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

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.

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

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.

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.