Thursday, December 24, 2015

Why Traders are Hypocrites about Trading Goals and Blow up Their Accounts

Most traders blow up their initial trading stake.  Destroying that first trading account is a right of passage that every successful trader goes through, but few admit to doing.  I don't mind that it happened to me.  I embrace it, I wear it on my sleeve.  In fact, when I was starting out as a brash young punk thinking I could mint money, I blew up two accounts.  Trust me when I tell you that demolishing two accounts has a way of sobering you up real quick.  I decided that I had to figure out what I was doing wrong.

This is when the light bulb went on for me.  I had my aha moment after I actually sat down to review my trades (as suggested in a $60 trading book that offered little else, but was still worth the money for that one piece of advice).  What I discovered was that I was a good stock picker.  I was hitting on 70 percent of my trades, but there was always that one trade that would kill me.  I had no concept of position size yet, or risk management, but on this day I started a journey that lead me to the holy grail of trading.

Today I talk to tons of traders, and inevitably we talk about trading goals.  These days there is more information out there and most beginning traders have some idea of position sizing, so the goal always starts out sober.  It goes something like this:

Just like you Paul, I'll start with a small 5-10K stake, and consistently build it up to $100,000 in a few years.  I will keep position size small and only risk 1 percent per trade.  As it gets bigger I'll get even more conservative.

It all sounds so good.  The problem is, that is not what we really want.  What we really want is to hit the lotto and get lucky with one or two stocks that change our lives.  We tell ourselves we will do it the "right way", but really we just want to get there as fast as possible.

That's why just about every trader that says they will do it the right way ends up doing every thing wrong.  They make bigger bets than their account can handle.  In the beginning they might even get lucky, but greed takes over and they get even bigger.  Whereas they were supposed to start trading more conservatively, they make even bigger bets.  Eventually one of those big bets fails.  Then they make another one that fails.  Now, instead of sobering up and building slowly, they try to win those losses back.  That is the beginning of the end.

This scenario is all too commonplace.  I know because I have had conversations similar to this one more times than I can remember:

Stressed Trader: Paul, I screwed up big time and need your advice.

Paul: You did not just blow up your trading account again, did you?

ST:  No Paul, I didn't, but it's now half the size, so I'm going to start trading bigger.

P: Oh, so you are asking me the fastest way to blow up your account, eh?

ST:  Quit messing with me Paul, I've only got $5,000 left to trade and I need to make back my money fast.

P: Do you remember what you told me when you started with 10K?

ST:  Yes, but I need to make it back and then I'll go back to trading the "right way".

P: I can't help you son, you are going to blow up your account, and you will learn from it.  Come back to me when you have another stake.

Now guys and gals, if you are ever caught in this situation and feel the urge to get bigger:


I feel this kid's pain.  I have been there.  I know what it's like, but I also know I never want to feel like that again.  The average retail investor starts with around $10,000, and the prevailing wisdom is that 95 percent of traders fail.  Why do they fail?

It's because they are lying to themselves.  They don't want to incrementally grow their account.  They want it all now.  Be honest with yourself and ADMIT IT!

Now once you admit it, sober up and fix your brain.  You know you have a better chance getting hot at a blackjack table in Vegas than getting lucky trading.  To succeed at trading, you know luck is not an option.  You must fix your mental trading game.

I know what's coming.  All right Mr. Market Speculator, that all sounds good, but how do I do that?

I'll admit it takes more than what I can write in one blogpost.  It takes hours of dedicated training.  However, you can start by:

1.  Always having a game plan for every trade

2.  Have automated rules in place for position sizing

3.  Never risking more than 1 percent on any single trade

4.  When you feel the urge (and it will hit you from time to time), dedicate yourself to a battle of mental warfare with yourself.  The evolved, intelligent, emotionally sound you needs to beat the crap out of the greedy neanderthal dreaming of a big payday.

I know this sounds like a bit much, "battling yourself with a war in your head".  Trust me, I've read all the self help NONSENSE.  I do not want you to become a self help junkie.  That just becomes another headache in and of itself.  Nor do I want you to create a ton of complicated rules.  Just get in your head and beat the greed out.  It's that simple.

Once you have won a few battles, it gets easier to fight your true nature.  A feedback loop will form a HABIT and at some point you will no longer be a hypocrite.  You actually will want to build it the right way and the thought of taking on too much risk will make you sick.

Finally, once you start analyzing your trades with a focus on risk and position size instead of stock picking, that when you know you have achieved true TRADING ZEN.

Taken from the  trade diary of Paul, a market speculator who trades stocks and commodities using technical analysis, chart patterns and trend following methods.

