Trader Mindset

"Mental stops" are not really stops, per se, but thoughts. It's a price where you are losing money, but aren't emotionally ready to take the loss, so you don't take it. Maybe you're not willing to take the loss because you've done a lot of work to research the trade and you feel it's not fair that you didn't get paid. Well get used to it. Neither the market nor anyone cares about what you put into your trading. Long term success comes down to your consistent behavior: putting in the orders and taking small consistent losses. Mental stops are an emotional place where you want to re-evaluate the situation to figure out what to do. That's the point where your lack of conviction in your process is starting to work against you. I think that's especially true for chart readers and discretionary traders. System traders put in their stops, get stopped, and wait for the next order to be generated by the system. The reality is that you've lost money. End of story. You have lost the money regardless whether you've "locked it in." Don't let the accounting language dissuade you from trading the way that will impact your trading positively. Yes, taking consistent small losses actually impacts your trading positively. Amateur move. Put your stops in and take solace in the fact that you'll be automatically get taken out of the trade before I lose any MORE money. Being able to take small consistent losses is the hallmark of a pro trader. Losing money does not mean you suck or that you are a loser at trading. The stop price is the point at which you are willing to transfer the risk to someone else. If you want to be a pro, losing money is part of the business.

Challenge your own way of thinking and let other traders help you uncover your blind spots. We all have them. I'm looking for people who think differently than I do so I can learn. I don't have a monopoly on ideas and I can be a bonehead at any given time. I rely on systematized trading rules and by gaining new insight from other people (who are mostly much more intelligent that I am) I am better off because I can oftentimes reduce the wisdom into a trading rule to enhance what I already have. I couldn't do that on my own - not without a great deal of random luck or perhaps a big loss that helped reshape my thinking. Below is a partial list - there are more coming. Brian Lund Jared Dillian Todd Harrison Mark Yusko Moore Research Brynne Kelly ETF Global Chicago Sean McGlaughlin David Aferiat - Trade Ideas Tadas Viskanta - Abnormal Returns Steve Sears - Barron's Striking Price Options Insider Sal Arnuk Joe Saluzzi

It's impossible to imagine the value of the blockchain and crypto currencies, so I'm a long-term investor at this point. I think the value is in my process, not the instrument that I'm trading. Two, I'm not going to let any one security put my trading process in jeopardy. I've talked before about what I look at and how I rake the data to include instruments within my trading system. I'm not going to change those rules for any instrument. I have not traded bitcoin futures and I won't be in the near term. There is not enough data and I don't know who has basis risk. It seems like the market is dominated by speculators and not hedgers, and they are heavily biased long. When the market is lop-sided and fickle, it makes for a poor trading environment. That's why I'm invested and not trading at this point. It's too easy to lose money when I'm trading well... The best that will happen is that I'll add it to my system and trade it among all the other instruments that are in there. It's not getting any special treatment, nor am I going to try to develop a dedicated system to trade bitcoin. Use cold storage for your crypto currency investments - that means offline. You can use a USB drive and drop that into a safe deposit box. You can also use what's called a "hardware wallet" such as those below instead of an online wallet and exchange such as Coinbase or another online digital wallet that can be hacked. KeepKey Ledger Nano S Trezor Lastly, keep your mouth quiet about owning bitcoin or any other valuable cryptocurrency and how your store them. No one needs to know your personal business. Don't brag or bring attention to yourself (about bitcoin, art, or collectibles) so you don't tip off anyone to come and rob you.

Goals need to be realistic and attainable. You also need to consider the growth in competing areas of trading. If you're making money, how do you know it's not random luck or a bull market? I'd love it if everyone could turn $10k into $1,000,000 but the majority who try will lose all their marbles. Those that do will be lucky having been "in the right place at the right time." Think of it's this way: if you turned $10k into $1 MM this year playing the lottery, and you had to live your life over 100 times, you'd never replicate doing that ever again. Same for following a set of rules that don't make money [have positive expected value]. You can trade those all day, and you'll do nothing but lose money on average over the long term. You'd have a better chance of making 20% YoY if you followed a systematized set of rules with positive expected values and traded them over and over. I'm sure Taleb and Ariely have said as much. Goals and systems need to be reviewed. You might not have hit your financial goals even though we're in a bull market. That might have to do with your risk per trade, overall risk in your portfolio, or markets to trade. It's possible to have too little risk as well as too much risk. You can trade good rules and lose money. That's bad luck, not a bad system. Keep a goal for minimizing losses. Let your upside goals run, like your profits. There are forces at work right now that are working to undermine your trading, more so if you are trading intraday or short term. Your trading should evolve with the markets. As Victor Sperandeo said in one of my interviews with him, "the markets are always evolving to try to kill you." He would know - he's been trading since 1968. I am continually testing my models to find my blind spots. I'm also looking to see if I can minimize my risk to achieve the same expected return. I'm also looking to make sure that what I trade hasn't become too correlated with each other so that I don't have the effect of a concentrated position in my portfolio. Don't be reasonable with your upside. Yes, "the market can remain irrational longer than you can stay solvent," but it also means that bull markets can run (while you're long) much longer than you think they can. How many people called market tops in 2017? They were all wrong. And these are smart people. My guess is that they felt the market had gone up enough so the "market callers" published their feelings about risk and what is reasonable to you in the form of a market call. Remember, your emotions and psychology effect your attitude, your attitude effects your behavior, and your behavior predicts where you end up in life. From a trading perspective, how and what you trade can predict your net worth over time. What you can do in 2018 to positively impact your financial future and net worth: 1) trade less frequently thereby decreasing commissions and slippage; 2) increase your holding periods by letting your winners run longer; 3) diversify across more markets to cut your overall risk; 4) learn to trade a new asset class to impact your reward to risk ratio; 5) rely on a system and stop drawing lines on charts thereby decreasing subjective reasoning in your financial decisions; and 6) make friends with 5 new people who are leagues smarter than you

