Trader Mindset

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 Ally Hamilton has an online yoga school where you can stream lessons for $10/month and have access to some amazing teachers - many of whom I know. Listen to my interview with Ally Hamilton Listen to my interview with TM master Norman Rosenthal

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. Two Free Offers Tony Saliba's Options Playbook Inner Voice of Trading Audiobook Subscribe

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. Get your free copy of the Inner Voice of Trading Audiobook

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

Group your positions for better risk management. You can have stops on each position. Put them on the groups and sectors as a whole as well. For example, you might have a stop on your open gold trade limiting a decrease in your equity by 1% from the current market level. You might have the same for Tesla or Apple Inc. Consider putting stop on all the metals in your portfolio so that collectively the aggregate risk across all of them is set at 2% for example. You can test for the best level for you. The question is "what is the probability that I'll be down 5% for the period if I'm already down X% given the backtest?" That means, if you have 4 metals trades on in gold, silver, HG, and platinum, you may stop out of all your metals although a particular stop on any one of them was not hit. That's one way you can improve your performance and lose less. Another way is to put a stop on your overall equity for the day, week, or month. I think there was one time in PTJ's career that he didn't want to be down more than 10% in any given month, so he put a stop on his overall equity of such. It's key that when you hit that spot and get stopped, you actually stop trading. In the case of PTJ, he'd be done for the rest of the month. That might be hard for you if you like the action. Most professionals or aspiring professionals want to be experts in managing risk, not making frequent transactions. In order to deploy any of these strategies, you'd have to offset your positions manually and then go in and cancel your existing stop orders - and I would do it in that order. Stop losing money first. Cancel open orders second.

The one surefire way you can become the best you can be - they way you become great - is to focus on Rules not Patterns Head and shoulders patterns are not carved in stone. They look recognizable but must be interpreted. Like the Chinese language, there are more than a dozen dialects to this pattern. Humans like us are bad at estimation and prediction. Read Phil Tetlock. For every well-known "chartist" there are 25,000 guys who tried the same and blew up or didn't make it. It's also emotionally and mentally draining to have to replicated each day. Recognizing a chart patterns are no different to me than recognizing an odd number from an even number. What do you do with it? What's the context of the information? When I moved to LA from Manhattan, we all got a book of street maps called the Thomas Guide. It's a spiral bound book of maps that we all kept in our cars. GPS was not included in smart phone plans and you had to get it separately, but it was expensive. If you don't know where you are going, having a Thomas Guide in your car is not going to help you. It will help you get wherever you want to go, but you need to come up with the destination. Same with trading. You need to know when to enter and exit and how much to own (or how fast to drive). If you "recognize" a pattern, you don't know where to enter, exit, or position size. That's why I don't consider charting as a long-term methodology to trading for the majority of aspiring traders. Whereas a certain chart pattern might appear bullish, you know you're bullish when you have an order in to buy an N-Day high and that the expected value of that trade is 4 times your risk unit - regardless of the pattern. Trading rules supersede all chart patterns and remove the paralysis from analysis, the interpretation, and the uncertainty that comes from not having a decisive plan. In fact, the way most good traders become "great" or even just better, it's by letting go of charts and focusing on process and trading rules that are not derived from chart patterns. Go from good trading to great trading.

Trading is a lot like poker. You're trying to made smart decisions under great levels of uncertainty with imperfect information. That has been the case since the beginning of speculation. In many bubbles and manias, there sometimes isn't any fundamental information that's worth knowing. In that regard, you have to trade against the crowd or herd. Chart reading as a skill is lot like trying to understand spanglish. Most of it is about interpretation. You need to automate your data scanning asap to make things easier on you. Not doing so will exhaust you over time. I know it might be fun to scan the markets by hand, but you're going to find that you can't compete with a computer and a scanning service. The downside of doing things by hand is that after a great deal of manual scanning with no results, you become desperate in thinking that you are missing out because "the markets are moving." If you're a directional trader, volatility does not equal opportunity. If you're putting "today's big movers" on your screen - what are you looking for? A clue on how you could have gotten in before the move? Don't be a piker - automating your rules is the first step to avoiding that scenario. No pro is "doing it by hand" - that's how retail traders do it because they don't know any better and they've bought into their trading platform's features as being benefits. They are not. A good tool to use is called "Unfair Advantage" by CSI Data. It's a premium service, but I've used it myself and I vouch. I don't benefit financially for saying so. Forget the charting, UA has a built-in portfolio manager and a correlation study and these tools are much more valuable to help you make decisions based upon expected values than looking at charts. Become a "Super-Mind" Trader

