Trader Mindset

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.

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Tony Saliba's Options Playbook

Inner Voice of Trading Audiobook

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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

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

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

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.