All that stuff you learned from the technical book(s) you read.
All that stuff you learned from that one guy’s webinar.
All that stuff you learned when you used to be a swing trader.
Multiple monitors with countless stocks, charts, indicators and other things constantly flashing.
Economic numbers and indicators...
I suffered from this for far too long and I no idea how much it was affecting me in a negative way. Information, ideas, triggers, alerts, etc. all coming at us from a hundred different places. How much can your mind process? How many charts can you keep an eye on without being overwhelmed and miss your triggers?
When I first started trading I had the mentality that I had to master everything. Read everything. Watch everything. Study everything. Try everything. I could list hundreds of things I studied and used. I thought everything listed above (and then some) was essential for me to become a consistently profitable trader.
What I quickly came to realize was much of what I was watching, reading, studying, learning and listening to wasn’t making me any $ at all. In fact, it kind of felt like some of it was costing me $$$. I was certainly overwhelmed and suffering from information overload. Not to mention I wasn’t making money.
Here are five things I used to do that I thought were essential in order for me to make money as a Day Trader:
1: I thought watching CNBC from 6am-7pm was essential and worth it. I had to be “in the know” right? I always had it on in the background. Besides, I sounded really smart knowing all the business news. Wife: Did you make any money today? Me: No, but let me tell you everything that happened in the world of finance today! I SOUNDED like I knew exactly what I was doing!
2: I had about a dozen indicators on my charts. I kept constantly changing those indicators as I was in desperate search for the magic one. At one point, I almost left E*Trade because their pivot points sucked and didn’t automatically populate properly on my charts. I mean COME ON, how could I possibly day trade without pivot points?!? And don’t get me started on Fibs and VWAP! I almost left E*Trade over VWAP too…
3: I NEVER traded in the first 15 minutes. I read multiple books and heard countless times that this was the most dangerous time to trade. Trading during this time frame was just gambling everyone used to tell me. A coin flip. No edge. Just wait until things calm down, then start trading.
4: I used to run about a dozen scans after the market opened. I was constantly working on my scans because I thought they were part of the magic answer. Between my scans and my high low ticker, I was getting a new stock to look at about every 20 seconds. Look at how much I was finding!
5: Economic Indicators: This is my favorite example, after all I do have an Econ degree. Job #s (Nonfarm payrolls, nonfarm private payrolls, unemployment rate, average hourly earnings, average workweek), challenger job cuts, initial claims, continuing claims, ADP employment change, productivity, unit labor costs, treasury budget, export/import prices, natural gas inventories, crude inventories, wholesale inventories, MBA mortgage index, consumer credit, trade balance, factory orders, leading indicators, etc. I used to follow and track these so I’d be in the know and understand the economy. My thinking was they were some sort of predictor for the market’s direction and going to help me trade $VXX on any given day. And again, I really SOUNDED like I knew what I was doing!
Those are my favorite five examples of things that I thought were essential to my trading. They weren’t essential at all though. In fact, they were in my way. I was trying to focus on too much and was truly focused on nothing. I was completely missing what really mattered to me as a Day Trader. So, let’s see how those five essentials are working for me today:
1: I don’t even have a TV in my office. CNBC is muted as I stream it through E*Trade. I will turn on the volume IF they happen to cover something I’m interested in. Tepper’s interview this past week was the first thing I listened to in weeks. Keep in mind, any "breaking news" that CNBC starts talking about has already hit twitter, chat and/or my news feed at least 10 minutes prior. TV is so 2005. CNBC is just noise.
2: Chart indicators – price, volume and a couple moving averages depending on the timeframe. That’s it. No pivot points. No fibs. No bands. Controversial for some, but no VWAP either. It’s just another line on the chart getting in the way of what’s most important to me: PRICE and VOLUME. All that time I used to spend keeping an eye those indicators? I spend it watching the LIVE action in Level2 and Time & Sales. Everything else is just lagging noise.
3: My A+ Set-Ups that makes me the most amount of money usually trigger in the first 15 minutes of trading. Who knew!?! All that advice I read about not trading the open? All those people telling me any set-up around the open was less accurate than a coin flip? Just noise.
4: I run just 2 scans after 9:30am along with the high low ticker. Running those along with my newsfeed and chat, that’s what works for me. I rarely feel like I miss anything. The other 10+ scans I used to run and spent so much time tweaking? Deleted from my platform as they were just noise.
5. Economic numbers: It’s a coin flip how the market will react to any of these numbers when they are reported. As far as the market is concerned bad news can be bad or sometimes it’s good. Who knows? I don’t, but the chart will tell me soon enough. Note, I am aware of when these numbers come out so I can protect myself and not be in a trade when some indicator is being released. Example: I’m not going to be trading anything related to oil on Wednesday when the crude inventory comes out. In short, these number are important to understand the underlying strength and/or weakness in our economy. I still like to know all this. However, for me as a Day Trader, they’re just more noise.
Now ask yourself this: What noise do you need to tune out? What bad habits did you learn that you need to undo? Have Bollinger Bands on your charts? When’s the last time they made you money? How about VWAP? Is it making you money? How about all those scans you’re using and trying to keep an eye on? Are they adding to your P&L or just another distraction? What about all those traders you’re following on social media? Are they helping you while the market is open? Or are they taking your attention away from what you should be watching?
In short, what are you not using that you should be using? And what are you using that you should NOT be using?
I think it’s important for both newer and seasoned traders to go through the exercise of answering these questions. If you’re well on your way to consistent profits, great job and keeping building! Focus more on the second question and see if there’s something you could be adding to your arsenal. If you’re not profitable, stop what you’re doing and take inventory. Dig in and figure out what’s helping and what’s not.
We go through this exercise frequently with traders who have taken our class. We never try to convince anyone NOT to use something. We just make sure they fully understand what they are using and how they are using it. If a trader is using something that works for them, they should absolutely continue to use it. That’s exactly what finding YOUR process is all about.
One last thing I highly recommend you tune out: What everyone else is doing. Focus too much on other traders and you’ll never develop your process. Don’t get me wrong, you should learn from others who have figured this out. I did and continue to do so. Find parts of their process that may work for you too. But going back in hindsight and looking at someone else’s trades will only help you so much. You have no idea what it looked like LIVE when it was setting up. Or what would your emotions have been taking that trade on a 15s trigger an hour ago with $.67 worth of risk NOT even knowing there was a huge seller $.04 above your entry? And if you’re scouring twitter and/or stocktwits looking for the next great trade idea and/or the magic formula, I respectfully suggest that you’re doing it wrong. That's just more noise.
Focus on you and finding your process. Tune out the noise and stop drinking from the firehose. There's only so much info you can handle at once.
In my next blog, I’m going to take this a step further and discuss digging in a little deeper to find your process and what works for you.
Thanks for reading! Questions? Comments? REACH OUT and/or leave a comment below! I love to see some of you put examples of “your noise” in the comments. You’d be helping some of your fellow traders.