I got an email from James and he’s trading part-time trying to day trade. He works nine to five. He’s got two small children in a smaller account that he’s done pretty well with. He’s still up handsomely, although he’s given back some and he said, “it’s proving tough to day trade under these circumstances. So the question is my question for you is how do I gravitate to a longer timeframe mindset? And what does the process for finding swing trades look like?”

So I think those two words are hard to conjugate. I think it’s hard to swing trade. You know, if you’re not in front of the computer what you can do is put in your orders again, I’d be looking at daily timeframes. If you could catch things turning from after they’ve consolidated. They’re in a downtrend and things have pulled back, then they trade sideways.

You know, you can look to capture the upside, move above the breakout above resistance, for example. And if you listen to some episodes previously in the last week or so, I talk about setting alerts where even if you’re working nine to five, you can set an alert, not a Sell Limit above the market that would take you out of a winning trade, but an alert that would ping your smartphone or otherwise so that you could adjust your protective stop and stay in the trade for as long as possible.

That might be the best way to do it. You know, I think you’ve already have the mindset as you’ve recognized that it’s very, very difficult to be in front of the screen and to day trade with your family and work life. So I think your mindset’s already there. Because you’ve already come to that conclusion so you don’t need any convincing. So now that the, now the thing is to go back and listen to last week’s episodes about managing a book of stop orders. You probably want to be very selective in what you’re looking at.

You said here, you know how to run a scanner. So I won’t get into that. But yeah, it could work. You you’re only going to know if you try obviously risk only small amounts of capital at the beginning, just to see if you can develop a feel for it. And I think you’re going to do very well because once you take your eye off the screen and focus on the other things in life that are also important for you, you inadvertently let the market do the work for you and the market will be willing to pay you as long as you put the risk on and then sit on your hands for as long as possible.

If you’re working like a dog, which it sounds like you are, you kinda have to put some self love here. Like, do you love and care for yourself enough to stay out of your own way. Because with your account size, which I won’t get into here, but it’s kind of underfunded.

So you have, you might have a tendency to take smaller gains, but the problem is that that typically doesn’t work for you long run long term, especially if you have long term goals of growing your wealth, it’s hard to grow your wealth substantially by taking lots of small short term gains, go back and listen to the episode that I spoke about in terms of being a breakeven trader.

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Thanks for being here. And thanks for all your comments and your suggestions. I appreciate the feedback. I think the show gets a lot better when the audience is engaged. It’s probably true for all forms of entertainment, but it means a lot here, because then at least I know I’m addressing issues that I know you’re thinking about. So for homework today and this weekend, I think a good exercise could be if you took a diet or a time block, for example, of all the things that you do during the day and all the feelings that you get from doing those things, then take a look at all the things that you like to avoid and put right down the emotions that go with those. So then you could start to investigate. Why, why do you want to avoid those feelings?

What would it say to you? What would it mean? For example, if you took risk home overnight or over the weekend and you lost money, what would that say about you? Probably nothing, but you might have some hangups about it. So that this way you can conquer your fears, especially for the crowd that loves to watch Jocko Willink and David Goggins and they’re like, “just do it,” “make this shit happen,” “we’re running shit here.” Like that sounds great from a sloganeering standpoint, but not if you’re going to go home and shy away from your fears. So you have to go towards your fears and see what they’re trying to teach you. Just like you have to go through the hubris that you have after you have a winning trade and you’ve gotta post it on social media or call whatever love interest you’re chasing and this and that.

Like look at all of those feelings, because they’ll teach you a lot about yourself and it’s all good. There’s no judgment here. It’s all good. We’re all human beings. So by definition we’re all emotional beings at that point to say that systems trading and this and that and rules based trading can remove emotion. That’s not the case. If you go back and listen to my interview with Bill Dunn, he’ll say “I had all these emotions running my in through my body.” And this is a guy who was purely systematic, who over the – he’s retired now – but over the course of his whole career, he had one discretionary trade and that’s from 1974 to, I don’t know when he retired I think somewhere between 2010 and 2015. The point being is that you can feel strong feelings, but not subvert your own efforts by acting out on those feelings.