Sitting on your hands is sometimes best. Like the Red Sox should have done with John Farrell. Only trade when you have an edge. Casinos in Vegas never close because they "never" don't have the edge (in most games). Exiting Winners can be a hard trade. You don't want to get out too early, and you don't want to overstay your visit so to speak. In order to make the most money and have total sanity around winners because you'll be executing the same trade effectively for each winner you have. That leads to consistent behavior. Consistent behavior in trading leads to consistent and profitable trading. No second guessing yourself. Sometimes you'll get knocked out. Sometimes you'll get to stay in the trade and it will continue to grow. Don't isolate your trading to fret about one winning trade. Think in terms of how you'll be in this situation 1,000 times in your career and now you'll have a plan to handling exits with your winners. The LAST place you want to be is to have to make decisions around handling winners each time you find yourself in a winner. That's emotionally exhausting. Know what you're going to do BEFOREHAND and follow those rules. Here are three potential techniques to exit winning trades: Sell an "N-Day Low" for your Longs where N is the number of days in your look-back. N can be 5 days, 10 days…you get to set it. You can wait for the shorter term moving average to cross below the longer to generate a sell signal. For example, when the 5-Day crosses below the 20-Day moving average, you sell your long. Employ a "time stop" where if the security does not resume its uptrend in "N days," you sell. Learn about yourself and become the best trader you can be. Get your free copy of The Inner Voice of Trading audiobook.

It's been a big week on behavior... You have to be willing to feel all your feelings around trading. What might be holding you back from great success could be your reluctance or lack of willingness to feel new feelings around techniques or trading styles that are different from what you're currently doing. Go back and listen to the "Rituals and Routine" episode. You might understand a trading technique or style intellectually, but you don't know it thoroughly until you've experienced it emotionally and psychologically. Ed Seykota taught me that "the feelings that I don't want to feel have as much power over me (my trading) as the ones I do want to feel." When you are willing to feel all your feelings, none of them can control you. They are all trying to teach you something. Are you open to listening at least? You can test a new system (feeling) with 5 or 10% of your capital. If you trade enough, you'll realize that certain trading styles and techniques are there for the sole purpose of generating the emotions you are willing to feel, even if the trading strategy is an economic bad - day trading, for example. You might be married to your current methodology not because it's the best one for you, but because you like how executing it feels. I suspect this is how most aspiring day traders feel. You get to hang out with other guys, talk shop, have a sense of community, yet practice a belief system around trading that is not effective for long-term success.

Your Daily Process Can Be Killing Your Career or the prospects for your trading career. Professional traders bifurcate their trading day into preparation and tactical. After the close, pros get prepared for the next day in terms of research and running their models. During the following day, they spend their time focusing on trading tactics and managing risk. This type of focus on your behavior provides a platform for enhanced performance due to your focus. If you try to do 14 things at one time while trading, the lack of focus can lead to your making errors, missing trades, or taking small losses. This is a short list of what can happen... I would not try to find trades "on the fly." That's amateurish and chasing trades or markets is not a sound strategy in order to build a long-term track record on your P&L, nor is it behavior that you can replicate for years and years energy-wise. Do your work the afternoon or night before, and spend the next day executing the plan. Don't waver from this discipline. It will serve you better.

Routine or ritual? The things that you do might feel good, but not actually effect your P&L. That doesn't mean they are bad, but it's a good idea to keep a journal on your activities so that you can measure their efficacy. Why? Time and energy. Physical and emotional economics. Your trading career is summed up by your trading P&L but also what you need to experience in order to achieve those results - regardless if the P&L is positive or negative.