Below are my personal trading rules that I have adapted from my 2 years in the market.  I adapt and refine these rules/procedures as I become more proficient in trading.  I truly believe the secret of my success has been my ability to trade within myself and sticking to being conservative in my trading. When I tried to ramp it up to fast, which I did from the end of October through November, I failed miserably.  I started 2 weeks ago going back to the basics with slightly higher position sizing and I made up for 6 weeks of losses in 2 days.  You have to trade within yourself and gradually build yourself up to it.

You can't follow the mods in the room trying to match their trades.  That is the main reason that we do not post $ profit amounts of our trades.  We do not want traders feeling that they have or are failing because they are not making what we're making.  I trade a lot of the tickers that Mike trades but if I was trying to match his profits, I would go broke because he trades more aggressive and with a larger account than I do.  I trade within myself.  Too many traders try and compare themselves to other traders in chat and try to follow those that are posting trades all day long.   Most are paper trading or calling out trades they didn't take after the fact.  24 tickets in Suretrader will cost you about $175.  A killer for a small account.  The few that are actually trading in most rooms will not post trade after trade all day.  After a while you will know who is live and who is Memorex, but the point is no matter what you should not follow or compare yourself to other traders in terms of profit.

1.  I always have a plan prior to entering into the trade.  I have a target entry point/level that I base my trade off of, my stop level, and my profit targets to book profits on the way to my ultimate profit target.

2.  I only trade the tickers that meet my criteria and I only trade my strategies.  I will not follow anyone into a trade based on their setup or strategy.

3.  I will always have my watchlist ready to start the trading day.  I will write down my thoughts on each ticker on my watch as well as potential entry,stop and profit target levels. If I do not have any tickers to qualify for my watchlist, I focus on my opening range scan to identify potential opening range breakouts or breakdowns.

4.  My profit targets and stop are determined by support and resistance levels.  This could be based off of daily chart levels, moving averages, or psychological levels such as whole and half dollar marks. I also factor in my risk ratio.

5.  Do not take a trade that my risk/reward would be less than 2:1 at my first profit target.  This will be calculated based on the range between my entry and profit target.

6.  Even though I have a small account I don’t worry about how “expensive” a stock is or how many shares you can buy.  A volatile $100 stock that moves 10 percent is better than a  $3 stock that moves 5 percent, regardless of your position size.  I focus on percentage gains, not point gains.

7.  When I determine my position size, I will focus on my risk amount and adjust my position size accordingly based on how far my entry is away from my stop target.  For instance if my risk on a trade is $100 and my stop is .20 away, my position size will be 500 shares.  This also means that my first profit target must be at least .40 away from my entry for this trade to make sense.

8. I stick to my profit targets and stop once I am in a trade unless the price action dictates a change.  I will not micro-manage a trade, but I will monitor the price action throughout the trade.

9.  I strive to keep losses small and in check while letting my winners work keeping my wins larger.  I embrace small losses because if they are withing my risk parameters I consider the trade a win. Successful traders do not have small wins and big losses.

10. I always pay attention to the overall market (SPY) when trading individual stocks.  This helps me determine the likelihood of my trade plan being a successful one.  For instance if the SPY is trending down and trading below the VWAP, a long trade would not make sense for me to trade.

11.  I have said it before and I will say it again.  I am from the K I S S school.  Keep it Simple-Stupid. I only have the indicators on my chart that are necessary to my trading.  Indicators only reflect what we see in price and volume.  I only use moving averages and VWAP

12.  I keep a trade journal and I study my trades every night.  I could not be successful without doing this.  Reflection is a very powerful tool.

I teach and mentor traders everyday in the Averagejoe Trading community.  I stress education and practice before you start risking your own money because blowing up a paper trading account is a lot less painful than losing your personal savings trying to learn how to trade.  I have the tools and personnel to give you all you need to be successful.  The rest will be up to you.  If you would like to learn more about how I trade email me at  I host Sneak Peek Wednesdays every week.

Sunday, December 20, 2015

Stock Market Outlook for Week of 12/21

Stock Market

The market ended a tumultuous week slightly lower. Stocks had rallied over the first three days and jumped Wednesday after the Federal Reserve raised interest rates for the first time in almost a decade. The move was a vote of confidence in the U.S. economy. But over the next two days stocks were hit by some fear of weakness in the Chinese economy, slowing global growth, and weakening demand for energy and metals.

Bank stocks fell the most and technology shares suffered more declines as a bad December got worse for Apple. The world’s most valuable publicly traded company sank again, bringing its monthly loss to 10 percent.

Technically, the overall trend remains bearish as the broad market continues to trade below the 50, 90, and the 200 day moving average. While the tech sector still looks like it could lead the market higher, the overwhelming percentage of stocks trading below both the 20 day moving average and the 200 day moving average tells us that bears have complete control of the market at the present time and sector imbalance remains strong.