You can just stick to your rules. So that’s typically what happens with most folks who have a rules based methodology is that they feel all the strong feelings. They just don’t let those undermine their activities or what they would consider good trading. Again, if you listen to, or what I had said earlier in the week. You just want to stick to your rules and your powerless over the outcome of any particular trade. The best you can do is just stick to your rules day after day after day in a very monotonous and boring manner.

So this exercise of lookin at your emotional constitution will help you because chances are the feeling of fear. Doesn’t just come up in risk management for you. It could be in other areas of your life and by journal. I don’t want to say journaling, because that could mean a lot of things to a lot of people. But if you just took notice of it and became aware of it, whatever you could eventually become aware of and then measure you can improve upon. Because I think it’s realistic to think that people of all shapes and sizes and ability have moments of fear and greed and everything in between, they have moments of hubris and moments of say lack of confidence. But if you study those things in the situations where they arise, you can really learn a lot about your behavior because it could be your subconscious.

That’s putting you in those situations in the first place. And then by becoming aware of that you’re really off to the races. Anyway, folks, please consider subscribing because I get some really good data. Plus you’ll have every episode at your fingertips. And then two, if you’d like a free copy of the book I wrote in 2011, for The Financial Times / FT Press – The Inner Voice of Trading – you can get the audio book version for free at MartinKronicle top right corner. It’s on me. No strings attached. So thanks for being here. Folks have a great weekend. I’ll see you Monday.

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So more on being the breakeven trader and this and that and what you can do about the emotional part. You know, if it’s, if it is in fact difficult for you to hold overnight or hold over the weekend, you could always cut your position size by who knows 50% to 90% just to see how it feels. You know, you could always just trade one contract or one share and take it home. I can understand if your account is small and underfunded, that you probably feel every hundred dollars tick. But again, if you convert that to percentages, things become much more reasonable. If you lose a hundred dollars on a $5,000 account, do you see it in dollars or do you see it in percentages? Because it’s only 2%. If I do my math correctly.

So at the end of the day, you can kind of coach yourself out of this. And you know, a couple of things. One is what happens if you do lose money overnight or over the weekend, why would that be different than losing money during the day? Because you have a false sense of security in that you think you’re in control because I would argue with you, anybody to Paul Tudor Jones, to the newest person, who’s starting trading today. You’re not in control. You have no control over the outcome of a trade. You cannot steer things. You cannot control things. The best thing you can do is enter your stops. And the reason I harp on stops a lot is because it’s discipline. It’s forced to discipline for you to exit a trade when it’s not going in your favor anymore. At that point, you don’t have to decide.

You decide way ahead of time when things aren’t working against you. So you have a clear head, you put in your protective stop. And if the market moves sharply, or if it’s leaking either way, you don’t renegotiate with your stop, you put your stop in and you let it get hit and you transfer the risk to somebody else who’s willing to take it on at that point in time at that price. It’s the old misnomer of market timing. It has nothing to do with time. It has to do with price. So you can do the same thing. Again, the feelings that you want to feel about being profitable and having more abundance are on the other side of feelings that you don’t want to feel feelings that you might have adopted from the environment that you’re in about risk. That don’t necessarily make a lot of sense, but it’s what you learned about risk and money. There are some people who actually find it painful to make money because they’re rejecting their upbringing, which was say strong middle class. And they’re not used to seeing people with financial abundance. So it’s painful for them. They’re not used to it. So you can actually build rules around that to make sure that you don’t grow out of your strong middle class upbringing and this way your trading rules will look at that too. You’ll certainly be trading, which is probably a step above maybe your parents or your grandparents or somebody else, maybe not, but you’ll set up your risk management in such a way that you’ll never really grow out of that.

