The most important time of the day for you as a trader is not the time that you’re spending in front of the screen. Trying to get your executions in your mindset is the biggest asset. If you’ve been following this channel, thank you for coming back. If you’re new here, welcome. If it’s your new first time here, I give away the audiobook version of my book, the Inner Voice of Trading. You can get the link in the description. The most important time of the day is how you do your preparation. Now, I want to talk about that because again, we know there’s two outcomes to every trade. There’s the emotional and the psychological, and there is the financial.
You are being able to process your feelings around. All of that is really what your goal is each and every day. It’s to follow your discipline and without getting emotionally invested in the outcome of anyone particular trade. Your goal is to say if you want to win the day regardless of your P&L, and you’re following a set of rules that have positive expected value, which means you have a trading edge, the outcome of any one particular day doesn’t matter. Emotionally, you might make it matter to me. That’s wrong. I don’t think you need to see a green day every day, but that’s my emotional constitution. When I hear people say, have green days, just book a green day, I think they’re anal. I think they’re too uptight about shit, but I have a cast iron stomach. My emotional constitution is subject to wanting to just win over the longer haul. I tend to make more money when I think that way also. Anyway, so the most important part of the day might not necessarily between 9:30 AM and 4:00 PM Eastern, which is the stock market. It might not be 8 am to 1:30 pm when the Cocoa market is open or in eastern time. It’s the time that you are getting prepared to me. When you set yourself up to win “the victorious warrior, first wins then seeks battle.”
I practice jiujitsu. I go to MMA fights where my friends who are both pro and amateur at the pro and amateur level compete. We talk about camp. Well, camp is very brutal, and I train with these guys. They want me to go hard with them and put them in really bad spots to fight out of it. Why? Well, because you really want to bleed in practice, not in the octagon, right? So your preparation is key. You’re powerless over the outcome. All you can do is control your behavior. So to me, the most important time of the day is what are the ritualistic things that you do, right? What’s your routine? You can have a little bit of both. It’s not bad to feel, to feel good. I think it’s important to understand the difference between ritual versus routine, but in terms of your preparation, this is kind of where you’re putting your shopping list together.
What is it that you’re going to try to do? And if you’re beginning, you don’t have to worry about saying, I’m going to scalp here. I’m going to day trade this one. I’m going to trend follow here. That’s not part of your dialogue. You need to get good at one thing. First, you have to attain the skill. Then you can expand from there. So your preparation should be, I’m not just going to wake up and go look at the MNQs in the morning. You’re going to do your preparation beforehand and say, here’s where I see my cup and handle. For example, if that’s what you trade across, any number of these names. So when the day starts, I’m going to look to see how those markets unfold. I’ll put my buy stop orders at a certain point, so if the market trades through that level, I’ll get executed.
I’ll add length to my portfolio. That’s the best that you can do, and that to me at the beginning is all you should be doing in terms of trying to interpret charts because you don’t get paid to interpret charts. You get paid to put in orders and have them get executed and then manage the risk. The other thing you have to do, because again, there’s two trade-offs. There’s two not trade-offs, but there’s two outcomes to any given trade is to mentally prepare yourself for the fact that if you have five trade ideas and you put them on, there is a probability that all five might lose. But if you know what your risk unit is, you can mentally prepare for that happening long before you even enter the orders. If you know what your win-loss percentage is, you can calculate the frequency of winning and losing streets of any particular magnitude. The math is easy.
So again, mental preparation, be ready for the day, be ready for the possibility of anything. If you’re in winning trades, practice adjusting your protective stop in lockstep. When I’m scalping in the cocoa market, the damn market’s moving can move 200 points in a 5 to 10 minute window. This is coming from a period of time 3 months ago when the 20 day ATR was like 60 or $600 because it’s 10 metric tons, it’s $10 per tick. Now you could see a 200 point move in a 5 to 10 minute window and a daily ATR of $4,300. So with that type of volatility, it requires you because again, the goal isn’t just to go hellbent for election to make a lot of money. That’s part of it. You have to be in it to win it, but even when you’re a hellbent for election speculator, your #1 job is to protect your capital.
And so over past month, I can share with you, there were times where I was setting in alerts to know when to add to my winners, call those orders in, but at the same time that that alert goes off where it looks like I’m going to add, it also tells me because of the way I think I’m going to be adjusting my protective stop higher accordingly, and there were days when I was doing that five, six times during the day. So you can’t be in a trade where you buy a stock at $20, your protective stop is at $19 and it goes to $25 and you protective stop is still at $19. That’s bad trading and I’m not making fun of you. Maybe you’d never heard that before, but your job as far as I see it isn’t to sit there and try to read one minute bars.
It’s to adjust your protective stops accordingly all day long if need be. Now, I’m not talking about scalping for one or two minute bars where things like 10 or 20 cents might be meaningful for the position size that you’re on because you don’t really have to do that because you’re scalping. I’m more position trading looking to hold things to see how much unrealized gain I can build up, add to my winners, adjust my protective stops accordingly so that I could stay with the trade for as long as possible, evaluate how it’s coming into the close, and do I offset the risk because I don’t retain stuff I don’t have. When I think of people scaling out and keeping a peace for posterity, I immediately start thinking that they have trouble feeling feelings around regrets because if the getting is good and it’s time to get out, it’s time to get out of all of it.