Whenever you have a margin call, offset the instrument that is generating the margin call. Don't meet a margin call with cash. CTAs with margin to equity ratios of 12-15% are considered aggressive in today's day and age. Margin is set by the exchanges, but can be made more stringent by the IB or FCM. Margin levels are set to protect investors as well as the integrity of the exchange mechanism. Margin is considered a good faith deposit on the full notional value of the contract.

Favorite Yoga Pose - Ardha Chandrasana You have to practice your yoga the most when you're off the mat and not in class. That's the whole point. Like great trades, you have to take them home at night. Time Blocking Trading begins the night before. I run my systems at 6 pm Sunday night for Monday's trading. Call in the orders by phone. The orders are worked during the day and all I do is wait for the phone to ring with a fill. If I'm filled, I give them a protective stop immediately. Sometimes the there are no fills, then I repeat the process the next day with the same orders. Most of the time I'm reading and studying. I don't have cable - I've cut the cord about 13 years ago. I practice yoga most days from 12 to 2 pm PT. Risk Per Trade In establishing a position, I risk 0.10% (10 basis points) per trade then it grows from there. I am willing to add continuously if the trade continues to work in my favor. By risk so little at the beginning, I couldn't care less about any trade at any given time. I add when I'm making money, and that's how I decide. We are powerless over the markets and how the instruments perform once we're long or short. With such small risk at the beginning, I'm not emotionally invested in the outcome of any trade. Even after adding several additional 0.10% units of risk, I'm still indifferent. For example, if I get to add 4 additional units, I'm only at 0.50% risk or 1/2 of 1%. Peace is a choice. Too many traders are emotionally invested in having to be correct. I'd rather focus on making money over longer periods of time, and if that means having a commodity futures position on for 3 months, so be it. That does't make me an investor. Sometimes, it takes that long for "high tide" to come in. FYI - I loathe having to look at a computer monitor or screen so I don't do it. My brokers are incentivized to fill my trades so I trust that I'll get filled when my stops are hit. That probably seems blasphemous to day traders, but I want to make money and have a high quality of life. Making trading look like blue collar despair is not what trading is about for me. It shouldn't be labor intensive. Hence most traders lack the emotional intelligence to be their own best coaches. If you're struggling or not making money, do yourself a favor in 2018. Stop looking at 5 minute bars and start thinking longer term.

If the average person cannot explain to you what the blockchain is, how is the recent level of bitcoin a bubble? I've seen this before in the commodity markets and although we're likely to see volatility that's uncommon in the markets, you can study the spread of viruses to get a better feel for this type of growth. You can control the effect of volatility in your portfolio by decreasing your position size. You can further minimize your loss potential by using low to no leverage. If Amazon or Walmart decide to take a crypto currency as a form of payment, demand for the underlying will explode as none are currently considered mainstream in terms of usage despite a steady stream of headlines about them. Once this happens, I believe the best opportunity for adding crypto currency risk to your portfolio will be via an investment, not a trade. No crypto currency has gone mainstream yet, so all the talk is about "the trade" and that means the majority of people will leave the majority of the money on the table. McDonald's went public in 1965 around its 10th anniversary. It was not mainstream until 10 years later and it still had a ton of growth to go. For example, they did not begin serving Chicken McNuggets until 1982, almost 20 years after IPO'ing. If you'd bought 25 shares of MCD at the IPO price of $22.50 (a investment of $562.50 in 1965), your position would be worth over $3 million today at a price of $175 per share and adjusting for splits. That's more than 5,400 times your money over the same time period. That's also 50 years ago, so who can tell how they would have handled the position. MCD has split 12 times since the IPO. Sure there had been some great trades along the way. There have also been some dead periods too, but when people who have not been trained to time the market or to trade, they leave the majority of the money on the table. I think the reason is the people like to seem reasonable. Let's say you invested in MCD and you sold your entire position when it had doubled. Maybe you felt at the time you didn't want to be greedy. Or you feared giving it all back... What is the opportunity cost of that lack of emotional awareness or mindfulness around your process (or lack of one)? Where is the opportunity in bitcoin or any crypto currency at this point? While I believe there will be parabolic moves, great trades, big drawdowns, the best bet is to invest in it and hold it for 20 years.

