Trader Mindset

Make sure you allocate funds to your marketing budget first. Don't skimp on the quality of your handouts. I'd create a nice 4-pager that folds over, in color, and have a bio about yourself, a summary of your trading style, and how what you do fits in with other managers. Unless you have 12 months of return data, I'd keep the performance in the Disclosure Document. Else, you'll be needing to update the color handout and color printing can get expensive quickly. You can write up the summary, get the headshot, and then have someone at upwork.com design and put together the 4-pager for you for a few hundred dollars. 

Get a high quality head shot with a professional photographer. Do not, under any circumstances, use a cropped photo from a wedding or formal in which you were wearing a tuxedo. You can get a pro photographer to take a few dozen shots of your for a few hundred dollars. This is money well-spent.  

You don't need to have all the social media channels on your firm's website. If you goal is to make professional connections, I'd use LinkedIn and leave it at that. That's the platform where people expect to get solicited and make business connections. 

If you have Facebook, Twitter, Stocktwits, Snapchat, Instagram, and Google+, you'll need fresh content for all of those channels at least weekly. It looks bad if you sign up for Instagram, post one thing, and then abandon the channel. 

I would be very judicious in posting personal things. That includes pictures of you and your frat brothers, political opinions, or thoughts about President Trump or Secretary Clinton, for example. Unless you don't care about polarizing your audience, do what you think is best, but I'd avoid such themes in my sharing.

You might offend a potential client and in the beginning, you can't afford to turn people off when you're trying to turn them onto what you can do for them. 

Add this all up and you have the start of a professional appearance. You'll find though, that you still have to do outbound marketing in order to raise money. Setting up a website and a few social media channels is a good way to engage people, but you still have to ask for the money. 

You need sales training to raise money. If you're afraid of rejection, you have to hire someone to do this for you. Money will not walk in the front door because you are licensed, have an office, or even a decent track record.

You need to ask for the business, ie, ask for the money. Clients will not decide unless you ask them.

In the beginning, you might not be able to hire anyone because of lack of revenue. That means, you'll have to learn to raise assets yourself.

You can rehearse and practice your "pitch" by recording it into your smartphone. Then listen back to it and hear your own voice. Are you exhibiting confidence? Where does your voice change, crack, get louder, emphasize certain points of a sentence? This is revealing information because as you know, any type of verbal communication is a combination of what you say and how you're saying it.

What do you sound like to yourself? That's exactly how you will sound to potential clients.

Record yourself reading your disclosure document. Record yourself explaining your trading process and risk management. Then record yourself pitching a friend or colleague and have them ask you questions about what you're saying. See if they can poke holes in your presentation. By doing this, and getting a little uncomfortable now, you'll be much better presenting when it counts.

I promise you there are guys running money who can't spell "disclosure document" but they are good salesmen. If you think that isn't fair, you might be right, but at least you know now that you have to find a way to sell and raise assets.

You need sales training to raise money. If you're afraid of rejection, you have to hire someone to do this for you. Money will not walk in the front door because you are licensed, have an office, or even a decent track record. 

You need to ask for the business, ie, ask for the money. Clients will not decide unless you ask them. 

In the beginning, you might not be able to hire anyone because of lack of revenue. That means, you'll have to learn to raise assets yourself. 

You can rehearse and practice your "pitch" by recording it into your smartphone. Then listen back to it and hear your own voice. Are you exhibiting confidence? Where does your voice change, crack, get louder, emphasize certain points of a sentence? This is revealing information because as you know, any type of verbal communication is a combination of what you say and how you're saying it. 

What do you sound like to yourself? That's exactly how you will sound to potential clients. 

Record yourself reading your disclosure document. Record yourself explaining your trading process and risk management. Then record yourself pitching a friend or colleague and have them ask you questions about what you're saying. See if they can poke holes in your presentation. By doing this, and getting a little uncomfortable now, you'll be much better presenting when it counts. 

I promise you there are guys running money who can't spell "disclosure document" but they are good salesmen. If you think that isn't fair, you might be right, but at least you know now that you have to find a way to sell and raise assets. 

What do you do when you have all your capital committed, but you get a NEW trade signal before you get stopped for a loss or take a winner to free up some buyer power?

This can happen when you have a smaller account. It can also happen if you have a larger account, but have a maximum amount of the account that you commit to margin.

