short term trades do exist in poor longer time frame location, you just better know your reasons for the trade and when those reasons no longer exist in order to stay out of trouble. Reasonable risk and profit targets/zones that are taken when hit can help. Make sure your risk is worth the reward. Any time you have that "this is the trade I've been waiting for" feeling in poor longer time frame location (unless you have good "other time frame" participation on your side), it's been my experience, its time to get out.
Trade well,
John Hoagland (HOAG)
TopstepTrader | Director of Trader Development
If you have any questions about our Trading Combine or the opportunity to get funded through TopstepTrader, please visit www.topsteptrader.com or contact us at [email protected] or 888.407.1611.
So, you've had a very successful day - one of your best. Perhaps you've been on a good winning streak lately, seeing a great boost to your bottom line over a series of days. That's great. Your mental capital is at an all time high and you feel like you can do anything. All the hard work had paid off and you finally feel like you're getting it.
If you have spent any time in the futures trading industry, you have had moments like this. If you're really good, you were able to hold on to those profit - even add to the streak. But often times these "streaks of mastery" are followed by huge, quick draw downs where the gains are lost, or even worse, a complete blow up happens and you are left to wonder what you did wrong.
It's happened to almost every trader I know at some point or another, myself included. If you've ever said to yourself "I get it now" or "now I don't need to work so hard," you had better prepare yourself for a change. If you think after a successful series of trades or trading days that it's "time to change everything because now I can really play", I urge you to take some time and re-think that mindset. When things are going well, that's the time to continue on the path that has been bringing you success. It's not time to ignore it or let yourself be overcome with what we used to call the "God complex" when you think you can do anything and It will be right.
When you finally realize some degree of success, it is so easy to let these things rob you, but you don't have to. After a very good trading day, make it a rule to only risk a certain amount the next day and stick to it. Maybe it should be only so many trades are allowed instead, find what works for you. If you become nervous about a streak of winning trades or trading days ending, I suggest ending it yourself. Take a day off. The pressure to continue the streak is now broken and you can return to the focus and mindset that created the winning streak for you in the first place.
Humility. That is the word. Keep your feet on the ground. In front of your screen or on the trading floor are not the places and times to celebrate. Stay humble and make the right choices. Your job is to start everyday with the same goal. Preserve capital, and get paid. You do not need to be making donations to the market. Do what works for you and never stop working to improve.
Trade well,
John Hoagland (HOAG)
TopstepTrader | Director of Trader Development
If you have any questions about our Trading Combine or the opportunity to get funded through TopstepTrader, please visit www.topsteptrader.com or contact us at [email protected] or 888.407.1611.
Futures markets - or any market for that matter, is truly an auction. Price discovery is the function of all the participants in the auction establishing the collective perception of value. If a particular product is viewed by the market participants as "too cheap" the price will quickly "auction" higher until the buyers view the price as getting "too expensive." During this auction higher, bidders may become more and more aggressive, providing higher and higher bids at a fast pace until price begins to be inhibit new buyers. At this point the auction will slow, being reflected in the price action. It will take longer and longer for bids to be placed and the auction will slow, along with trading (volume). At some point, sellers (either longs or new shorts) will view the price as "too expensive" and the products auction higher will end and a new auction lower will begin.
The market is always seeking the area (value) where buyers and sellers are comfortable conducting business. This value area and the perception of value can (and does) change constantly, and sometimes rapidly. Fundamentals, technical analysis, and inventory adjustment are some of but not all the influences on price discovery. Inventory adjustment is an important factor to understand, as it forces participation when certain levels are reached. A market that is auctioning higher might force short participants to offset their positions, bringing even more aggressive buying into the market at a level that had earlier been perceived as "too expensive." The same is true for longs in a market that is moving lower.
In last week's blog post, we discussed context and time frames. At any given time, there are auctions of many different time frames going on in any market. Short time frame auctions probably mean very little to longer time frame traders (unless they are actively adjusting positions) and many short time frame traders fail to recognize the importance of understanding what is happening in the longer time frame auction. The importance of viewing market information in context is that it allows you the possible recognition of the most powerful levels to trade, and can help keep you sided with the time frame that is currently in control of price action. At the very least, understanding the auction process in any time frame can help your trade location and keep you from trading against the largest participants in the market.
Trade well,
John Hoagland (HOAG)
TopstepTrader | Director of Trader Development
If you have any questions about our Trading Combine or the opportunity to get funded through TopstepTrader, please visit www.topsteptrader.com or contact us at [email protected] or 888.407.1611.
