First, a couple of caveats to keep in mind while reading this post: if you’re a Hold & Hoper and/or someone who just hasn’t figured out how to lose yet, please start with these:
Watch this webinar: HOLD & HOPE
Read this blog: First, learn how to lose...
I say this because what I’m talking about today could get you into even more trouble if you don’t understand your first job as a Day Trader. Just to be clear, you’re A #1 priority at all times with every single trade MUST be to manage your risk. If you can’t manage your risk properly on every trade, what I’m about to go into will NOT help you. It will make things worse – I’m talking from MY experience. Please consider yourself warned!
One more assumption here: You’re not playing darts. You’re only trading your book of A+ Set-Ups and you’re able to follow your rules.
Caveats out of the way, let’s dig in:
I get asked questions like these all the time: Wayne, what took you to the next level of trading? What really got you to where you are today? What finally happened to turn you consistently profitable? What was your AHA! moment? Or even comments like this: I feel like I’m so close but I keep making a few stupid mistakes. How do I get over this hump?
My first answer is always the same and I already alluded to it – I learned how to lose! I know we’ve beat that to death but deservedly so. As silly as “learn how to lose” continues to sound, it’s truly what made the most difference in my P&L and gave me the confidence to push forward.
Second, and we’ve already talked about this one too, I always ignore my last trade. Basically, I’ve finally got to the point where I don’t psyche myself out over a loss, nor do I get over confident due to a nice win. I trust my set-ups. I trust my rules. Ultimately, I finally learned to trust myself as well.
Setting those aside, here are what I consider the TOP FIVE (5) things that took my trading to the next level:
I take EVERY trade that meets all my parameters.
The most profitable trades are usually the hardest ones to enter and make me feel a little uncomfortable.
I trade MORE when I’m doing well not less.
I trade with SIZE on my best A+ Set-Ups.
Whenever I have a rough day and/or trade poorly, I can usually trace my results back to NOT following one of these five (5).
Let’s briefly discuss each of these:
Taking every trade: Don’t get me wrong, I miss trades every day. We all do. I’ll only manage 2 trades at a time (maybe a third trade if I’m just riding it up and I’m already in entry protection mode and the stock isn’t acting stupid). What I’m saying is if a trade sets-up and meets all my parameters, I push the buy button. I don’t hesitate. I don’t over think it. I don’t worry about what happened with my last trade. I act instinctively and get into the trade. Remember, the trades that cost you the most (both in $$$ and in experience) are the trades you see but never take.
Stomach feels queasy: The most profitable trade may be the most uncomfortable to take. Understand I’m not a gambler at all. I’m very risk averse. I’ve come to realize that the trades that freak me out a little and make me a little sick to my stomach as I’m determining whether the set-up is valid are the ones that usually pay off the most. HTGM the last couple of weeks anyone? CYCC? CLNT? In a sense, you must risk a little more to make a little more. The ones with the spreads, the ones bouncing all over, the ones moving quickly – those are the ones that typically pay off. Understand, these trades IF/WHEN they go wrong can also cost me the most. But again, I’m always about DEFENSE and why I listed the caveats at the beginning of this article.
Please understand I’m not talking about trading scared. If you’re ever scared to take a trade you just shouldn’t take it. Then find out WHY you were scared? Did you not understand the set-up? Was your share size, therefore your risk, just too big?
What I’m referring to here is stepping outside your comfort zone. We say all the time that you must find a process that works for you. What many miss in these conversations (or don’t want to hear) is often finding your process requires you step outside your box. Do something that is NOT part of your personality. Most people don’t realize that their personality can work AGAINST them instead of FOR them. Too often, traders stick with what feels comfortable and that’s exactly the wrong thing to do, especially if you’re spinning your wheels and are not consistently profitable. As I write this I’m realizing the need for an entire post devoted to this topic. Note to self and stay tuned…
TRADE: As I alluded to in my last blog, when I’m on I’m on and I’m not going to stop until something tells me to stop. When the market is giving me set-ups, I try to take advantage of every one of them. Tomorrow the market may not put any of my set-ups in front of me. When that happens, I don’t trade. I sit. I wait. Forcing trades out of boredom used to cost me and cost me bigly. You shouldn’t talk yourself into a trade simply because you want to trade. Well, this isn’t really checking all my boxes but it might work. If you find yourself talking to yourself like this, probably best not to take the trade!
Trade with the right size: One of the MANY obstacles I had to overcome trading was finding the right share size for each of my set-ups. Since I’m risk averse, I never really wanted to risk too much on any single trade. For far too long I traded 300-1000 shares. I made OK $$$. But part of what helped me get to the next level was sizing up a bit, especially on my top A+ Set-Ups. When I first added size, I lost $$$. That’s just how your emotions and the market work. But I stuck with it and soon I got more comfortable with the larger positions and I realized something. It was easier and more profitable for me to trade certain set-ups with larger size. It allowed me to quickly sell some on the first move in my favor and then immediately go to a break even stop on the rest. Again, I had to step outside my comfort zone on this.
Consistency: This is the one that I think can help traders the most. Getting to the point with your trading where things become automatic. Routine. Boring even. Example: Every time I see a Gap Play that sets up and checks all my boxes, I’m entering that trade with the same number of shares. Then I’m going to trade it the same way every time; sell some, protect my entry on the rest and look to the left on higher time frames to determine where I’m selling next, if it continues to move in my favor.
Many traders struggle with the consistency piece: They take 1000 shares on XYZ but then 5 minutes later ABC sets up and they’ll take 5000 shares. Or they won’t even take that second trade. If they did take it, maybe they don’t sell any of XYZ on the first pop and it slams back down and they allow it to fully stop out. Next time they swear they will sell some! Will they? You can’t have your cake and eat it too. You must have the same process on every trade within a given set-up. Follow your rules "to a T”. Your rules should have some flexibility (like watching level2 and giving a stock some breathing room if you think your entry might hold). That is much different than winging it and/or saying $WTF and just throwing darts at everything you see.
One last thing about consistency. If you’re not tracking your trades, there’s no way for you to tell if you're consistent or not. You may think you’re trading a set-up consistently but how do you know you’re just not being lucky? Never confuse luck with a long-term viable consistently profitable trade strategy!
Questions? Comments? Reach out and/or leave a comment below.
Thanks for reading!