Trader Mindset

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Amateurs and the uninitiated come to the market with dollar signs in their eyes and quickly find out that they lose more than then win. In my experience they are initially drawn to the markets for the excitement and the promise of making money. They think in terms of dollar signs, looking at the big dollar swings in names like TSAL, AMZN, and AAPL.  

Professionals first try to uncover as many blind spots as they can and learn over time that survival in trading comes down to playing superior defense. They think in terms of percentages and are promiscuous in what they trade. If they can't express their edge, there is no trade.

Protecting your capital is your primary concern. If you have big loss, you'll be angry, bitter, despondent, and about a million other things that aren't part of a professional traders emotional vocabulary. Two, if you lose big, you won't have any capital to trade in the ensuing days, weeks, or months and this is a game of longevity. This will lead to your shutting down emotionally.

If you lose your confidence, become a philanthropist - at least your can direct where the money goes. It's a marathon.

Know what you're going to trade the day before and don't sit in front of the computer screen all day. Put your stops in and go away.

You can't steer the market.

Whatever you're trading is going to go where it's going whether you're watching it or not.

When you turn off the screen you have peace and free up enormous amounts of mental energy that you can use in other rewarding areas of your life.

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Stop orders put you in the right place at the right time with the appropriate amount of risk. 

Put your Buy Stops in above the market and let the market come to you. 

This will help you stop chasing markets that might eventually stall.  

And if you don't get filled, come back tomorrow. 

You get to tell the market what terms are acceptable. 

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By placing your buy stops above the market, above key inflection points, you put yourself in a place to anticipate the bigger moves.

You are also letting the market come to you as opposed to chasing a trade that you feel regrets about because you feel you missed it.

[Chasing trades will kill you if not now, eventually.]

If you don't get filled, perfect. It wasn't worth being in. Probably random daily noise.

Come back and ENTER THE SAME ORDER tomorrow. 

You've just created a filter by being patient and waiting for the momentum to hit and trade through your buy stop. 

How do you feel now? 

Do this enough and you'll be on your way to calibrating your emotional intelligence with your trading tactics. 

If you can't learn this "feeling tone" of trading, I promise you that you will NEVER catch the moves that Michael Marcus and Ed Seykota do and did. 

This is the single most important thing I can teach you. It's not about chart patterns. 

Click here to get your free copy of The Inner Voice of Trading audiobook and learn about how I feel when I'm trading my best. 

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A good system will do all the figuring out for you so you don't have to spend your days going through charts.

Of course, that might not be as much "fun" for you from an economic utility standpoint.

You may very well like the challenge of figuring out a chart, for example. 

I myself do not. 

I'd rather have the computer look back and tell me where the optimal entry is for the risk I'm willing to take. 

Then I can lock those parameters in and run thousands of iterations on them to see if they create a positive expected value. 

Again, it might not be as much fun, but it takes the subjectivity out of it and gives me hard numbers to work with.

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There's a great quote I remember reading in The Art of War on Preparedness:

"The victorious warrior first wins, then seeks battle." 

I think that sums up where you want to be Sunday night or early Monday morning - getting ready and being prepared.

I'm a "night before" type of person in terms of my preparation. 

I feel that by the following morning it's too late for my style and where I'm at and lack of preparedness puts me at a disadvantage. 

For me, preparing the "day of" puts me in an emotional state of "I'm doing this last-minute" and that's not a feeling I want in my body. 

It might be different for you, especially if you trading short term time frames or are trying to daytrade. 

The night before might be too early. 

Either way, being prepared to win is about Intention, and "Intentions equal results."

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No matter how much you're learning and evolving your skills, the market is not always going to be amenable to your trading style or asset class. 

That's not a reflection on you - you can't take it personally. 

I'm certain that you will grow in leaps and bounds and then stall. It happened to me - it happens to everyone. 

Your trading will have streaks - up and down - that's part of it. 

You can better manage your drawdown by trading smaller during those losing streaks so they have less of an impact on your equity. 

This will help you enjoy the ride a bit more. 

System traders have this type of "haircut" built in to their rules. 

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I used to think success in anything about came down to one's persistence and determination. 

But over the years I have come to understand that those are hard to maintain if a person doesn't have a good attitude. 

Here's what I do to keep my focus on having a good attitude. 

It's not always easy, but I try to keep my consciousness on my attitude and go from there.

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I advocate that you should consider building a trading system as part of your trading evolution. 

You can build your sense of discipline over time and your trading system can help with that process.

You'll need the simulator and the data feed if you go that way.

A good simulator will run you $2-4k and the data can be a few hundred per month, depending on how many markets you want to backtest.

We teach people how to do it by hand so you can eventually determine how you want to invest your time. 

You can connect with me here to learn more about how we do that. 

I didn't have a choice but to do it by hand as there weren't any simulators around at the time. 

I used Lotus 123 to build my models and run the macros. 

A trading system will generate all your entry and exit orders, as well as your position sizing. 

Yet you'll still have to put the trades on. That's where the discipline comes in. 

If you're in fear about what's going on in the world, you may have significant reluctance to enter that order.

We talked about the variance between you and your rules in an episode last week. 

In the end, I recommend you build a system. You'll learn a lot about yourself and you can grow into your rules. 

You can email me if you have any questions and I'll point you in the right direction.

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My advice is to systematize as much of your trading as possible. 

For one, there is less chance for computational errors.

Two, systems will help you eliminate and disqualify names from your list.

A good system is a complete risk management tool that includes entries, exits, and risk management. 

I regularly see and hear about traders trying to find opportunity on a chart when there's nothing there. 

I know traders who read charts. I know a lot who run systems. I know a lot who read and incorporate fundamentals too. 

The goal is to find what's best for you. I would start with one and evolve from there. 

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When you let your system do the work, you are in effect putting yourself in the right place at the right time.

The moment that happens, the expectation is that the other market participants will have to pay you to be in the trade that you're already in.

They put the wind in your sails so to speak. 

When you behave this way, you're thinking about the expected value of a trade.

You don't need to sit at your machine and try to steer the trade in a hypervigilant way. 

You can have both peace and profits at the same time if you want. 

It's there for you. 

You just have to decide how you want your day to unfold. 

Click here to get your free copy of The Inner Voice of Trading audiobook.