Focus on process and stay out of the results. Performance will show up if you trade a system with positive expected values. By focusing on the process or your system, you become the casino. Each time your system is open for business [trading], you are making money. You should strongly consider investing in a backtesting simulator. When I started trading, I put a high level of emotion of making money on myself. That became expensive and I became frustrated about doing things that weren't paying off. They were never GOING TO PAY OFF, but I didn't know it at the time. I live by the adage that hard work will pay off...it was my turn. The thing is, I wasn't working smartly. And worse, I had no definable trading edge. The funny thing is that as soon as I detached from the money spiritually, my trading improved in leaps and bounds, both emotionally and financially. Nowadays, I think of the money as points in a video game. I don't actually play video games, but I still look at the net equity as how to keep score. As in poker, your money [chips] are your ammunition. I know when I make bad bets, I will most likely lose. Once in a blue moon, I'll get random luck and split a hand or everyone will fold to me. That's not a good business to be in though. I can remember that as soon I had become emotionally invested in the outcome of a trade before I put the trade on...I could feel the disappointment before I offset the risk. Such Betrayal. Losing Money But Making Good Mistakes One good thing that I can say about this time was that I was risking real capital - not paper trading. I also was taking the risk home with me which is what I always advocate. New traders should not be focusing on 5 minute bars. Focus on the intermediate to long term moves, and once you master those [in 2-3 years] come back to shorter time frames risking 0.10% on trades so you don't do any lasting damage to your portfolio. Holding a trade for three months doesn't make us investors. It says that we have stepped aside and let forces that are much more intelligent and powerful than us take over. All we can do is enter our stops and let the market go where it's going to go. If you find yourself trading 100 shares but offsetting them before the market close, consider trading 20 shares and taking them home if you making money on them at the close. You will learn about your emotions from the experience which is invaluable and can only be done by living it. If 20 is too painful, try 10. But I also ask you to do this: why the lack of trust? Is it you don't trust yourself or you don't trust your process? Where does that come from, meaning, what scientific study did you read where it delineated that you should offset winners NO MATTER WHAT at the close and go home flat? If you take home 10 or 20 shares of a winning trade, you'll learn a lot about yourself emotionally as a trader. That wisdom is priceless to us. Learn and understand what your emotions are trying to teach you. They want to be advocates, not antagonists. If you feel the opposite is true, your process is likely the reason why.

The measurement for volatility takes into account the magnitude of the vol, not the direction. You obviously don't want to be in high vol, directionless markets, unless you are trading option butterflies or condors that can take advantage of those types of markets. For equities, you can deploy what's called a "pairs trade." Anyone can gear their portfolio for 100% RoR, but you have to be willing to endure a 40-60% drawdown both financially and emotionally. Hard to do. Slower and steady growth might be a better fit for your tolerance for risk as well as what you are looking to do professionally, such as running public money. [I have a documented 100% monthly return, however I was in fact coming off of a 40% drawdown so my starting equity was only up 20% by the end of that reporting period/month.] Spread trades are about relative performance between the two instruments, meaning your are looking for the long to outperform the short. There has to be high correlation between the two instruments else there is no relationship. You can find good candidates for these types of trades by looking in each sector and going long the "best in class," and shorting the dog. I wrote about pairs trading in Inner Voice of Trading where I was Long MSFT and Short NSCP figuring that Netscape was going to have a hard time getting clients to purchase a premium, albeit superior browser, while MSFT was giving Internet Explorer away for free. One trade I'm in right now is Long PYPL and Short SQ in the mobile payment space. You have unlimited loss potential by being short a stock fyi. You can learn a lot about commodity spreads at Moore Research. Commodity spreads are a great way for newer commodity traders to get involved with those markets as you are both hedged and you are afforded lower margin requirements since you are simultaneously long and short the same commodity, but in different months. By trading equity pairs or intra-commodity spreads, you cut the volatility in your portfolio yet keep the directional bias that will bring the alpha.

By trading a complete trading system, you solidify places in your trading where your success can break down. Relying on system-generated trades, you get to focus on high expected value trades and eliminate the sub-optimal trades. Benefits of a complete trading system: A good cure for daily set-ups is a systematized set of rules. It takes out all the uncertainty around your decision making process. That can give you a sense of confidence and self-esteem. You get to trade from a place of personal power. Hard to make money trading long term without confidence. You won't have to interpret any chart patterns: the price will pick up anything about the instrument that is bullish or bearish. You will therefore be cured of the need to massage charts all day and night, thereby freeing up hours of time each day and the brain power that goes with it. You can trade any market around the world. You can blend several trading systems like an asset allocation to smooth out your equity curve. For example, you can put 40% in a breakout system and 60% in a moving average system. Or, you can put 50% in a short to intermediate trend following system, and 50% in a long term trend following system. Possibilities are endless. You don't need subscriptions, chat rooms, or premium research. Systems and Emotions Systems don't remove emotions from your trading although that has been included in many marketing materials. I believe that began by a clever marketer who doesn't trade and wouldn't know if that statement was true or not. You still have to put on the trades, and if you experience fear around losing money or greed around not making enough, you can hijack the system and blow up. Ed Seykota set up the Incline Village Trading Tribe for traders to get in touch with their feelings and psychology around trading for this very reason. We never spoke about trades, set-ups, or chart patterns. It was not only a complete snooze to do so, those don't help a trader become profitable. They do, however, provide fodder for good conversation and for building relationships and bonding I guess, but you can do that without becoming a trader if that's what your real goal is - to bond with people. Lastly, I think trading a complete trading system can provide you with a great quality of life. It makes no sense to beat the crap out of yourself to make it as a trader. Martyrs don't get paid and as Jim Morrison sang, "...no time to wallow in the mire..." Build yourself a simple system that takes care of your entries, exits, and position sizing, and in doing so you'll remove the weakest link in your trading: you.