This pertains to trades that you are in, not trades that you are about to enter. Consistency and discipline will show up on your P&L. That's the numerical representation If you see a chart on Twitter or StockTwits, delete it. It's not helpful, insightful, nor entertaining. How do you handle your winners? Do you feel enough anxiety to want to take it out of your portfolio and get rid of it? Are you afraid you're going to lose it? Those are emotional issues, not financial ones. These emotions might appear for you whether you're a discretionary chart reader or system trader. Do you have the willingness to love it and let it grow up and develop into something amazing? Do you become overbearing and stalk the trade and keep it on your monitor all day? When the vol expands, you can trim the position so that you have the same percentage risk that you did when you added the position to your portfolio, or when you added your last risk unit. When vol expands, you can cut the number of contracts per risk unit. Allocators are looking at your daily equity volatility and in today's environment, they are looking for low-vol gains.

Practice Having Discipline Like for a baseball pitcher, it's about feel and consistency. That means discipline. You need to do the same thing over and over in order to be good an anything and that's especially true for trading. In trading, that means you have to start with good habits, trade positive expected value trades, and consistently replicate that process. If you have a smaller account, you might think you are relegated to penny stocks or fallen angels. I would not do that because the emphasis is on making lots of transactions. Unless you are an HFT firm, the number of transactions work against you. Stay in your winners for as long as you can. They go a long way to ensure you are successful or are becoming a successful trader. What I would do if I had a small account or was underfunded, is to either trade commodity spreads or option strategies. You can create hedges with either strategy and limit your risk while putting the odds in your favor. The margin requirements are also smaller so you don't have to tie up a great deal of your trading equity in one trade.

The benefits of running a system are multi-fold. Once you trust your model, you can go deep... Once it's live and trading, you will learn about the markets, your model itself, and most importantly, yourself. You have to be there and be conscious of all that's around you. A good trader will not become too euphoric in good times (they are what they are) nor too despondent during the bad times (as long as they are 'in model'). It's possible to have worse results than what you saw in the Monte Carlo simulations. That requires a great deal of discipline, for it's the daily discipline that will help you express your edge...every day, every week, and every month. It's the consistency to be disciplined that will show up on your P&L. So you can outperform a great lot of traders, even some pros, if you can be consistent with your daily discipline and not wavering from it. Free Offers Inner Voice of Trading Managing Expectations

We traders are people who have to live with uncertainty and make decisions with imperfect information. No way around it. We willingly decide to take this lifestyle on. Most people can't live with the uncertainly. John Q. Public and Public Pensions will pay you handsomely to make the decisions under the conditions that we must make and as long as you are consistent, they will continue to do so. You can't do this from the beach or it flip-flops. That's Tim Ferriss stuff. If you want to be a beach bum, go for it. This is not for you. You have to be dressed as if your best client can walk through the front door at any time. Looking like a frat boy is not how you install confidence and you're not going to trade $2,000 into millions. Tiger Woods played his best golf while his personal life was a big lie. Think about the emotional system he needed to play his "game." When his personal life blew up, so did his game. It's as if he needed the secrecy and his clandestine behavior to play at a high level consistently. Maybe that's how he got "in the zone." That's how his emotional model served him. How is yours serving you? Nothing should get in the way of you feeling happy and trading. If trading is making you feel bad, you can quit trading. Go for a quality, happy life first. Put a protective stop on your trading career to preserve your happiness. Driving yourself nuts is not worth it. Free Offers Inner Voice of Trading Managing Expectations

Setting Price Targets is fear-based behavior and you don't want to let fear dominate your trading. Setting price targets is about your fear, not greed. You set a price target so that you seem "reasonable" with yourself in terms of what you want from the trade. Why set your sights so low...? You need to start thinking bigger to allow your trades go to 20-1 in a reward to risk ratio. Let the market tell you where the bigger move is over. If you can't imagining it happening, it won't happen for you. You may have been coached wrong or have been instructed in a small-minded fashion in setting your sights to low. It's your fear that gets you out of the trade too early. Only small traders are looking short-term. Let the HFT guys chop them up, not you. Join the big boys and let the institutions push your trades further into profitability. Use the market forces against competition for your greater profits, like in judo. Whatever trading edge you think you have, you cut it at the knees by taking profits too early. Free Offers Inner Voice of Trading Managing Expectations