If you have a smaller account, my recommendation is to sell the biggest loser to free up the cash / buying power. This is done before your protective sell stop is hit.

In my experience, trades that have made me money did so from the 'get go' so that's why I puke out the biggest loser at that time. I believe that you'll be better served by taking the new trade that has momentum behind it.

If you have a larger account with a "target margin percentage" based upon the total assets under management, you can set a circuit breaker to make a rule around this occurrence.

For example, you might have a rule that allows you to commit as much as 15% of your capital to margin in your futures trading account. That means $150,000 for every $1,000,000 under management.

Do you allow it to go to $200,000 intraday? Do you offset the biggest losers or oldest positions that do not have unrealized gains in order to free up the margin?

Look at your backtest and see how many of those losing trades came back to be winners. In my experience, only a small percentage will (at least based upon how I trade).

Many of these new trade signals will be for additional risk units to existing winning trades in your portfolio if you have this as part of your system, that's why this rule is important.

It's not uncommon for me to have initiated 4-5 trades (in different names), only to have 1-2 knocked out for losses, 1-2 be flat, and 1-2 show modest gains. Once in a while, one position will run like the wind. [Sometimes, I get knocked out for losses across the board - fun times...]

If I get a signal to add to the winner, the margin has to come from somewhere if I have not gotten stopped or taken a gain from a system generated order.

What do you do when you have all your capital committed, but you get a NEW trade signal before you get stopped for a loss or take a winner to free up some buyer power?

This can happen when you have a smaller account. It can also happen if you have a larger account, but have a maximum amount of the account that you commit to margin. 

If you have a smaller account, my recommendation is to sell the biggest loser to free up the cash / buying power. This is done before your protective sell stop is hit.

In my experience, trades that have made me money did so from the 'get go' so that's why I puke out the biggest loser at that time. I believe that you'll be better served by taking the new trade that has momentum behind it. 

If you have a larger account with a "target margin percentage" based upon the total assets under management, you can set a circuit breaker to make a rule around this occurrence.

For example, you might have a rule that allows you to commit as much as 15% of your capital to margin in your futures trading account. That means $150,000 for every $1,000,000 under management. 

Do you allow it to go to $200,000 intraday? Do you offset the biggest losers or oldest positions that do not have unrealized gains in order to free up the margin?

Look at your backtest and see how many of those losing trades came back to be winners. In my experience, only a small percentage will (at least based upon how I trade). 

Many of these new trade signals will be for additional risk units to existing winning trades in your portfolio if you have this as part of your system, that's why this rule is important. 

It's not uncommon for me to have initiated 4-5 trades (in different names), only to have 1-2 knocked out for losses, 1-2 be flat, and 1-2 show modest gains. Once in a while, one position will run like the wind. [Sometimes, I get knocked out for losses across the board - fun times...]

If I get a signal to add to the winner, the margin has to come from somewhere if I have not gotten stopped or taken a gain from a system generated order. 

When you trade with a system, you'll find that a few times a year the markets just stall right when you have a few positions on. Once this happens, it's important to remember that you have to play superior defense and protect your capital.

Professional traders sometimes use what are referred to as "time stops" to offset risk. Here's how to do it...

If after you get long, for example, and the market stalls and there is no real movement in your position up or down over the next 2-3 days, offset the trade and go to cash.

That might mean a range of $0.20 up or down from your entry or 1/4 point if you trade commodities. You can define what you feel your definition of the market being "flat" is.

The best trades make you money right away. From looking at my own backtests, I found that upwards of 70% of these trades that "stalled" eventually lost money. I pre-empted that from happening by offsetting them before they could get stopped for the max loss that I was willing to take on the trade.

So, I wasn't technically making money, but I was "losing less." Either way, I had more equity in my account that had I not utilized this strategy.

When you trade with a system, you'll find that a few times a year the markets just stall right when you have a few positions on. Once this happens, it's important to remember that you have to play superior defense and protect your capital. 

Professional traders sometimes use what are referred to as "time stops" to offset risk. Here's how to do it...

If after you get long, for example, and the market stalls and there is no real movement in your position up or down over the next 2-3 days, offset the trade and go to cash. 

That might mean a range of $0.20 up or down from your entry or 1/4 point if you trade commodities. You can define what you feel your definition of the market being "flat" is.

