Trader Mindset

What are your personal Mission Statement and Strategic Plan for your trading? If you have them, my guess is you have tasks and goals with specific dates. Professional traders also have Emotional Plans to take into account the Relative Strength Indicator (RSI) of their feelings about what they do during the day. Our psychology and emotional makeup dictate how we act and behave during the day. How do you plan to feel good? If "I feel good when I make money and I feel bad when I lose money" is the ethos, we need to rework this a little. All you can do is follow your backtested rules. If you have the discipline to do so, define "happy" as "I followed my rules today which was the best I could do, therefore my thoughts, feelings, and behavior are in alignment and that alignment will lead to superior performance over the next year." We can't predict when the profits will show up, so having a monthly goal of 5%, for example, might provide you with the goal of frustration because that is the result. [Intentions equal results.] Rely on "Best Practices" Best Practices in trading does not include day trading, intraday trading, or anything short term. Behavior predicts where we end up in life. What we do today provides us with the trajectory to where we want to go. We need to be mindful of the quantity and quality of the work we do. Go through your activity with a fine-tooth comb. How do each of the points add up to profitability? Or, what 2 or 3 items in combination add up to to a positive slope on your trajectory. What do you want trading to do for you in your life? What does it fulfill? What do you want your money to do for you? Making money is the end result of a big technical and emotional system. "Discipline Equals Freedom" - from the book Extreme Ownership We need to work hard, but also work smartly. If we focus on bad habits, we will be working hard, but not smartly. That's what day trading is to me: hard work for no money and a great expense of time. Notice where your behavior breaks down and diverges from what your Mission Statement delineates. If it's technical, take a class and read up. If it's emotional, take a yoga class, learn to meditate, or join a Trading Tribe. We are all students over the entire duration of our trading. The best traders are mindful of everything they do and don't do. Everything they want to feel and not want to feel. Keep in mind that the feelings that you don't want to feel have as much power over your behavior as the feelings that you actively seek out. Don't judge your feelings, seek the wisdom that they are trying to teach you. If the feeling of public Pride is the "heads" side of the coin, realize that "tails" is public, abject humility. Use this rule to help target the feelings you want in your emotional system.

We as humans love stories and our brains are great at putting pieces together and following logical sequences. That doesn't mean they are worthy of investment or for trading. "Stories" as they relate to investment themes are a bad for of entertainment. When you marry this logic with fear or greed, you can put yourself in a very unenvious situation very quickly by losing a great deal of money quickly or worse. Looking for a promise in a world of prevarication. Why would you need to be alerted to an idea from mass media instead of doing your own research? Who's accountable for the gains and losses? Own Your Own Process You must think along the lines of being your own person - that's how you have a principle-centric life. You are in control and own all your gains and losses. Picking ideas from the media isn't a trading process anymore than chart reading is. And following an on-air personality and trading alongside them is no different than betting that King Charles is going to hit his next shot or Houston Astros' Center Fielder and World Series MVP George Springer is going to hit another Home Run. Go look up the Hot Hand Fallacy. Ask any real trader and they'll agree with me: traders live in a paradigm of personal responsibility. In the end, you need to own your own process. If you don't have one, don't trade until you do. You cannot delegate the key aspects of a trading system to someone else nor make key decisions based upon someone else's philosophy. Here's what you're missing if you are sourcing your trade ideas from TV or from the charts you see published via the Twitterati: 1) entry price 2) exit price 3) position size & risk management 4) stage of trend (if there is a trend) ..."and the grandaddy of them all..." 5) correlation risk to what else is in your portfolio We can add another once we add you to the equation: 6) the best way to express the risk for your psychological makeup That means, do you rely on the the equity, options, or futures markets to effect the trade? Which is most suitable for you and your emotional constitution, years to retirement, and tolerance for risk. Develop your own fundamental ideas from your daily life. That is something you can witness by yourself. Then, marry up what you see for yourself with the direction of the trend. If there is no trend, you might be wrong or you might be early to the trade. If the trend has begun, that's not a bad thing - there might be much more left to it. Don't be turned off from this situation as most trend followers are "fast followers" and adapters than inventors, so to speak.