Price targets hurt your performance. Human beings are "bad" at prediction. There is not much science in guessing where a bull or bear run will end. Previous highs don't necessarily infer a price point where a rally will stall. Fundamentals matter. Institutions - the biggest traders in the crowd - place their wagers based upon fundamentals and their overall business. If you don't have a simulator, you can trail the trade structure with a protective stop. Place your protective stop on your unrealized gains where you'll be financially and psychologically ok if you stay in the trade and eventually get stopped out. You can ask yourself "How much of my unrealized gains am I willing to risk in order to stay in the trade longer?" The recent bull move in the S&P is a good example of how you can (and should) let your winners run. Once you do it a few times, you'll become very comfortable with this strategy. You'll come to find that "you didn't have to do anything" to make the extra gains. Sit on your hands and forget price targets. Let the market tell you when the move is over. Free Books Inner Voice of Trading Managing Expectations

Take a mental health day whenever you feel you need it. No one is going to be there to give you permission to do so. Trading is a grind and a marathon. Doing the same thing day in and day out can become monotonous. You're not loser nor are you losing focus by taking care of yourself. If you're taking 3 day weekends ever few months/weeks, you might not feel the burn that others feel. I think it's very healthy to put some distance between yourself and the market for no particular reason. You don't have to be in a massive drawdown to do this. Shake it up a bit and get back to center. As you might have heard me say, "there are no external solutions to your internal problems," changing your routine can be refreshing when you're in a lull. Free Offers Tony Saliba's Options Playbook Audiobook version of The Inner Voice of Trading

Preserve your sanity by implementing maximum levels of allowable losses per day, week, and month. When they are hit, you stop trading for that period of time. For example, if you set a daily loss on your equity of 1% and you lose that much on your overall positions, you go flat. If you have a 8% rule on your overall equity for the month, you quit for the month even if it's only the 21st of the month. As you approach 8% for the month, you'll want to haircut your overall trading equity (what you base your positions on) by 20 or 30% so that your losses will be even smaller. If you trade with protective stops in place (and you should), you can calculate how much of your equity you will lose if they all get hit. You can do this with open trade equity and trailing stops also. It's a very helpful process. Free Offers Get the audiobook version of The Inner Voice of Trading. Tony Saliba's Options Trading Playbook

Chartists are discretionary traders. This is true for those who have a CMT designation. How can you define your edge if you are looking at the same charts everyone else is looking at? Charts need to be interpreted. That's discretionary. You don't have the same emotional makeup that your chart-teaching coaches have. You don't have the same life experiences that they do. If you haven't backtested your rules, you don't know your numbers. What is the expected value of a trade that you put on in a head and shoulders formation? It's integral to know if you are trading too big or too small for the risk that you are willing to take. What is your optimal bet size for any trade that you put on? What is your risk of ruin? Don't optimize for share size or contracts...that's amateurish. Forget tiers... Most indicators are lagging indicators, they don't give you trade signals for entries or exits. Indicators are emotional band-aids and won't relieve you of having to live with the uncertainty that we are traders must live with. We must make decisions with imperfect and incomplete information. That's the world we choose to live in. Learn to develop your inner voice - for free.

Measuring your activity is a good way to begin improving your trading. Time blocking is more quantitative. You can add qualitative aspect of it also by calculating the sum total of all your trading activity each day. By the end of the week, you'll be able to see what you're earning per hour. Marry this with your trading journal and you'll be able to determine what your time and efforts are worth fundamentally. How effective and how efficient are you at what you're doing? Challenge yourself to always get the most insightful information you can on your own behavior. Be brutally honest with yourself. No one else will and you don't want to mindfuck yourself into eternity. Control what's controllable. Here is a great book on gaining insight on yourself. It's free.

Your #1 job as a trader or speculator is to play superior defense. "Your first loss, is your best loss." Bad news becomes worse news, it rarely gets better. Offset the risk and then you can think with a clearer head. Don't lament over a losing position when your emotional and financial systems are shocked. Use you entry rules to get back in. That's the best you can do today. Your main goal is to preserve you capital and play superior defense. I'm not a big fan of band-aid positions - to me it's black and white. You're making money or not. Follow you rules, but have a circuit breaker that you enact when an outlier event hits one of your positions. Get the Inner Voice of Trading Audiobook Free.

