Be mindful that winners rotate

So at the end of the day, you could also find yourself falling in love with the names that got you where you were, and the way I look at things like this, probably very different the way other people look at them. And I think of things as being ready to betray you. So the minute you start to think, like I’ve been trading this one particular name, I’ve made all this money, I’m up 50%. That’s annualized at a 100%. I’m just going to keep trading this name. Now I know that there are folks who trade short term stuff and focus on only indices like emini, for example, or otherwise. And that’s your style. So I’m not really talking to you because you don’t really have a robust system or a set of rules. You’re focusing on one instrument, probably one time frame.

And again, I’ve spoken until I’m blue in the face about all of that stuff. It’s an interesting place to start, but then sooner or later you have to branch out. At any rate, whatever got you to where you are today, just realize that those trends don’t necessarily continue. Everything kind of moves. If you look at I was involved in a pretty good sugar trade many, many years ago and the price of sugar had actually doubled. It went from 8 or 9 to like 19 and I caught a good chunk of the move. I got stopped at 18, even on my entire position.

And if you look at the chart, it was the March of 2006 Sugar contract [SBH06] – coffee, sugar, cocoa exchange at the time. And the whole chart after that move was a disaster. It was all over the place.
I’ll see if I can find one and, and post it in the blog post. But the thing is get it while the getting’s good. But then also realize that market dynamics can change very, very quickly. And the instruments that you traded for the gains that you have at up to this point could also be the ones that take all your money for the rest of the year and bring you into a drawdown so that you only finish up the year 15%, for example. So you have to be fast on your feet and stay aware of what’s going on and objective because the minute you start saying like, “this is how it’s going to be every day” without doing the proper analysis, you can put yourself in a tough spot where, “Hey, this was working and now it’s not working anymore.” You see? And I’ve been there. That’s why I’m talking about it. Because I feel like, oh yes, this thing is beautiful. We’re going to sail off into the sunset and here I’m going to calculate all the money that I’m going to make. And then what am I going to do with all the money or how I’m going to grow my account?

And I lose focus. I lose focus on the present and I lose focus on what my job number one is. And that’s to play superior defense. So what can you do? Well, if you go back and look at your history, you can kind of see what was your winning percent? How many trades did you put on? How many winners did you have? How many losers did you have? What was the expected value? What was the, is there, was there a draw down? How big and how much larger were your winners over your losers? So now at least when you’re looking at the second half of the year and you start trading, what happens if you take 3, 4, 5 losers in a row, what does that do to you and your trading?

How does that alter things? Do you start to trade smaller? Do you cut your frequency? Do you give the chart a breather? Come back to it, find another name. You’re not going to change your discipline. You might change the vehicle. So the moral of the story here is that there’s a certain vehicle or several of them that helps you get where you are right now. Enjoy it. But they might not be the same names that carry you through the rest of the year. That much is not predictable either. That’s again, why I don’t get into annualizing and start getting my hopes up, because that’s an emotional game. That’s not a trading game. You see? So I want to stay present. I want to be objective. Sure. I’m very, very grateful for where I am right now for the work that I’ve done. But I also have to know that maybe what’s going to carry me for the rest of the year isn’t on my radar screen just yet. So stay that objective.

The minute you start falling in love with something you’ve lost your objectivity and that could and help you end up staying in trades longer. How many people got killed on NVDA, for example? They had been making so much money and all of a sudden the thing turned for a whole bunch of reasons. And they were like, “yeah, it’s going to come back again,” illustrating some of the problems of trying to buy bounces or pullbacks as they work for a while until they don’t work anymore. And then they cost you a lot of money. Anyway, please consider subscribing. Because they get some really good data about the episodes that you like. And then I can focus on those or themes around those and continue to hopefully create good content for you. because even though the show’s only five, 10 minutes a day, I don’t want to waste your time.

This is a computer generated transcript.

Subscribe to the show  

Click here to  get your free copy of The Inner Voice of Trading audiobook.

Please note: I reserve the right to delete comments that are offensive or off-topic.