Price targets cut your profits. Let the market tell you when the move if over. Price targets are about predicting the future and human beings are horrible at that at best. Read Expert Political Judgment by Phil Tetlock to get an idea of what I'm speaking about. Intraday data is not statistically significant, so uptime your charts and begin to focus on daily, weekly, and monthly time series. Longer time frames remove the randomness of price. Don't trail structure when you put on the trade. Focus on percentages - that's what professionals do. Once the trade is working in your favor, then you can trail structure if you want. But make sure you're looking at weekly or monthly support, not cloud-like chart patterns that change when you breathe on them. When you let go of price targets, you'll focus on "best practices" and that means financially letting your winners run, emotionally letting go of control (you don't have any in the first place), and spiritually living a life that's worth living.

Look at your equity curve like a price chart. You want the slope to be positive and upward. What the trajectory? Your equity curve can help you target your goals. Start by putting all your trades and the costs into a spreadsheet: Column A is today's Date Column B - Entry Column C - Exit Column D - Commissions Column E - Fees Column F - Final Balance Then you can chart the last column against the Date - Columns A and F. Do that every day and update the chart. You can study the results at the end of the month. Your Equity Curve shows you the efficacy of your process and trading rules. What does it tell you if you are afraid to create one? Not worth your time? My guess is that the truth might be hard to acknowledge and we can bullshit ourselves to eternity. The first step in getting healthy and making better trading decisions is to discover your truth. Nothing illustrates a failed or successful attempt at trading better than an equity curve. Drawdowns are not failure - they just delineate those times when your system was out of sync with the market. This will happen frequently, but if you've backtested your rules, stick with them as you'll trade yourself back to new highs by sticking to your rules. I find that day traders are fearful of this process. Position traders will find that their equity curves make the biggest jumps. Let the market and leverage work for you and you'll see those efforts and results on your equity curve.

Use your breath to control your breathing. In the process, you will quiet your mind over time and not need to fill your day with kinetic energy. For me, that includes making too frequent transactions. If you're in good trades, keep them, take them home with you overnight and over the weekend. First Technique: Inhale on a 4-count and exhale on a 4-count. You can increase your breath to a 6 or 7-count if you can slow things down enough. A variation of this is inhale on a 4-count and exhale on a 6-count. Yogis and buddhists find that if you can slow your breath down, you quiet your mind in the process. Second Technique: Inhale on a 7-count, hold your breath for a 7-count, and exhale for a 7-count. It might take you a few times to "catch your breath" so to speak. Try this for 2-3 minutes if you can and do this 3 times per day. You might try this for 2 weeks before you feel anything material - it's different for everyone - but you should feel more relaxed, calm, and more energized. Smartphone Meditation Apps 1. Insight Timer 2. Aura 3. Omvana 4. Stop, Breathe, Think 5. Calm

Enter Buy Stops above the market and let the market come to you. Do this for every trade you have and then sit back. The good news is that you don't have to look at the chart once you're Buy Stop is entered. This is huge in that it frees up your time and energy. You'll get an alert once the order is filled. Then place your protective Sell Stop at your predetermined price level. Don't use price targets either. Once the underlying is up 2 ATR, move your protective Sell Stop to breakeven and let it ride. Make sure that you are not looking at intraday data either. The key to all of this is to take yourself out of the equation. The more you are hyper-vigilant the less you're going to make on the trade. The more you watch the chart, the more you're likely to impose your will into the trade and cut yourself at the knees. The overall markets are in strong uptrends, so let your trades run in this type of environment. Let go of trying to guess where the move is over - the market is much smarter than all of us and humans are horrible at best at prediction. Having your Buy Stop orders entered will always have you in the right place at the right time. Why? Your orders are already in when the market moves and momentum hit and you can't possibly enter that many orders by hand in the heat of the moment. You're already positioned. If the moves don't rise to your Stop levels, you won't get filled - and that's a good thing. At the end of the day, the orders will cancel because they are only good for the day.

Develop a systematized set of rules that you can count on. You can calculate your levels the night before and execute the rules the following morning. The key is that you don't want to have to think in the morning - just focus on executing the plan. That means entering your buy stops to enter long and sell stops to protect your equity. Here are the components of a complete trading system: Breakouts - trading above previous highs or below previous lows; Trailing Stops - to protect your equity after your initial order and also once the trade starts working out in your favor (see Exiting Winners); Position Sizing - calibrated for volatility and your overall account equity; Adding to Winners - systematized so that you don't join the hubris or factors that you can't prove scientifically; Exiting Winners - getting out with the majority of your unrealized equity; Also to consider is the correlation risk between the instruments that are in your universe. These must all be conjugated to work together. One without the other is nothing - they are just data points. Think of them as a perfect complements to one another, like the starting 5 of your favorite basketball team or 9 players on the baseball diamond. For example, your position size only matters to the extent you know how much you are willing to risk per trade, where you get in and where you exit. Knowing how much silver is correlated to gold or how much or Facebook is correlated to Amazon will help you see the unseen risk in your portfolio before you add it. You can't get this level of thoroughness from chart reading or understanding set-ups such as cup and saucer. It's only achieved from backtesting through a simulator that lets you simulate at the portfolio level, not one instrument at a time. Examples of those are Mechanica and Trading Blox.