How you place value on your time or money determines your trading style. If you value your time more, you're likely not sitting in front of a wall of monitors all day. It's not worth your time. If you value your money more, you may be holding on too tight and thinking that you have more control over your risk by sitting at a monitor. You don't. That's the illusion of control. Stop orders will get hit regardless of whether you're watching them or not. Let your control issues go. Delegate your hyper vigilance to your stop orders. Acting this way is a bad habit. Find out what works and scale that. Backtesting will get you a good idea of what has worked in the past. If what you're using is available to the general public, how do you think that adds to your trading edge? It doesn't. Two Free Offers: Tony Saliba's Options Playbook Inner Voice of Trading Audiobook

Learning to pitch backers is a great skill to scale your trading business. Go from trading your account to several accounts to getting big allocations from Global Macro Hedge Funds. You are great at what you do and it's a unique skill to manage risk in the markets. Business owners know what they know about their own business, but it's a rare skill to have to manage risk in the markets. Partner up with successful business owners because they are risk takers by nature. Even just the simple process of keeping losses small is a big leap for many potential business owners who you can partner up with. Two Free Offers: Tony Saliba's Options Playbook Inner Voice of Trading Audiobook

When bad news hits the tape everything is correlated and it always works against you. You have to be careful that parts or segments of your portfolio don't become "one big trade." Study the correlation risk between instruments and modify your position sizes in your trading system and portfolio accordingly. Since instruments can behave similarly, you can inadvertently end up with the financial effect of over 100% of the risk you think you have. This will cut your vol and smooth out your equity curve. Two Free Offers: Tony Saliba's Options Playbook Inner Voice of Trading Audiobook

Consistency is the key to your success as a trader. You might have to learn to deal with the monotony in order to do so. New York Yankee Closer Mariano Rivera had one pitch that he relied on - a cut fastball - and although the opposing teams knew the pitch was coming, he was very effective at what he did. Rivera has the most Saves in the history of MLB. You can reduce your activity to what creates alpha and trade set ups that have positive expected value. Be economic in your activity b/c you'll also need to conserve your energy. It's a marathon, not a sprint. Do one thing very well, create alpha, and keep losses small and you'll have a long career. Get your free copy of the Inner Voice of Trading Audiobook.

Inner Voice of Trading Audiobook - FREE You have to conjugate your feelings with what it is you think you know about trading. If they don't "feel" good, you won't take the signals and you'll spend a great deal of time second-guessing yourself. When you do that, it's emotional not intellectual. You are insecure or lack confidence in what you do. This book discusses how I failed my way to success so to speak in sometimes painful detail. Persistence and determination have a great deal to do with your success in trading, and in most things in your life. For a limited time, get the audiobook for free - no coupon codes. Foreword by Ed Seykota.

A purchase of 5,000 calls could be part of a synthetic options position. Why would it be bullish if the trader actually sold 500,000 shares short and used the calls to hedge? You can use Tony Saliba's option trading simulator to backtest your ideas. Become a student and get immediate access. Get Tony's most recent book for Free.

Don't cauterize your winners. Let them run. Position size your trades so that you can stay with them as long as possible. You can trade smaller if the vol is bothering you. Then backtest to see how the results would have played out. You can blend two or more systems to smooth out your trading curve. Adjust your positions by conjugating them with the ATR. Trade smaller with higher vol instruments and larger with lower vol instruments. Always risk the same amount per trade. Make sure you are taking on enough risk to meet your financial goals. You can haircut your equity when you are in a drawdown. Trading using tiers for position sizes is amateurish as you inadvertently trade larger or smaller than what your optimal risk should be. Optimal risk per trade can be calculated from backtesting. Trade with consistent position sizing so that you are only risking the same percentage for each instrument. One or two percent per trade is extremely aggressive in today's world. Think more along the lines of .1 to .2% per trade.

