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trad 2 11 The Most Important Thing About Trading...

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This lesson discusses a few of the choices you could make if you are still Long the DIS JAN15 70 Calls. If you missed that video, you can see it below or click here to see the original post from October 2013.

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validation 948x1024 The Most Powerful Trader in the World

Once you’ve mastered putting in protective stops, you’ll feel empowered. Why? Because at that point you are emotionally balanced and are WILLING to transfer the risk to someone else and exit with a small loss. You have emotional and financial understanding that trading is a process and that any one trade is meaningless over 1,000s of trades.

At that point you have personal power in that trading is just one part of your day and your life is abundant. And you don’t need to tell anyone about your trading. You’re in love with your process – be it mechanical or discretionary – and not in love with any one particular trade.

At that point, you’ll also realize that you can’t really speak to anyone about trading anymore. Most amateurs don’t understand that trading like a professional requires a combination of self-awareness, emotional intelligence, and some level of technical proficiency.

You won’t be able to communicate with such a person as they are speaking one language and you another. They are ignorant about your expertise and necessary behavior. It’s a dialect all its own and it’s unique to you and only you.

This ability is learned behavior – but most will never achieve this level because they are focused on the wrong principles. They’re missing the 80% of the puzzle that is most significant.

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I had a great chat with one of my students last week and something hit me from our conversation. Like me (and probably you) he’s an avid reader. It was such a great conversation, I came away with something…

We were talking about the most recent assignment that he was working on and he got WAAAAY off the subject by telling me all the fundamentals of the company etc “In 2002, they listed on the FTSE and their main product was…” and I was like “Whoa, what the heck does 2002 have to do with today and trading in the ever-evolving moment of NOW in January 2014…?”

NOTHING.

DoubleLife e1390094255276 Anatomy of a Traders Mindset

Like I wrote about in my book, we are conditioned to read and work on our trading like we’re back in high school or college. The problem with that is – IT DOESN’T WORK. He went on and did like 6 hours of extra work and he can’t apply any of it – neither to this lesson, nor to trading right now.

By the end of the conversation he saw how he went down a fruitless path of RITUAL. It feels good to go read and study, but in this case it had nothing to do with the subject at hand. (Research wasn’t even part of the lesson – he did this on his own). He told me that he felt like he “had to do something more…” His words, not mine. But he thanked me because this has been a pattern in his “trading” for the last 3 years and he’s not made any progress. Enter Michael Martin…

Conclusion: You can develop very bad habits from reading too much on your own. The more you know, the smarter you’ll become – YES.

The downside is, the more you know, the more confused you’ll be on where to get started. In other words, I know a great deal of THERAPISTS, ANALYSTS, AND CONVERSATIONALISTS per the chart above.

Sadly, they all think of themselves as PRO TRADERS, forsaking years of potential great trading, absorbing huge opportunity costs, yet thriving on rituals that feel good but don’t change their P&L.

Ironically, although they are reading voraciously, “ignorance is still bliss” — and it’s also very expensive in this context.

If you find yourself “reading too much,” you may lack confidence or be in fear about your ability. Guess what: every trader on the planet has been there at one time or another and had moments of self-doubt. I include myself in that camp…

What I’ve found is that the RSI (Relative Strength) of the feelings of self-doubt, insecurity, or lack of confidence is what will eventually compel you to take action (or not).

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keepcalm Keep Calm and Enter Your Stops

The Sugar trade I mentioned a few weeks ago that almost tripled one of my accounts had a lot of things going on inside it. But making the money was a symptom of several factors, some of which might surprise you.

Of course, it goes without saying that I was powerless over the move in Sugar itself, so the best thing I could have done is what I did do: add some risk to my account and enter a protective stop to knock me out if I was wrong. I should also add that I had no clue the trade would develop even remotely the way it did when it started out. Technology-wise, I used EOD data from my broker using daily and weekly charts (and I still don’t have real-time data – 10 years and going strong).

Yes, it is frustrating to put a trade on and get knocked out, but I’ve come to LOVE frustration. See, in the barometer of my emotional constitution, the feeling of frustration comes well before the feeling of despondency or paralysis (or the palsy phase from taking Lemon Quaaludes, but I digress). If your INTENTION is to trade like a professional, then get used to losing money: losses are part of the business.

By entering my protective stops, although I don’t want them to get hit, I am making an investment in my emotional well-being. I look at it as the “lesser of two evils.” Of the two, I’ll take frustration over despondency every day — that’s an easy trade. I’ll come back to the market tomorrow with a clean head: no regrets of the past and no fear of the future. There will always be another trade, maybe even a second attempt at the one I just got knocked out of.

Besides adding to my winners at prices that were upwards of 50% greater than my initial entries, I used something else that I believe was the key to the trade. I let go of trying to impose my will on the trade. I surrendered to letting the market do all the work. You should learn to do that too – that’s what they’re there for.

The key to making huge gains has virtually NOTHING to do with your entries. It has EVERYTHING to do with your keeping your ego out of the trade in order to avoid messing up a good opportunity.

I sat on my hands for 4 months – I held a long futures trade in SBH for 4 months and did not have to roll contracts either. Please think about this while you’re looking at whatever intraday “cloud-pattern” charts you’re looking at. My guess is that if this describes you, you’re only looking at 3-6 names so you have to see if you can somehow find a trade when there otherwise isn’t one.

If your trading desk makes you go home flat – YOU’RE AT THE WRONG PLACE. Don’t let your B/D or desk manager’s poor risk management decisions affect your otherwise excellent trading. Their balance sheet is none of your business and not your problem. If you can’t take winning trades home, it’s time for a new trading firm. All you’re doing is being taught bad habits.

You and I are lucky enough to get into a winner in the first place — which in the short run is RANDOM, not skill. It’s bad business and deplorable investment finance to sell a winning position before it ripens.

In order to make money, you need to have risk in your portfolio. And for the biggest moves, you need to take the risk home each night, and also over the weekend(s). This is indisputable. Michael Marcus didn’t make 3-4 digit percentage points per year looking at intraday charts or making a cool $2.50 day trading, double-clicking his mouse, or blasting his “hot keys.” Whatthef*ckever…

Put a protective stop in at a level that you can handle emotionally and financially, and let the market tell you when the move is over. Otherwise, you’re in your ego. You cannot pick tops, so why would you cut the branch of a tree off when you’re sitting on it?

I like to think of a position in my portfolio as a subsidiary of “Me, Incorporated.” Each one of them needs to make me money: the losers are closed down and sold, and naturally, I invest more capital into the subsidiaries that make money. How else would I scale my business?

If you feel empowered by taking gains manually, the feeling of doing so is probably greater or more important to you right now than the feeling you get of making large gains.

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