History is not going to repeat itself the way it did for my mentors and colleagues. Investment into the trading business is going to Artificial Intelligence and Machine Learning. If you are doing things by hand, you are putting yourself in a very disadvantaged position. You can't work orders on the floor anymore. There is no floor. How's that for a development?! Another example is the risk per trade in contemporary trading. Back in the 70s and 80s, it wasn't uncommon to risk as much as 2% per trade! That would be madness in today's environment, especially if you want to get an allocation from a global macro fund or if you want to work for a real prop trading firm. [A real prop trading firm will give you funds to run without your needing to add your own capital and you'll be able to take the risk home with you overnight and over the weekend, for example.] Take the humanity out of your trading. If you are looking at charts for subjective interpretation, more and more you'll be competing against trading machines that are "trained" to beat you. If you think trading is unfair already, in my opinion it's going to get worse. Whereas I think you should strengthen your sense of self through yoga and meditation, at the same time I think you should begin to extract yourself out of the trading equation by coming to understand that you are the weakest link in your trading. To put it in context, I think even if you had the self-knowledge and awareness of HH The Dalai Lama, you should still develop a set of computerized trading rules and manage risk systematically. Two good books on yoga are Light On Yoga: The Bible of Modern Yoga by BKS Iyengar and Yoga: The Spirit and Practice of Moving Into Stillness by Erich Schiffmann. Disclosure: Erich is a long time friend and my yoga teacher of 20 years.

Risk is an asset class. Keep in in your portfolio when it pays you to do so. That means overnight and over the weekend. When you day trade, you are churning your own account. In a recent interview with Chats With Traders, my friend Aaron Brown said that traders generally leave way too much money on the table. The real money is holding the best risks. You can define where you are going "risk off" by placing protective stop orders on your winners and Stop Loss orders on recent fills. Staying in good trades longer frees up time so that you can do more research, read, or go have fun doing whatever gives you pleasure. Exercise: Go to your best trades and enter them in a spreadsheet. Column A is your Entry. Column B is your exit. Column C is where it is now. Column D is what the worst price was between the prices in column B and C. Look at the percentage of those names where the price is Column C today is higher than Column B but also where the price is column D never went below Column A. This helps you understand the opportunity cost of short-term trading and how it works against you.

Value is what you assign to something, not an analyst. What others assign to bitcoin are none of my business. What others assign to speculation in general is irrelevant. There is no value per se in bitcoin anymore than there is in corn futures. Bubbles are what speculators (like me) pray for. Professionals know themselves and know how to express risk in a manner that is best for them (compatibility). Traders who have a systematized set of rules love to trade bubbles because although we cannot impose our will on an instrument, we can take advantage of the amateurs and day traders who don't know anything about managing risk. Trading is a voluntary action. Winning and losing is up to you. Buy the time the bubble pops, I'll be long gone...

Exits and entries are perfect compliments to your trading system. They are siamese twins that should not exist without one another - nor should they be separated at birth or otherwise. Risk management defines your P&L and the distance between your entry and exit is critical to how you manage risk. You can define that distance by calculating the ATR of the security that you're trading and using those as the entry and exit endpoints to your rules. Marry that with your position size given the size of your account and the volatility of security. So the three crown jewels to trading are entries, exits, and position size. They are all calibrated to work with one another and rely on one another to help you create alpha for you and your clients.

You cannot shield yourself from struggle. It's what helps shape your trading rules and over time turns them into a complete system. No psychologist, coach, or mentor can do it for you. You have to want to take a punch and learn to feel what it feels like to lose money and then use those emotions to affect your behavior accordingly. Very little of it is intellectual or logical. If you need things to "make sense" I think you're in for quite an education if you're open to it There are no external solutions to your internal issues. That should save you a ton of money in that you don't need a high clock speed computers, multiple monitors, nor televisions in each room. One way to generate peace in your daily activity is to start using stop orders to enter and exit trades. Professional traders use stops, not market orders. Buy stops are placed above the market and are used to enter trades long or to cover short sales and minimize risk. Sell stops are placed below the market and are used to enter trades short or to sell long positions and minimize risk. Stop orders show your conviction in your process. If you're trying to read charts or you've been sold on something amateurs refer to as "set-ups," you can absolve yourself from that lifestyle choice and at least act like a professional on your way to becoming one. Trading with a system will capture anything that is bullish or bearish and remove the need for your having to interpret charts. Plus, it's a lot less work as well so you save yourself a great deal of time. A third benefit is that you can eliminate having to trade frequently - something I believe is not necessary to becoming a professional trading. I think trying to read charts every day is exhausting. Moreover, if you are glued to your monitor, you might be giving yourself a false sense of security that you can avoid "the big loss" by doing so. You can't stop market volatility because you are sitting there hyper-vigilantly. What you can do is enter your stops are predetermined levels and let the market come to you. One benefit is that you won't find yourself chasing trades. Another is that if something unexpected does occur, your order will already be there to protect your capital. As a trader or speculator, job #1 is playing superior defense. By entering your stop orders ahead of time when things are calm, you also have the added benefit of avoiding the errors that can occur when you have to act under the gun and you're not used to doing so. Errors cost money and you can assume that if you make an error, it won't add to your P&L, but hurt you.