You’ll be a middle class trader, nothing wrong with middle class. I’m just saying that if you’re doing this to build wealth, make sure you’re using wealth building strategies, which would be entering protective stops to protect your capital. Don’t buy things on pullbacks because a cheaper price doesn’t mean better price. And when you have a winning trade either, because you’re lucky you’ve had good timing or you’ve had good analysis, let it run because you don’t know that your $20 number can’t go to $30. And so taking your gains at $22, I guess it’s something to celebrate. But if you’ve left another $8 on the table compared to the $2 that you’ve taken out of the trade, I don’t necessarily think that that’s something to celebrate because you got the worst of it.

And in fact, I would say that you mishandled the trade, even if you’re a day trader and you know the thing moved from $20 to $30, over two weeks, you still mishandled that trade because you could have made more money for the risk that you were willing to take. So I would embrace the ability if you want to make more money in, what is it going to take you emotionally to want to take the risk home overnight? I know it’s not going to seem as sexy because you don’t have to do stuff, but good trading is boring. You don’t have to be active, right. And sooner or later this happens. Whether you like it or not. As you get older the thing about getting up and reading the news, it just becomes too much. It might not sound that way now, but as you get older, your sensibilities are going to change.

Because you’re going to have other things that are important to you’re going to have family life. You’re going to have other time constraints. And just the energy of it all. I live in Los Angeles so the markets open super early here. Cocoa opens at five o’clock in the morning, local time. So you have to set up your day to win. And to me it’s like, if you’re willing to take on the risk investigate, what do you think it is about the overnight or over the weekend risk that’s so horrifyingly scary. Where does that come from? Where did you learn that that wasn’t appropriate to do from anybody you see? Because your behavior predicts where you end up and if you’re leaving the majority of the money on the table, it doesn’t matter if you’re trading short term stuff and pulling down $500k. If you could have pulled $1.5 million from holding it longer, what’s the point again, think in terms of percentages, not dollar values, retail folks who come from working class, middle class they see things in dollars and they compare it to what their parents earned or other people who were important to them in their lives.

And this, again, this is not to belittle anybody. It’s just to say, how do we come into thinking and, and, and choosing to believe the things that we believe, right. Remember when I said good days are bad days, bad days are what you determine. You label them bad days. They’re not necessarily bad days. You label them bad days. You have the ability to find the goodness in it anyway, investigate that if you’re struggling with that area of your trading, and I think it can help you open some doors and then have the yes, you do. You have to have courage to think about changing, because like I said, the feelings that you want to feel are on the other side of feelings that you don’t necessarily want to feel perhaps in the short term, but you can coach yourself to feel them and get used to them and that’ll be your new comfort zone.

And then you’ll be off to the races. That’s why they say trading is 80% psychological and emotional it’s just the way it works. So don’t worry about learning a new strategy or a new chart pattern because that’s not going to help you deal with the fear you have to address the fear. And if you don’t address the fear, it’s going to keep coming up in your life as well as in your trading. All right, folks, if you haven’t already gotten a copy of the audio book, version of my book, The Inner Voice of Trading, and you’re new to the show. Thanks for being here. You can get that for free at MartinKronicle in the top right corner. Thanks for being here, folks. I will see you tomorrow.

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I want to thank Kris for writing in and everybody else who writes in that I can’t get to. So I want to segue from Monday’s and Tuesday’s episodes to what does it mean to be a breakeven trader, which is obviously better than being a losing trader, but there’s also a lot going on in the scenario of person who’s a breakeven trader. Breakeven can happen in a whole bunch of ways. You could have equal amounts of gains and losses in terms of dollar signs, but it doesn’t mean necessarily that you have the same frequency of gains and losses. So in my experience, you have a few small people, a small percentage of people who have big gains and big losses, and that leads to break even trading and break even doesn’t mean zero.

It means probably +/- 5% in the way that I would look at it, not making money, not really losing either. You can define it the way you want to. I don’t think there’s any one definition. But what happens is sooner or later, the folks who are taking large losses eventually take such large losses, that they either lose their nerve and can’t trade anymore. Or two, they lose all their money. Sometimes folks can reload their accounts if they’re high wage earners, but still they’re doing it seemingly for some other reason than making money. They want to be right in a big way. They want to make 20x on their money. And so they bet accordingly, they make enough money where if they blow up, they could add more money to the account. That’s a unique circumstance.