You enter and exit the market with stop orders. No need to be anal and use Limit orders - they make the order less liquid. Your goal is to let the market come to you. Trading otherwise is impulsive. Love yourself and stop looking at 10 minute bars. There's nothing material there. Trading is about making money, not the action. Buying and selling is not trading. Sometimes the best trades are ones you don't get filled on. Don't chase the market. If it stalls, you'll go head-first into the back end of it. Use protective stop orders 100% of the time. Trail the market with stops in winning trades and reinvest your gains into the stop order. Your stop price is the point where you are willing to transfer the risk to someone else. You are not smart enough to have price targets. Humans suck at prediction. Technical analysis is no more scientific than economics at large.

Timing has as much to do with your success as does your trading process. Just because you have a system, does not mean that you will begin harvesting cash. The markets must be amenable and compatible with the rules that you are going to deploy. This is true if you are a credit option trader also. Selling option premier doest not mean you will keep it. Monte Carlo your system to see how it would have done if you vary the start date. The trading year typically doesn't start on January 1… Features are not benefits… You don't need to program "hot keys" or the buttons on your mouse. I don't have real-time quotes.

You need to monitor your mental health, your amount of sleep, and your diet. Don't be afraid to take a mental health day to reset. This is a marathon, not a sprint.

You are responsible for all your success and failure. That type of integrity will need to manifest in how you handle money - your money and your client money - your investments and your trades. Until you backtest, you don't know your numbers. You need to know the expected value of a trade. You need to know what the probability is of your risk of ruin. You can't get this without a simulator or backtesting software. If you have talked yourself into the Johnny Cochran logic of "If it doesn't fit, you must acquit," (no basis in law) you have sold yourself on an outcome that is not based on 100% integrity and is not a 360 degree outlook. Your success as a trader will come from your knowledge of yourself - what you know, what you think, and how you feel. You have to own everything you do and that includes all the results of the trades you take and the ones you don't.

The sum total of all your trading activity will accumulate in your track record. You can be successful and be making a great deal of money right now, but you still might not be a good fit for a particular allocator. I know a few traders with 20+ years who cannot get big allocations in today's environment b/c their results are too volatile. These traders have their own models and have been trading the same asset class in mostly the same manner for 2 decades. Allocators are looking for very low daily vol today. Your daily volatility will increase due to market forces as well as the relative strength of your attachment to your rules. You have to do your own simulations, backtesting, and research. This is an ongoing process. Markets will evolve - so will you and your model will need to keep pace also. And you thought that you can buy someone else's trading rules and make a career?

With options you can bet where you think something is going to go and also where it might not. You can backtest and simulate option strategies for outright directional trades as well as multiple option positions. This includes butterflies and condors. Love the VIX? Don't fall in love... You can create a vol trade around any instrument and perhaps better manage your risk. Tony Saliba's new book shows you how you can do with while minimizing your risk. (I published the book). Click here to get Tony Saliba's new book for free. If you are interested in studying this further, you can study with Tony AND get access to his proprietary options trading simulator.

Trading Tribe The is a variance between what you think, what you know, and what you feel. Thoughts are creative, knowledge can relate to intelligence, and what you feel is emotional. Your emotions effect your judgement, your judgment effects your behavior, and your behavior effects where you end up in life. We didn't talk about stocks or commodities in the Incline Village Trading Tribe. We didn't talk about feelings either, except to get into the willingness to feel our feelings. Then someone would "send" and get into showing us what it felt like to feel what they were feeling. We can relate to the feeling, not to the drama that got someone into the feeling. That was the "story." This is why buying another person's trading system or "proven" rules is a mishap waiting to happen as you may understand some/all of the trading rules, but that you can incorporate them into something that you can replicate is highly improbable. Their rules are not backtested despite there working for some people. Our teachers and courses teach proven, backtested rules and include what the emotional tradeoffs are at each point. Denying your feelings around trading and risk leaves you with a blind spot that will reveal itself just when you are most insecure. See how we can help you learn to trade for long-term success. https://martinkronicle.clickfunnels.com/welcome2bu3bjg9

If you subscribe to get NYSE data, you literally get everything that trades there. You're not likely going to need all those names running through your simulator. I removed all the nonsense that I knew I didn't want to be in. I called that process "raking the data." I removed the following from the data feed: -stocks below $20 per share -stocks above $100 per share -shares with less than 1 million ADTV -Preferred Stock You can figure out what is best for you. What is left is what you will run through your simulator. This also helps you stay objective and can stop you from obsessing about one particular name. Also, it's fantastically hard at best to keep track of all the potential names to trade. This process can help you stay open-minded.