Professional poker players know (as best they can) the expected values of every hand they play. The best of them know what hands to play from what position. Like traders, poker players have to make decisions under uncertain conditions with imperfect information. They know what the percentages are of their hands improving. For example, if they are dealt a pair of Kings, they know the probability of getting another King to make 3 of a kind (a set of Kings), or quads - four of a kind. They know what the probability of making a straight if they have two connectors or making a flush if they have two cards of the same suit. This allows them to the knowledge to know how to bet given the odds and the size of the pot. Yet it's still possible that they can do everything correctly and still lose the hand. That's going to happen quite a bit if you play a lot of poker. Like in trading, you can become emotionally invested in the outcome of a hand. If you have a pair of Aces, you can get beat from time to time despite Aces being a strong pair. Professional traders can learn a lot from this type of knowledge. If you trade long enough, you will get beat when everything looks to be in your favor. I've been long stock that beat earnings estimates, but was greeted with a down market because of some external factor that took everything down with it - including my stock. Not fair you say? No one cares what my definition of "fair" is when trading. Nothing is fair. A good way to become mindful of what you could be in for is to study the winning and losing streaks from your backtested results. Most of them will tell you what you longest losing streak is (duration) and how bad it effected your equity (magnitude). I think this will help you learn to build your confidence and put things into perspective. The losing streaks that you'll have by trading a system will pale in comparison to those that you'll need to endure if you are day trading or trying to ready charts or "set-ups." Those are a thing of the past. The modern trader - the trader who is going to set himself up to win for the rest of this decade and into the 2020s will have 100% of his trading rules backtested, know the expected values, and have rules to eliminate sub-optimal trades, and have rules built-in to trade for the marathon of the next 20 years. That does not now nor will include trading based upon charts nor intraday data. Firms are investing tens of millions of dollars to trade against the short term lovin' traders as they are easy to pick off and bully. Plus, in that space, there are a million suckers born every minute so you've been warned: don't be one of them. Trading simulation software will allow you to vary start dates, the instruments that you are trading at any given time, how to measure volatility, and how to cut risk during losing streaks. A great book on how to understand what a poker player learns to contend with is "Getting the Best of It" by David Sklansky.

Go check out The Imitation Game on Netflix if you haven't seen it yet. It has many analogies to trading Good trading is about being able to distinguish signals from noise. In the short term, everything is noise though - even potential signals. When you don't have a plan, everything looks appealing. Any big move that you're not in gives you the emotional feedback that you've missed the move and that you should have. The Enigma code breakers had great motivation to crack the code: save English lives and end the war. Our motivation is to limit risk and be in high expected value trades. You can use price as your main signal, but admittedly, in the short run, it looks like noise. It's not until you look back to see the statistical significance of today's closing price to the past that you can begin to ascertain whether it's signal or noise. Your trading system is what you can rely on to decipher the data and create trading signals that you can rely on. Without a system, much of what you see can be construed as disinformation - even the price. This is especially true for short-term, intraday traders. This is why I think you're in for a life of frustration if you're trying to day trade: all the intraday data are random. If you're lucky enough that today's intraday data is aligned with significant weekly or monthly time frames, you might have a good trade. If that's the case, keep the trade though and let the momentum follow through overnight and over the weekend. That is the only way you can fight the manipulation that you'll otherwise suffer from the hands of the HFTs and their criminal counterparts - the exchanges. Keep in mind that most indicators only confirm what you already know the price is telling you. You can probably simplify your trading by removing all the overlays and indicators from your charts. Compare your daily data with weekly and monthly data levels to confirm your signals, not trading indicators, overlays, or lines that you feel compelled to draw on your charts. If you find yourself needing to do that emotionally, you're grasping for something that's not there. You can also test your models and from the ones that I've done, the tests that I've run without the technical indicators versus the ones that included them, the results weren't improved by having the indicators included. I wrote in The Inner Voice of Trading that I felt (and still do) that they are for the most part "emotional bandaids." Indicators won't help you "not" feel the feelings that are trying to teach you something. They will also add another layer of frustration to the mix and I've yet to see one that is foolproof. The best thing you can do is simulate your trading ideas over 10 to 20 years of data to see if they have any "rich" history.

Calibrate the risk that's appropriate for your account and your emotional constitution. Normalize risk across all instruments so that you can create risk units. This way, every instrument will be the same in terms of the risk that you'll represent in your portfolio. Many commodity traders use the 20-Day ATR (Average True Range) in order to calculate the daily dollar-volatility per instrument. Then, they divide that into the percentage of capital that they are willing to lose per trade. If the Gold ATR is $2.50 (it's not) then the daily dollar vol is $250 since the gold contract is 100 troy ounces. If you have a $100,000 account and you only want to risk 1% per trade, you can figure out the maximum number of contracts to trade. $100,000 x 1% = $1,000 Daily Dollar Vol on Gold = $250 ($2.50 x 100 oz) Therefore, you can only trade 4 Gold Contracts since $1,000 / $250 = 4 contracts You can also trade only 2 contracts and give them $5 of risk between your entry and exit. Then to manage the risk, if you enter the gold market long per your entries at X Price and place your protective sell stop $2.50 (the Gold ATR value) below the entry price. Keep in mind that measuring ATR can be done with a computer and you can backtest all your entry and exit rules with the risk across all instruments normalized. In doing so, you remove all the guesswork. You have the added benefit of not falling in love with any one instrument risk management wise since each trade will be the same percentage risk in your portfolio (at first, if you don't add to your winners). More importantly, you won't want to jump off the bridge when you lose money on any one particular trade since they all represent the same risk and therefore you'll not be married to the outcome of any one trade. It's hard to remain objective, especially if you are looking at the headlines of the day for your trades. Trading a system can remove all of that for you, but you'll still have to a) put on the trades and the protective stops; b) not over-ride the system and "not" take the signals; and c) not over-ride the system and put on trades that were not system generated. If the volatility in the commodities markets are too great for outright trading, you can consider trading intra-commodity spreads. In a spread, you are simultaneously long and short two contracts of the same underlying but of different expiration months. Instead of trading for an up or down directional trade, you trade the relationship between the two contracts for them to narrow or widen. You are afforded lower margin with spreads, so if your account is smaller, it might be a good fit for you to get going in commodities. The good news is that most professional traders know the spread markets very well so it's a good idea to learn them anyway at one time or another. You typically have lower risk since you are long and short at the time time and the seasonality of physical commodities tends to be very reliable. We have some free educational training videos for you on this topic. Go to MartinKronicle and set up your Free Account to get access.