I have always believed that emotional control is impossible. Whether I am right or wrong is irrelevant, after all, I am not a psychologist. All I have to go on here is my experience, and this is the experience of a very emotional person. I have always worn my heart on my sleeve, and where trading is concerned, this has been both a curse and a blessing.
My first real experience with emotion as a trader came in the S&P pit at the CME. I had traded grains before, even a few lumber trades, but had never felt the emotional side until I entered the belly of the beast in the S&P. It was the early Nineties and I had worked very hard to finally have the opportunity to trade in the “big leagues.” Not that any of the other trading that I had done was any less risky, it just seemed like this was the big time. With my shiney “new member” badge and brand new black and grey trading jacket (finally out of the gold jacket worn by runners and clerks on the floor), I stepped into the pit. I knew a few things and had some friends in the pit, I was ready.
So my friends in the pit see me there and tell me to bid and offer, hit me on both sides so my first few trades are done and over with, and with a small profit. Now I’m on my own. I spend the rest of the day just observing, watching traders and formulating how I’m going to trade. I’m ready to trade the next day.
The market opens higher and continues higher from the opening bell. I can see the big players, Goldman, Shearson, and Morgan all lifting offers so I try and bid for a one lot to get long and get nothing. I end up bidding with the market for a one lot for about 5 handles before giving up. At this point I’m just feeling frustration. The market continues higher and higher until I just can’t take it anymore. Feeling like I have missed enough of this move I finally manage to buy 1 lot by lifting an offer from a broker. My emotions had forced me into action, and I was going to be right.
My emotions had told me it was time to act. Unfortunately, the emotion I was feeling was FOMO, and it had lied to me. Almost immediately, the market quieted and turned against my position which left me scrambling to get out as quickly and cheaply as possible. Now I had many emotions to deal with. I had taken a loss, in front of people I knew. I was angry, embarrassed, frustrated, and vengeful. I couldn’t wait to recover from that loss but only made things worse. Day after day I could pick the top by buying it, or the bottom by selling it. My emotions were in complete control of my actions.
One day a fellow trader, a friend of mine, poked me in the back after another successful buying of the dead high. I turned and all he had to say was “You have no idea how good you are at this. All you need to do is sell it when you want to buy it and buy it when you want to sell it.” Thinking he was being a smart ass, I thanked him with a quick jab to the gut and left the pit.
While reviewing the trading day later, the importance of my friends comment came to light. Whether he knew it or not, he had hit the problem right on the head. My emotions were telling me it was time to act at the right moments, it was my interpretation of these emotions that was flawed. Could I really go against what every part of me was saying to do? It was certainly worth trying because I was getting nowhere fast and felt that any profits I was able to make were truly in spite of myself anyway. I resolved them to wait for the next opportunity to give this a try.
My opportunity came the very next day as luck would have it. The market was trending lower for the better part of the morning, but I waited until I just could not take it anymore. Instead of caving into the emotion and selling into the lows, I reached out and bought one. The pain was excruciating. Yes, I said pain. It was physically painful for me to act in a way that was opposite to what my emotions were saying. The trade was almost immediately greeted by the quiet I had gotten used to hearing after selling the low or buying the high.
It took a little patience but sure enough, the market started heading higher. Tick by tick my pain began to subside. Over time I was able to change my response to the emotions that had controlled me with greater ease. I was not controlling the emotions, only the way I was responding to them. It was about this time that another friend introduced me to Market Profile, a tool my Father told me about when I was in Junior High School, but what did I care at the time. I was going to be an artist! The introduction of the Profile further reinforced what I had been learning in the pit, and now I had a basic understanding of the auction process.
Without the realization of how I was being controlled by my emotions and the introduction of Market Profile, I am sure I would have moved on to another career many years ago. I have stopped trying to control anything, especially my emotions and learned to control myself. Realize that your emotions are there to protect you and tell you it might be time to act, but they don’t tell you how. I can’t stress enough how important it is to journal your thoughts and emotions before, during, and after a trade. Write down your stream of consciousness and review it at the end of the day and the next morning. I assure you, you will begin to see patterns in your emotions and behavior that you can adjust to improve your chances of success in trading or anything.
If you are reading this, a big thank you goes out to you my friend with “Mind Over Markets” and to my friend with the sore stomach.
Trade well,
John Hoagland (HOAG)
TopstepTrader | Director of Trader Development
If you have any questions about our Trading Combine or the opportunity to get funded through TopstepTrader, please visit www.topsteptrader.com or contact us at [email protected] or 888.407.1611.