I know people have strong opinions, that’s mine. I don’t care how you think, but that’s how I do it. Learn from it or make a better rule for yourself. It’s fine with me. So that’s kind of how I look at the markets is all that preparation work is done before the opening bell for any particular market, whether it’s a stock or a futures contract, is I know what the plan is long before I have to execute it, and then I don’t waiver from that. On Monday, we talked about limiting distraction. I don’t pick things up on the fly and if I miss something, then that’s my penalty to teach me to change my behavior. That’s the negative reinforcement. It serves me, right? But I’m not too liberal to say, oh, I’m just going to take this one on the fly. It looks like it’s set up. I don’t do that. That’s how, to me, especially when you’re starting, you could end up losing money for reasons that you don’t fully understand. Again, where’s your discipline? Because it’s better to go back and say, okay, how did that happen? How did I miss it? Was it an intraday upgrade? Okay, well, how can anyone fault you on that? But that’s when you go back and you do your preparation and say, I need to build up a system element or variable that doesn’t allow that to happen anymore. What could I screen for so that I don’t miss those opportunities and then systematize it? Because if it’s a one-off, it’s nothing to be concerned about. It’s very difficult to look into find any of those one-offs as they’re aberrations by definition.
So figure out what that is for you. For me, the most important time of the day is typically, well, I’ll tell you definitively, it’s in the evening. Usually when I come back from class, get cleaned up, I eat something pretty healthy. I don’t like eating a heavy meal at the end of the day and somewhere between, depending on the evening because the classes can run later into the evening. It might be somewhere between 8:00 pm and 10:00 pm Pacific time. That’s the time where I’m doing a clearheaded postmortem on the day and also preparation for what I’m anticipating the next day or where certain instruments are in the neighborhood of my needing to put in an alert and or an order. If I already have an order that was, I don’t use good till cancel. I’ll use good for the day if the price never is achieved, of course, the day orders are canceled.
So now I have a list, okay, I’m still kind of in the neighborhood, but I might be 20 points off for this and that I’m still going to reenter that order the next day and this way. You might find that on any given day, you’re just babysitting a book of buy stop and sell stop orders, buy stop to add length to your portfolio. Sell stops could be protective, sell stops, or they could be, I’m up 5R in a trade and I’m going to invest my gains into my protective stop and walk away with nothing worse than 4R. If I’m going to go short, then I’m going to put in sell stop orders to enter the market short, and I’m going to put in buy stop protective buy stops to make sure the market doesn’t run away in my face and blast me on the upside.
But all of that is managing risk. I’m adding risk and or removing risk, either taking profits or taking small losses, and that’s largely all I do all day is adjust those stops. I’m never going in and saying, okay, I’m going to try to lift the offer here, or I’m going to try to do all that. I’m just adjusting stops and I’m letting the market come to me. It’s a much more peaceful way of doing it where I’m not invested emotionally in having to do something right now. I always live by life on life’s terms, so I’ll let the market come to me, and if the market determines the move is over, then so be it. I’m powerless over the market. I don’t want to be in a spot at any given time where I’m trying to impose my will on the market and I need to see a certain price in order for in order to execute.
I’ll say this one thing and then I’ll be done. That’s why I don’t use sell stop limits because if the job is to protect my capital, I’m trying to unwind the position and get the hell out of it. If I use a limit, now all of a sudden I’m in a spot where not only do I have to see the price on the stop side to get triggered, but then once that’s elected, I have a limit order which says I need this price or better. And if the thing could be going against me and I’m below my limit, I’m not going to get filled, and now I could either be giving back gains or otherwise, and the goal is to move the inventory to manage the risk, specifically to get the risk out of my portfolio, because after that point, it’s not a good risk. Good risks are when you’re long in the market’s going up. If the market reverses, then that length in your portfolio to me is no longer a good length. Again, depending on how you’ve calibrated your position sizing. So I’m saying for whatever your position size is, my position sizing is set up a certain way, so I know at what price point if the market looks like it wants to roll over or there’s a two be reversal or whatever have you, that’s what I would look at more than a swing low to.
And before you ask, the answer is no. This is what we do in the coaching program, but it’s a much lengthier conversation. It’s not a five minute discussion that you can do on YouTube. Some people can do it and they say the link to the course is in the description. I’m not selling shit because mindset includes everything. Your trading system and then how you behave, and it’s too long of a conversation for me to do here. I’m giving away the most valuable stuff for free every day on YouTube. You have to make of it what you want. You could take any one of these lessons and make it homework for yourself, but at any rate, the preparation for me is what lays down the game plan. Then there’s no wavering in that game plan because that’s the best that I can do for that particular day. Every night I do a postmortem and say, how did I do? Did I win the day? Did I execute the way I wanted to execute? Because I know I have positive expected value in my system. Just because I didn’t show p and l for that particular day doesn’t invalidate who I am as a person. It doesn’t invalidate my trading strategy. It’s life on life’s terms and the data in the short run, intraday and even daily data, and oftentimes they’re just random.
So all I can do is come back and put the orders in and follow those rules the next day. Where the market goes is where it’s going to go. I’m not trying to predict things. I’m just trying to anticipate where does it make sense for me to have certain risks in the portfolio and minimize and or eliminate risks on the other side? And when I say minimize, I’m not saying scale out. I’m saying minimize. Like for example, if I’m up 5, 6, or 7R in a trade, how much of those gains am I willing to risk in order to stay in the trade to invite the 10R trades? Because again, for me, there’s no difference between 6R and 7R except for your ego, right? I’m open to the possibilities. I’m very open-minded, that way. I don’t process the P&L. I don’t look at the P&L. You shouldn’t either.