The business of trading is going to AI and more algorithms in the hands of new traders and retail investors. If you are trying to figure out what headlines are going to drive prices, you're a better person than me. I would rely on computers to do that Bill Dunn, a 100% purely systematic trader since the early 70s, has been incorporating all the data he can find and incorporates that into his model. Since 1974, he has taken only 1 discretionary "trade" and that was in advance of December 31, 1999 or the Y2K issue. The trade was to go flat and offset all his positions since he had no historical information to base his decisions on - including existing positions. This trade was taken to protect his clients' funds. Other than that, he has only traded system generated orders for over 40 years. If you are trying to raise capital, you'll have to have a good answer for prospective clients as to why you think you can shoot from the hip and make clients money as a discretionary chart reader In that regard, you are the share price and security. What information does the potential / allocator have based upon your behavior around security selection and trade management that will give them enough confidence in you to give you an allocation. You'll make more money by managing OPM - Other People's Money and taking an Incentive Fee. Ray Dalio feels that you should learn to code regardless of the industry that you're in else you'll be replaced by a computer. The computer can make the decisions faster, without emotion, and without error. Ray makes his decision in parallel with the computer and it provides "check and balances" between his thinking and what the calculations can show. He also won't leave out a key piece of data.

If you want to be a professional trader, losses and drawdowns are part of the business. You have to learn to live with them and be at peace at the same time. If you've backtested your rules as you should have, you can tell from the Monte Carlo simulated results where you are in your current drawdown with respect to where you are now. Backtesting can give you perspective on that is great detail. If your current results on "in model" - meaning the current results are within the parameters of what you have now - there's no reason to pull the fire alarm. You might be on to something and not know it because you quit too soon. If you take 10,000 coins and flip them 10 times each and keep only the ones that come up heads, and keep flipping them you'll have 9 left after those 10 iterations. What can you say about the quality of those coins? Moreover, what can you say about the 9,991 that came up tails at least once and were discarded? Nothing really - those are random results. Likewise, when you are trading, sometimes you'll just open an account and begin trading at the wrong time or a time of "bad luck" where the market is not conducive to your systematized rules. You're not a losing trader if your system is in a drawdown because you are following best practices. All you can do is follow your rules and put your trades on by entering your stops. There haven't been any backtests that I've seen on Bullish Flag patterns, for example, that tell you what the winning percentage is and what the expected values are by risk unit size. If you trust the person you've learned this from and you blow up on a pattern, that's on you. I get it, being a chartist is cheap and all you need is a web browser. That might be all you can do to get started trading, but keep in mind that this type of trading does NOT fall into "best practices" anymore when the lowest common denominator can do it. You nee to dig deeper to define your trading edge. Advice is like mushrooms, the wrong kind can kill you. Relying on chart patterns is becoming a thing of the past as the computers are becoming more and more powerful to compete about and interpreting chart patterns is subjective and subjective trading is not trading with a definable edge.

Why do I practice yoga? It's impactful on my life and therefore it affects my trading. I had no idea what impact it would have on me when I began my practice. If you haven't started, I would give it a try. One of my teachers Erich Schiffmann has called yoga a "moving meditation" - you lose yourself in the vinyasa flow and don't think about the choreography of the flow. Become mindful of your breath and you calm yourself, lower your blood pressure and level of stress. Surrender to the process and notice over time how you feel better the longer you practice yoga. I admit, I did not feel this way within the first 3 months of practicing yoga. But there came a point where I didn't want to go a day without it. The blissful hangover you have the day after a yoga class is worth the effort. When you feel better, I think you'll trade better. You won't have the knots in your lower back, the stress in your shoulders, or tight hamstrings that distract you during the trading day. You can also just meditate and forget the yoga altogether, but the benefits to you overall body with yoga are superior to that of just You can also tap into your subconscious also by going with the flow and seeing where you are holding stress in your body and all the feelings that you are holding on to that you don't know you are holding on to...you'll release all the energy that your body is blocking mentally and physically. You'll also develop a stronger sense of mental stamina because you'll condition yourself to quiet your mind - and that means focus. When you focus, you'll be able to harness all your mental power and put it on the task at hand. You'll also benefit by NOT spending energy on things that don't matter anymore. That's how your life will improve. You can watch yoga lessons on YouTube. You can also buy some DVDs to practice at home. IMHO, you'll benefit more if you are a beginner because your teacher will help you make the adjustments so that your postures are picture perfect. Like for baseball pitchers, you want to have great yoga mechanics so that you don't inadvertently hurt yourself by trying to go to deep into a pose. My good friend Ally Hamilton has an online yoga school where you can stream lessons for $10/month and have access to some amazing teachers - many of whom I know. Listen to my interview with Ally Hamilton Listen to my interview with TM master Norman Rosenthal