You have to plan for 10-baggers in your portfolio and position yourself tactically and psychologically. Two things need to occur regularly: 1) big moves don't typically happen intraday 2) you have to believe that you are capable of doing it emotionally and psychologically Tactically speaking, you need to let time and money work for you for best results. A 10-bagger has to have been a 4-bagger first. Don't cut the 4-baggers at the knees. Place a trailing sell stop order and let the trend continue (if long). Don't impose your will on the trend. Sit on your hands and let the market forces work for you. Think in terms of percentages and not dollars. If you risk 0.50% per trade and it's a 10-bagger, you'll add 5% to your overall portfolio. What will that do to your Incentive Fees? If you're smartly abandoning day trading (smart move), you need to find a better way to deal with the discomfort that you feel when you don't take short-term winners at the end of the day or before the weekend. What is the discomfort trying to teach you? For each of us it's different. nwiUllingness to feel the discomfort in your trading is also denying the the feeling of what you'd feel by having a 10-bagger in your portfolio. In other words, the feeling of having a 10-bagger is on THE OTHER SIDE of not taking short-term profits. Why don't you want to feel the feelings around getting a 10-bagger? Aren't you worth it? I think you are...you are willing to do the work - you might as well get paid as much as you can for it. You can release that discomfort in yoga class or in your Trading Tribe - and replace the satisfaction you get and not sabotage your trading and still get to feel the feeling that you seem to want to have (because you're seeking it everyday - you must love it, unless you're a masochist.)

Here is chapter 2 of the Audiobook version of Inner Voice of Trading.

What are your personal Mission Statement and Strategic Plan for your trading? If you have them, my guess is you have tasks and goals with specific dates. Professional traders also have Emotional Plans to take into account the Relative Strength Indicator (RSI) of their feelings about what they do during the day. Our psychology and emotional makeup dictate how we act and behave during the day. How do you plan to feel good? If "I feel good when I make money and I feel bad when I lose money" is the ethos, we need to rework this a little. All you can do is follow your backtested rules. If you have the discipline to do so, define "happy" as "I followed my rules today which was the best I could do, therefore my thoughts, feelings, and behavior are in alignment and that alignment will lead to superior performance over the next year." We can't predict when the profits will show up, so having a monthly goal of 5%, for example, might provide you with the goal of frustration because that is the result. [Intentions equal results.] Rely on "Best Practices" Best Practices in trading does not include day trading, intraday trading, or anything short term. Behavior predicts where we end up in life. What we do today provides us with the trajectory to where we want to go. We need to be mindful of the quantity and quality of the work we do. Go through your activity with a fine-tooth comb. How do each of the points add up to profitability? Or, what 2 or 3 items in combination add up to to a positive slope on your trajectory. What do you want trading to do for you in your life? What does it fulfill? What do you want your money to do for you? Making money is the end result of a big technical and emotional system. "Discipline Equals Freedom" - from the book Extreme Ownership We need to work hard, but also work smartly. If we focus on bad habits, we will be working hard, but not smartly. That's what day trading is to me: hard work for no money and a great expense of time. Notice where your behavior breaks down and diverges from what your Mission Statement delineates. If it's technical, take a class and read up. If it's emotional, take a yoga class, learn to meditate, or join a Trading Tribe. We are all students over the entire duration of our trading. The best traders are mindful of everything they do and don't do. Everything they want to feel and not want to feel. Keep in mind that the feelings that you don't want to feel have as much power over your behavior as the feelings that you actively seek out. Don't judge your feelings, seek the wisdom that they are trying to teach you. If the feeling of public Pride is the "heads" side of the coin, realize that "tails" is public, abject humility. Use this rule to help target the feelings you want in your emotional system.

We as humans love stories and our brains are great at putting pieces together and following logical sequences. That doesn't mean they are worthy of investment or for trading. "Stories" as they relate to investment themes are a bad for of entertainment. When you marry this logic with fear or greed, you can put yourself in a very unenvious situation very quickly by losing a great deal of money quickly or worse. Looking for a promise in a world of prevarication. Why would you need to be alerted to an idea from mass media instead of doing your own research? Who's accountable for the gains and losses? Own Your Own Process You must think along the lines of being your own person - that's how you have a principle-centric life. You are in control and own all your gains and losses. Picking ideas from the media isn't a trading process anymore than chart reading is. And following an on-air personality and trading alongside them is no different than betting that King Charles is going to hit his next shot or Houston Astros' Center Fielder and World Series MVP George Springer is going to hit another Home Run. Go look up the Hot Hand Fallacy. Ask any real trader and they'll agree with me: traders live in a paradigm of personal responsibility. In the end, you need to own your own process. If you don't have one, don't trade until you do. You cannot delegate the key aspects of a trading system to someone else nor make key decisions based upon someone else's philosophy. Here's what you're missing if you are sourcing your trade ideas from TV or from the charts you see published via the Twitterati: 1) entry price 2) exit price 3) position size & risk management 4) stage of trend (if there is a trend) ..."and the grandaddy of them all..." 5) correlation risk to what else is in your portfolio We can add another once we add you to the equation: 6) the best way to express the risk for your psychological makeup That means, do you rely on the the equity, options, or futures markets to effect the trade? Which is most suitable for you and your emotional constitution, years to retirement, and tolerance for risk. Develop your own fundamental ideas from your daily life. That is something you can witness by yourself. Then, marry up what you see for yourself with the direction of the trend. If there is no trend, you might be wrong or you might be early to the trade. If the trend has begun, that's not a bad thing - there might be much more left to it. Don't be turned off from this situation as most trend followers are "fast followers" and adapters than inventors, so to speak.