Use equity pairs trades to stay in trades longer. If you are trying to increase your holding time but are scared, you can buy one long and sell another short against it. Ideas to Test Look at the strongest equity sectors from a relative strength standpoint. You'd buy the best name long and sell the worst short. You are looking for the long to outperform the short. This is a relative value trade. If the market crashes or corrects, the sting of the down move will be offset by the short position. You have to test these ideas, but this is a creative way to get your testing ideas going.

Human beings are emotional beings. We all have emotional systems. If you are not connected to your emotions, you are likely to see them emerge when you are under the pressure of trading. A system is a set of rules that you can follow. After you get the system generated order, you have to enter the trade into your platform. That's where the fun starts. The Trading Tribe was set up by Ed Seykota to help traders understand the emotions that would derail one's trading. Scenario 1: you get a system generated order, but you do not enter the trade. Scenario 2: you have no orders for the particular day, but you enter an order on the fly. In both scenarios, there is a variance between your trading system and your emotional system. Befriend your emotions and make them allies not antagonists. They are trying to teach you something.

Discretionary chart reading is problematic as you can't backtest it and calculate the expected value of a trade. Only trade set ups (the combination of entries, exits, and position sizes) that have positive mathematical expectation. Get a simulator and backtest your trading ideas to find the expected value. The software I spoke about in an earlier episode will do the calculations for you. Expected Value Formula E = (Ave Win)(% Win)-(Ave Loss)(% Lose) Roulette 2 Kings

The Average True Range (ATR) is a measurement that professional traders use to adjust their position sizes to normalize risk across all instruments. Normalizing risk allows you to look at Gold the same way you look at Sugar or AMZN for that matter - they are all the same percentage risk to your portfolio. Don't make the mistake of trading with "tiers" as no one optimizes their trading for the number of shares. You are trading like an amateur if you are trading a security risking $2 if the daily volatility is $6. Downtiming to intraday time frames is a foolish endeavor and even in doing so, you can't change the fact that the daily vol at $6 is too big for what you're trying to do at $2. Average True Range ATR Gorilla Glue #4 Jack Herer

Don't write covered calls. Don't come up with a strategy on the fly. You need to know the math before you put the trades on. Backtesting does NOT predict the future, but it gives you an idea how the idea(s) would have worked out over the last 20 years. What is past is prologue, but at the same time history rarely repeats itself the same way. I encourage you to backtest b/c you can use the hypothetical results in your marketing and discuss how bad the "bad" would have been in the past. Most investors or backers want to know the worst case scenario. Backtesting can give you an idea of the magnitude and duration of the drawdown, the worst loss, the expected value of a trade, and the best run of winners. Knowing these numbers can help you build confidence in your ability and also give you great insight on your emotional intelligence regarding trading performance - gains and losses. Get Tony Saliba's book for Free. Go to MartinKronicle.com and look in the top right corner for the details. Access to his options trading simulator is here: choose "options." It's for students only.

I don't trust stocks. Commodities are so much more reliable. David Stendahl - Signal Trading Group Moore Research

You have to backtest at the portfolio level - not one security at a time. Simple models are best. If you are testing on Trade Station, you can only test one idea and one security at a time. That might lead you to try 45 indicators or studies onto the name - that's your ego talking and you'll not likely have the same scenario show up the same way they more overlays you have. Again, simple is best. Test one simple idea across hundred of securities. Why would you spend weeks trying to find a model to trade only the ES or TSLA? That's myopic... Tradingblox Mechanics (the follow up to Trading Recipes) I used CSI Data as the data source. Seasonality in commodities is VERY reliable and it applies to both outright directional trades and spreads. MNNAX was the ticker for Munder Net Net Fund. I said MMNAX which was not the ticker.