Forget chart patterns and focus on price. Price is the only thing on Wall St. that will tell you truth. Every chart pattern will be captured in the price and the values of price over time. You can hire a programmer to capture those price movements and design your own algorithm to enter and exit trades as well as the correct position size. Chart patterns are supposedly created by plotting prices over time. Some believe that patterns repeat themselves. Some believe that history doesn't repeat itself in exactly the same manner. Human beings are emotional beings, even if they run systems. Even the most grounded and mindful individual has to interpret the chart patterns to "make something out of it." Then they have to figure out where to put on the trade and where to exit. We are feeble at best and relying on subjective views is not the way of the future. Today, firms are spending tens of millions of dollars on AI and trading platforms to feed off of discretionary traders. It's job security to them. There will always been someone who thinks they can beat the market by trading things off the top of their heads. Everyone is against you these days. The exchanges, the Broker-Dealers, the trading platforms - they are all the enemy in this day and age. They are encouraging your to make transactions as if making frequent transactions is the key to trading success. It's not. Your f*** you money is their Earnings per Share. They look at the quality of your money in a more material way than you do. Don't give it away by making amateur-like decisions. Charting is becoming a thing of the past. You have to evolve now so that you'll be in position for the new market that will be in full force in the next two years. Sal Arnuk of Themis Trading told me that there are over 2,000 algos and trading rules that are already set to beat you and induce you into sub-optimal and losing trades. That number is growing by the day. In the next two years, AI-based trading platforms and exchanges will have a rule to trade against you that says "7 out of 10 times, this guy (you) put this trade on when we pushed the stock by x% in this particular chart pattern. Each time he was good for $0.50 per share to us - minimum was $0.20 and the max was a whopping $1.00 per share. Each time he does this we must trade against him because he is a high, expected value sucker for our setups." So what you think are trade set-ups and reliable chart patterns are really nothing more than trade bait to get you to give over your money.

If any of our shows have resonated with you and you've gotten some valuable insight, please subscribe and leave a review. There's a lot more to come and we need your support. It feels good to have a winner when you are coming out of a drawdown. Trades, like hitting in baseball, will come in groups and segments. We are powerless over when and how those streaks will show up. All we can do is follow our rules that we know have positive expected values. Follow your rules even if you are in a drawdown - here's why. If your model generates trades that have positive expected values, and you DON'T put on the trades, you are effectively giving that money away each trade that you do not put on...so you're still losing. Think in terms of percentages, not hard dollars so you don't get hung up on what you're missing out on. There is a trade-off between what you lose on a trade and what you could have bought with that money, but remember that there is a "quality" to your money. The money you save is not the same as the investment capital you have. In Economics, "saving" is the act of "not consuming." Investing is looking to outperform cash. Remain objective and let go of the need for one specific name to bring you to the pearly gates. Focus on process and the results will come. You are powerless over WHEN they come. Surrender and let whatever name your system generates bring you to the holy land. I'm often surprised that what I thought would work out as a trade did not, but some obscure name that my system generated was a 5-bagger and made up for a lot of other losses. Trust in your process and your system. The less you impose your will on a trade, the more sane you'll be and probably more profitable also. Two Free Offers Tony Saliba's Options Playbook Inner Voice of Trading Audiobook Subscribe