The business of trading is going to AI and more algorithms in the hands of new traders and retail investors. If you are trying to figure out what headlines are going to drive prices, you're a better person than me. I would rely on computers to do that Bill Dunn, a 100% purely systematic trader since the early 70s, has been incorporating all the data he can find and incorporates that into his model. Since 1974, he has taken only 1 discretionary "trade" and that was in advance of December 31, 1999 or the Y2K issue. The trade was to go flat and offset all his positions since he had no historical information to base his decisions on - including existing positions. This trade was taken to protect his clients' funds. Other than that, he has only traded system generated orders for over 40 years. If you are trying to raise capital, you'll have to have a good answer for prospective clients as to why you think you can shoot from the hip and make clients money as a discretionary chart reader In that regard, you are the share price and security. What information does the potential / allocator have based upon your behavior around security selection and trade management that will give them enough confidence in you to give you an allocation. You'll make more money by managing OPM - Other People's Money and taking an Incentive Fee. Ray Dalio feels that you should learn to code regardless of the industry that you're in else you'll be replaced by a computer. The computer can make the decisions faster, without emotion, and without error. Ray makes his decision in parallel with the computer and it provides "check and balances" between his thinking and what the calculations can show. He also won't leave out a key piece of data.

If you want to be a professional trader, losses and drawdowns are part of the business. You have to learn to live with them and be at peace at the same time. If you've backtested your rules as you should have, you can tell from the Monte Carlo simulated results where you are in your current drawdown with respect to where you are now. Backtesting can give you perspective on that is great detail. If your current results on "in model" - meaning the current results are within the parameters of what you have now - there's no reason to pull the fire alarm. You might be on to something and not know it because you quit too soon. If you take 10,000 coins and flip them 10 times each and keep only the ones that come up heads, and keep flipping them you'll have 9 left after those 10 iterations. What can you say about the quality of those coins? Moreover, what can you say about the 9,991 that came up tails at least once and were discarded? Nothing really - those are random results. Likewise, when you are trading, sometimes you'll just open an account and begin trading at the wrong time or a time of "bad luck" where the market is not conducive to your systematized rules. You're not a losing trader if your system is in a drawdown because you are following best practices. All you can do is follow your rules and put your trades on by entering your stops. There haven't been any backtests that I've seen on Bullish Flag patterns, for example, that tell you what the winning percentage is and what the expected values are by risk unit size. If you trust the person you've learned this from and you blow up on a pattern, that's on you. I get it, being a chartist is cheap and all you need is a web browser. That might be all you can do to get started trading, but keep in mind that this type of trading does NOT fall into "best practices" anymore when the lowest common denominator can do it. You nee to dig deeper to define your trading edge. Advice is like mushrooms, the wrong kind can kill you. Relying on chart patterns is becoming a thing of the past as the computers are becoming more and more powerful to compete about and interpreting chart patterns is subjective and subjective trading is not trading with a definable edge.

Why do I practice yoga? It's impactful on my life and therefore it affects my trading. I had no idea what impact it would have on me when I began my practice. If you haven't started, I would give it a try. One of my teachers Erich Schiffmann has called yoga a "moving meditation" - you lose yourself in the vinyasa flow and don't think about the choreography of the flow. Become mindful of your breath and you calm yourself, lower your blood pressure and level of stress. Surrender to the process and notice over time how you feel better the longer you practice yoga. I admit, I did not feel this way within the first 3 months of practicing yoga. But there came a point where I didn't want to go a day without it. The blissful hangover you have the day after a yoga class is worth the effort. When you feel better, I think you'll trade better. You won't have the knots in your lower back, the stress in your shoulders, or tight hamstrings that distract you during the trading day. You can also just meditate and forget the yoga altogether, but the benefits to you overall body with yoga are superior to that of just You can also tap into your subconscious also by going with the flow and seeing where you are holding stress in your body and all the feelings that you are holding on to that you don't know you are holding on to...you'll release all the energy that your body is blocking mentally and physically. You'll also develop a stronger sense of mental stamina because you'll condition yourself to quiet your mind - and that means focus. When you focus, you'll be able to harness all your mental power and put it on the task at hand. You'll also benefit by NOT spending energy on things that don't matter anymore. That's how your life will improve. You can watch yoga lessons on YouTube. You can also buy some DVDs to practice at home. IMHO, you'll benefit more if you are a beginner because your teacher will help you make the adjustments so that your postures are picture perfect. Like for baseball pitchers, you want to have great yoga mechanics so that you don't inadvertently hurt yourself by trying to go to deep into a pose. My good friend 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