Trader Mindset

Discretionary chart reading is problematic as you can't backtest it and calculate the expected value of a trade.

Only trade set ups (the combination of entries, exits, and position sizes) that have positive mathematical expectation.

Get a simulator and backtest your trading ideas to find the expected value.

The software I spoke about in an earlier episode will do the calculations for you.

Expected Value Formula

E = (Ave Win)(% Win)-(Ave Loss)(% Lose)

Roulette

2 Kings

The Average True Range (ATR) is a measurement that professional traders use to adjust their position sizes to normalize risk across all instruments.

Normalizing risk allows you to look at Gold the same way you look at Sugar or AMZN for that matter - they are all the same percentage risk to your portfolio.

Don't make the mistake of trading with "tiers" as no one optimizes their trading for the number of shares. You are trading like an amateur if you are trading a security risking $2 if the daily volatility is $6.

Downtiming to intraday time frames is a foolish endeavor and even in doing so, you can't change the fact that the daily vol at $6 is too big for what you're trying to do at $2.

Average True Range ATR

Gorilla Glue #4

Jack Herer

The Average True Range (ATR) is a measurement that professional traders use to adjust their position sizes to normalize risk across all instruments.

Normalizing risk allows you to look at Gold the same way you look at Sugar or AMZN for that matter - they are all the same percentage risk to your portfolio.

Don't make the mistake of trading with "tiers" as no one optimizes their trading for the number of shares. You are trading like an amateur if you are trading a security risking $2 if the daily volatility is $6.

Downtiming to intraday time frames is a foolish endeavor and even in doing so, you can't change the fact that the daily vol at $6 is too big for what you're trying to do at $2. 

Average True Range ATR

Gorilla Glue #4

Jack Herer

Don't write covered calls.

Don't come up with a strategy on the fly. You need to know the math before you put the trades on.

Backtesting does NOT predict the future, but it gives you an idea how the idea(s) would have worked out over the last 20 years. What is past is prologue, but at the same time history rarely repeats itself the same way.

I encourage you to backtest b/c you can use the hypothetical results in your marketing and discuss how bad the "bad" would have been in the past.

Most investors or backers want to know the worst case scenario. Backtesting can give you an idea of the magnitude and duration of the drawdown, the worst loss, the expected value of a trade, and the best run of winners.

Knowing these numbers can help you build confidence in your ability and also give you great insight on your emotional intelligence regarding trading performance - gains and losses.

Get Tony Saliba's book for Free.

Go to MartinKronicle.com and look in the top right corner for the details.

Access to his options trading simulator is here: choose "options." It's for students only.

Don't write covered calls.

Don't come up with a strategy on the fly. You need to know the math before you put the trades on.

Backtesting does NOT predict the future, but it gives you an idea how the idea(s) would have worked out over the last 20 years. What is past is prologue, but at the same time history rarely repeats itself the same way.

I encourage you to backtest b/c you can use the hypothetical results in your marketing and discuss how bad the "bad" would have been in the past.

Most investors or backers want to know the worst case scenario. Backtesting can give you an idea of the magnitude and duration of the drawdown, the worst loss, the expected value of a trade, and the best run of winners.

Knowing these numbers can help you build confidence in your ability and also give you great insight on your emotional intelligence regarding trading performance - gains and losses.

Get Tony Saliba's book for Free.

Go to MartinKronicle.com and look in the top right corner for the details.

Access to his options trading simulator is here: choose "options." It's for students only.

I don't trust stocks.

Commodities are so much more reliable.

David Stendahl - Signal Trading Group

Moore Research

I don't trust stocks.

Commodities are so much more reliable.

David Stendahl - Signal Trading Group

Moore Research

You have to backtest at the portfolio level - not one security at a time. Simple models are best.

If you are testing on Trade Station, you can only test one idea and one security at a time. That might lead you to try 45 indicators or studies onto the name - that's your ego talking and you'll not likely have the same scenario show up the same way they more overlays you have.

Again, simple is best.

Test one simple idea across hundred of securities. Why would you spend weeks trying to find a model to trade only the ES or TSLA? That's myopic...

Tradingblox Mechanics (the follow up to Trading Recipes) I used CSI Data as the data source.

Seasonality in commodities is VERY reliable and it applies to both outright directional trades and spreads.

MNNAX was the ticker for Munder Net Net Fund. I said MMNAX which was not the ticker.

You have to backtest at the portfolio level - not one security at a time. Simple models are best.

If you are testing on Trade Station, you can only test one idea and one security at a time. That might lead you to try 45 indicators or studies onto the name - that's your ego talking and you'll not likely have the same scenario show up the same way they more overlays you have.

Again, simple is best.

Test one simple idea across hundred of securities. Why would you spend weeks trying to find a model to trade only the ES or TSLA? That's myopic...

Tradingblox Mechanics (the follow up to Trading Recipes) I used CSI Data as the data source.

Seasonality in commodities is VERY reliable and it applies to both outright directional trades and spreads.

MNNAX was the ticker for Munder Net Net Fund. I said MMNAX which was not the ticker.

Entries don't mean anything unless you know your exit and position size. Entries are just prices. Entries, exits, and a position sizing algorithm are the 3 crown jewels to a basic trading system.

Don't look at intraday charts - they are worthless and contain the most random data compared to Daily, Weekly, or Monthly charts - in that order. Trading is a game of failure - like baseball.

You simulate your trading rules to a) see if they would have been profitable; and b) give you an idea if you have strong feelings about the frequency of losses and the drawdown.

Trading is systematized attrition of your capital until a winner hits. Risking 1-2% per trade is insane. Start with 0.10% or 1/10th of 1%. Break your capital up into 1,000 units. Don't trade size in your initial entries. Wait for the market to show you which way it's going to go before you add more.

Forget price targets. That's ego talking so that you can be "reasonable" with yourself around greed and fear. How do you know that what is a 3-bagger can't become a 10-bagger?

Learn from Scott Kaminski, Victor Sperandeo, Peter Borish, Tony Saliba, or Michael Martin.