I think probably seven, eight to eight out of 10 breakeven traders are those who are taking consistent small losses, but also consistent small gains and kudos to them for taking consistent small losses. Because that to me is one of the harder emotional issues that traders have to come to terms with, especially if they’re very academic and have succeeded in academia for years and years and years admitting you’re wrong is doesn’t come naturally to you because you’re not used to it. But then the fear part kicks in when you start to make money and you’re afraid to let the thing go. So you cauterize the gain too early and then the net effect of all your trading is that again, you’re plus or minus 5%.

And you’ve been doing that for a long time. The interesting part I think is that this there’s an easy fix for this, but as I’ve like to say that sometimes the feelings that you want to feel, maybe the feelings that go along with being a profitable trader are on the other side of feelings that you don’t want to feel. And those would be the feelings of holding onto your winners longer, taking them home overnight, taking them home over the weekend. Now there’s a million ways that you can do that and adjust the risk to a point where it’s suitable given for where you are, how old you are, how many dependence you have and all that. You can talk to your financial advisor to know whether or not trading’s even appropriate for you or not.

I wouldn’t know, just speaking into a microphone, but instead of saying you want to have because you can figure this out, you can figure out what the winning percentage needs to be. If you look at say, what is your average winner to your average loser ratio is, you can figure out what the frequency would have to be for a literal breakeven – no gains or no losses. So what you can do is to say, well, I need to hold onto my winners longer. And I need to go from 2:1 to 3:1. And if I kept the same percentages of winning and losing, I’d become a winning trader or, or an earning trader, not a breakeven trader.
So I see the breakeven trader isn’t, somebody who’s greedy. I see them as somebody who’s in fear, fear of letting the risk run and let the market do the work. I think it’s irrational to fear the market and to fear the overnight risk.

But to me, there’s always a way that you could position size to a point where it’s comfortable. There’s several variations that you can deploy to manage the risk. Once you do become profitable. I talked the past two days about raising your stops and then ultimately just managing a book of stop orders, which again you can do with delayed quotes and no computer screens. You don’t have to look like a trader. It’s not going to help you do well or do better. The other thing you can do is once you do find yourself a certain level of profitability, percentage wise, you can remove some of the risk, adjust your stop and let the run the rest of it run hopefully in your direction.

And then of course you could back test it and the, if you’re not willing to back test it, because you don’t have the money, you don’t have to know how or you just don’t want to do it. Then the only thing you can really do is do it in practice then and keep good records of your results. But I think that’s an easy fix only because you’re already used to taking consistent small losses, which is the absolute necessity in trading. And two thinking percentages, not dollar terms, I know you want to convert stuff and you think about I’ve I make or lost $400, $500, $600. And then you start comparing that to what is day’s pay is. And then how many Air Jordans you could have bought. You really have to get out of the retail, middle class way of thinking. You have to think in terms of percentages and thinking in terms of abundance. Anyway, just the thought based on the past few days, of course I’m interested in everyone’s feedback. I don’t have all the answers.

Please consider Subscribing folks. because the data really helps, helps me see in real time what episodes really resonate with you or not. And that helps me create more content. That’s more in line with the audience in and in and around or beyond what I get via incoming emails. Anyway, that’s all I have for you today. Folks. Thank you for being here. I’ll see you tomorrow.

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So the second part of yesterday’s email was the deeper issue is this. “After reflecting on it is that I think I am driven by fear of making too much too fast and then losing it all due to making impulsive decisions, driven by heightened emotions.” I think I answered that part yesterday. If you use protective stops, no matter how you feel you’re doing, you’re acting within discipline. Because you’re not in control of making too much too fast. That’s up to the market. I don’t know anything about you. We haven’t met, we haven’t spoken before, but it’s a common fallacy to think that you can control what’s going on. Now. I know some people have hot keys and mouses and 45 monitors, but that doesn’t make you profitable. That makes you – you’re buying things that have technical obsolescence that depreciate 50% the week after you buy them. That’s what I do know.