Don't cut your winners - add to them. They're hard enough to find in the first place. Even though they are trades, look to hold them for as long as possible. Everyone sees the same moving averages, breakouts, and pullbacks. Everyone is looking at the same contracts and stocks. So how do you make the monster gains? You can be lucky, you can bet big, OR you can have a winning trade and decide to stick with it and add to your winners. If you are using ATR to measure your risk you can add a new risk unit every .5 ATR away from the previous entry. Base your new entry on the previous fill, not the system generated price. For example, if you got long at $60 and the ATR is $2, then the next entry will be at $61. This is discussed in detail in Way of the Turtle by Curtis Faith. The Turtle Trading Rules generate very erratic returns. In today's environment, the results are too volatile to garner allocations from global macro hedge funds. You will be measured on your daily vol. Back in the 70s and 80s, traders were evaluated on creating large gains. That's not the case today. IF you consider trading these rules for yourself - beware. The drawdowns are large and can range from 30 to 60%. You will still have to modify them. You can vary the size of your second entry and add a smaller size to your existing trade. The Turtles added the same size risk unit at each entry point. That means they'd enter the market at 60, 61, 62, and 63 - using the example above - all with the same size. With the market vol being where it is today, you could likely go home long 3 risk units at 60, 61, and 62 and the name would pull back to 62 and you'd be at break-even with 3 risk units on. In order to avoid that, you should consider adding smaller risk units to your initial trades. If your first risk unit has 4 contracts, consider adding 1s or 2s to the existing position. In the event of a pullback, it won't hurt as much. Of course, you need to test these ideas to get a feel for how such trades will behave and see if you are compatible. Another method is to add to your winners above the next level of resistance. In order to win big, you need to know yourself more than any other part of your trading. Get your free copy of the Inner Voice of Trading Audiobook

Be open to learning new things and new ideas. They can lead you to garner insight on your trading. We make our money as traders in position sizing. I use position sizing to be analogous with risk management. I can always move my entries and exits to accommodate my trading size. It's the effect of volatility on my position that determines my open trade equity - which can be positive or negative. If the dollar-volatility of the instrument you're trading is large than your risk unit, you might have to pass on that (and several other) instrument. If the daily vol on a gold contract is $4,000 and you only want to risk 1/2% on a trade on your $200,000 account, gold is too volatile for you to trade. If gold's daily vol is $40, then the dollar volatility is $4,000. You can change that. Trying to trade gold within the range of the normal vol and only risk $10 per ounce will likely get you stopped out for a loss much more frequently as the vol is non-directional and random on any given day. You can't change the vol anymore than you can change someone's personality or behavior. Free audiobook - Listen to your Inner Voice

Like your dog, your stop order is your best friend. Your stop orders stand sentry to your risk management program so learn to trust them. Broker-Dealers have great incentive to execute your orders when the price trades at or through the stop price so you can count on them to do a job for you. You don't want to be shooting from the hip and making decisions on the fly. Stop orders are the ultimate employees. They never leave, have unlimited stamina, don't call in sick, don't have bad relationship drama, and are very reliable… You can enter Stops GTD or GTC - good for the day or good 'tip cancel. I use GTD stops to enter and exit the markets exclusively. This gives me a state of calm and not chase any market. The markets come to me. That puts me in a place of power. Why? I place my stops at places where I project there will be other buyers and at which point the market will have initiated an upward move. I don't want to be long an instrument that's not moving or trending." By acting this way, I let the market determine when I should get in or out. I'm never shooting from the hip "If it's not going up, don't buy it in the first place." Enter your stops for the day and readjust as the market moves up. You'll get into a groove of entering and resetting stop orders. If your Buy Stop above the market doesn't get hit, think if it as a good thing. "Rejection is God's Protection." No sense in getting into a trade if it's not going to serve you. There's only one reason to get into a trade and that's because it has high expected value. You can test your ideas to figure out which ones are high EV trades. I don't use Limits as further price qualifiers. They make the trade less liquid and the last thing you want to be is long in a rapidly falling market when you could have gotten out. Slippage and skid is a part of life and if your need for such is great, get that feeling from throwing darts and keep it out of your trading. It's better to incur small slippage, rather than larger losses b/c you had a Limit on your Stop. Listen to your Inner Voice - or mine if you don't have one yet