The best trades make you money right away. From looking at my own backtests, I found that upwards of 70% of these trades that "stalled" eventually lost money. I pre-empted that from happening by offsetting them before they could get stopped for the max loss that I was willing to take on the trade. 

So, I wasn't technically making money, but I was "losing less." Either way, I had more equity in my account that had I not utilized this strategy.

Backtesting is valuable for system design, as well as getting emotionally prepared for what's possible.

It shows you what your gains and losses would have been had you followed your rules over the previous time period that you're testing.

There are more things to measure besides gains, losses, and drawdowns.

For all the trades that you make, you'll have commissions and fees that you can calculate given what of your trades get filled. There is no cost for entering stop orders.

If your backtest generated $60k for last year, but you didn't consider the effect of commissions and fees, you might be surprised to find that you also generated $40k in commissions. Therefore, your net trading profits are $20k - a big difference than $60k.

Worse, you don't typically get filled at the price you entered in your order. Stop orders become market orders once elected. That means "you get in line" for the next fill based upon "Priority, precedence, and parity."

The difference in the price that you entered in your order and the fill price is called "slippage" or "skid" and it comes as a cost to trading. You can add a number to your simulator to represent the slippage in your trading simulations that will represent the impact it will have on your trading and your P&L. This will give you a truer sense of what you're endeavoring to do as a trader.

Therefore, I'm concluding that when you overtrade, you're getting the worst of it: you're losing money, paying higher commissions, and losing money from slippage.

When try to overtrade your way out of a drawdown because you feel more frequent trading means more opportunity to win, you make a bad situation worse.

Backtesting is valuable for system design, as well as getting emotionally prepared for what's possible.

It shows you what your gains and losses would have been had you followed your rules over the previous time period that you're testing. 

There are more things to measure besides gains, losses, and drawdowns. 

For all the trades that you make, you'll have commissions and fees that you can calculate given what of your trades get filled. There is no cost for entering stop orders. 

If your backtest generated $60k for last year, but you didn't consider the effect of commissions and fees, you might be surprised to find that you also generated $40k in commissions. Therefore, your net trading profits are $20k - a big difference than $60k. 

Worse, you don't typically get filled at the price you entered in your order. Stop orders become market orders once elected. That means "you get in line" for the next fill based upon "Priority, precedence, and parity."

The difference in the price that you entered in your order and the fill price is called "slippage" or "skid" and it comes as a cost to trading. You can add a number to your simulator to represent the slippage in your trading simulations that will represent the impact it will have on your trading and your P&L. This will give you a truer sense of what you're endeavoring to do as a trader. 

Therefore, I'm concluding that when you overtrade, you're getting the worst of it: you're losing money, paying higher commissions, and losing money from slippage. 

When try to overtrade your way out of a drawdown because you feel more frequent trading means more opportunity to win, you make a bad situation worse. 

The duration of your drawdown is "how long" it takes you to get back to the previous high. It's one thing to be down 10%, but how long will it take you to recover?

If your losses are "in model" there's no reason to panic. You can get this information from backtesting your rules in a simulator. If you are trying to read charts, you're out of luck because your activity is based upon guesswork.

While you're enduring a drawdown, your instincts might lead you to begin trading more frequently.

Greater frequency of trades doest not equal greater opportunity. Most trades are suboptimal so I think you'll do better in any case by trading less.

Your instincts might also lead you to "investigate" a new trading methodology to "overlay" on your existing rules, such as option selling because it brings in "revenue." You can lose your a** selling options.

Behave consistently as you would when you're up 20%. All you do is follow your rules. Take it one day at a time.

Meditate on how you feel when you have to be patient. You might feel anxious, depressed, angry, and frustrated to name a few. I don't believe your can overtrade your way out of a drawdown.

You may also consider trading a larger position on something that you are "sure of" because "...if it only goes up 10%, I'll be back to even."

"To every thing there is a season, and a time to every purpose under the heaven" - King James Bible

Your trading rules might be "out of season" with the market. If you're a commodity trader, you know those markets are cyclical - so no surprise there. If you're an equity trader, sectors rotate so your winners will ebb and flow in secular markets.

You will go much further as a trader if you understand that losing money and drawdowns are not a reflection of your ability to create alpha as a trader. But how you handle losses and drawdowns emotionally and behaviorally will provide you and others insight on your managing larger sums of money. Investors and allocators need to know you can be trusted.