All right. So if you make too much too soon that’s up to the market. That’s you being in the right place at the right time, which could be good luck, good timing, or good analysis – or combination of any of the three. The best you can do is trail with your protective stop. So that’s not impulsive. That’s doing the same thing all the time. Then understanding if you have gains, if you have something at $20 and it trades to $35, how do you know it’s not going to $70 because you have to remember, what am I going to say here? Humans suck at prediction. Doesn’t matter about snap back trades. And all that prediction is not something that humans are good at. So what’s the best you can do. You can go to get 45, 60, 70, 80 years of data and say, okay, when did something go up 75% in a day? And how did it behave? And then back test your rules against it because otherwise you’re just talking shit.

So like most people, you don’t know what they’re talking about, but they go on social media and shoot their mouth off and they tell you shit like you could make a living and quit your day job by trading for only one hour a day. No you can’t. It doesn’t work that way. So you can feel good about making money. And at the same time trail with a protective stop and exercise discipline, those two scenarios can exist at the same time. The email continues. “So my thinking behind setting profit targets is to purposefully build the account slowly and to avoid a situation where I blow up my account because I grew it too fast, got super happy and over confident about it and then destroyed all my profits in an impulsive trade because I lost control of my emotions.” Well, you get what you think about.

So if you think that that’s possible, I think it could happen at any given time. What you need to think about is following your discipline. Can you put in stops? Can you trail with stops because it’s not for you to decide whether you’re going to build your account slowly or not. The market decides that the only thing that you can control is entering your stop orders, put your Buy stops above the market, let the market come to you. You get filled, you add the risk to your portfolio. You add a protective stop if you get knocked out. So be it it’s 1/2 of 1%, no big deal, not greedy, not anything market moves in your favor, adjust your stops higher, stay in the trade.

So you can still be super happy. You can still be overconfident. But you don’t have to change your behavior. You see, I don’t know. Maybe it’s an it’s , self-esteem thing is if, is that all your worth is you’re only available right now to grow your account purposefully and slowly does that mean what 5%? I don’t know what that number is. So that might be a limiting belief. You should grow your account, following your rules, with whatever rate of return the market’s going to give you, because you don’t have any power over anything that way at all.

So that’s a story I hear frequently that this is the email again, that happened to many successful traders in their early years of trading. And so I fear ending up in that situation. Well, yeah, sure. If you read Market Wizards, those people all got blasted and had to pay some tuition, but they were better for it. You know Michael Marcus – who I know personally – blew up and had to borrow money from his mom and his girlfriend. And then he became the best trader at Commodities Corporation – and one of the best ever. And email continues “And this fear is probably what primarily drives a lot of my trading decisions for steady growth or for worse leaving money on the table.” Well guess what? You’re never going to bottom tick if you don’t buy pullbacks. Right? So not even going to go there, you’re never going to top tick to the market in terms of you’re selling right. You can’t, especially since there’s a bid / ask spread and you’re selling at the bid, not the ask. So you’re never going to top tick the market anyway.

So the idea is can you capture a good chunk of the move? That’s the ethos leaving money on the table is doing what you said, setting profit targets at 2R and trying to grow slowly. That’s leaving money on the table. So I think you just focus on entering your stop orders. You make money, trail it every time and then set a new alert. The thing goes to $22. You raise your stop to breakeven. The thing goes to $23, you go to $21, then you set another alert for $24. It goes to $24. Now you’re stopped to $22.

Now there’s a lot of variations on that which are things that you’re only going to learn if you put them on and, and try them for yourself. So anyway, you asked me to do this and I told you via email ahead of time that I would do this because there’s too much to write in a response of an email. So there it is yesterday and today I appreciate everybody writing in. Please consider subscribing folks because I get really good feedback on from the data. I can’t see your name, it’s all anonymous, but I can see the quantity. And that helps me understand what types of episodes resonate with you. If you know some traders that are struggling consider sending them a link to this show to see if they might benefit from it as well. That’s all I have for you today. Folks. Thanks for being in here. I will see you tomorrow.

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