The double top set up that developed last month appears to be intact, and it will take the the broad market a strong rally above the 212 level, which could happen if the FED data comes out slightly worse then expected over the next few months, which would imply slower rate hikes in the next few quarters, which would ultimately give the stock market some support.

As things stand at the present time, the sentiment remains bearish and until I see at least 60% of stocks trading above the 200 day moving average, I doubt we are going to see sustained buying pressure come into the market.

If we break the current support level, the next level down doesn’t come into play till we hit the 195 level on the SPY, but I don’t see a major catalyst that would cause the market too go too much lower, especially with the current momentum level pointing to oversold levels once again.

Energy Market

With 2016 drawing near, commodities investors should temper expectations for a legitimate oil rebound next year.

Last week, crude oil prices fell to their lowest levels since early 2009 after OPEC’s meeting Friday ended without an agreement to lower production. OPEC has been fueling a global supply glut in an attempt to maintain market share and squeeze out high-cost oil producers.

OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers.

Technically, we can expect some relief from the downside trend, but over the next few months expect prices to continue moving lower. Because financial markets “price in” everything known or anticipated, the impact that lower energy prices is having on big oil companies will diminish, since the recent downside pressure was largely priced into the stocks price last quarter in anticipation that oil prices would soften.

Sunday, December 13, 2015

Stock Market Outlook for Week of 12/14

Stock Market

A slump in oil prices sparked a global sell-off in financial markets on Friday with losses spreading from Asia to Europe to the U.S., where stocks fell sharply.

The selling was broad, with all 10 sectors of the Standard and Poor’s 500 index ending down. By the end of the day, the S&P 500 index had lost 39.86 points, or 1.9 percent, to 2,012.37. It was down 3.8 percent for the week, its worst showing since August.

As I explained last week, the overall market sentiment was bearish, even though growth stocks and tech stocks were close to old price highs. The percentage of stocks trading below the 200 day line, never rose above 40%, telling us that the bears control the long term trend.

The most likely scenario is a bounce back up to the 50 day moving average and possibly a test of the upper resistance level, till the overall momentum levels show that at least 60% of stocks are trading above the 200 day moving average.

First major support level on the SPY doesn’t come in till the 196 level and with tech holding above the 50 day average, I doubt the downside selling pressure will be sustainable. In other words, the most likely outcome is more continued range bound trading action ahead.

Monday, November 23, 2015

Eating Humble Pie!

I have to face the facts.  I am in the middle of the first major struggle in my brief professional trading career.  I have tried for weeks but I just couldn't put my finger on it.  I even talked to a professional hedge fund manager who told me it was psychological but I just couldn't wrap my mind around it, To this point I was always able to determine what caused me to lose my way.  I have a pretty good reflection system and it seemed to always work without fail.  In this case it just took me longer this time because I just didn't want to see the truth.  My problem is 100% psychological.  It wasn't because I didn't understand the market.  It wasn't that my setups were not working.  It was because I let some things get in my head that I shouldn't have.

At the end of October I ran my numbers for the year and I was $14,000 away from hitting 100k for the year.  For starting out on January 1st with 5k I felt pretty good about myself.  My plan was to start trading full time in June but I actually didn't make any more money trading full time at home than I did trading while at work.  So when they offered me a contract for the 1st semester making more money it was a no brainer to jump on it.  I could bank more money and build some more security.  It worked great at the beginning.  Then the wheels started falling off.

I had the market timed perfectly around my job.  I knew when my setups had the best chance to move.  Then the afternoon offered a lot more opportunities than it does now.  Then we had the "Great Flood" here in South Carolina.  I had 2 weeks off where I was back home trading on my station. During this time I became a moderator in the chat room and I started trading with Speedtrader. Changing brokers wasn't to much of a switch because DAS is DAS but once I got back to school my setups started happening earlier so I would miss them.  I would take a solid setup that would come back and take me out only to turn around and make the move I was looking for.  Or I would have a solid setup but no follow through on the move after confirmation.  After a while I became frustrated and chased a couple that ended up biting me.  All it takes is several losses in a row to start you into a downward spiral.  Especially when you're not used to losing!  I was beginning to feel like this guy:

I didn't have a strategy to get back on the right track.  Well I did but I forgot about it.  Whenever you get lost you always go back to where you started.  You get back to your go-to setup that you should know like the back of your hand.  Start small and then slowly build your confidence back up.  Take only the solid setups.  I was trading all over the place.  I was looking beyond my setups for a big win to get back in the game.  My trades were looking like this!  I just couldn't put anything together the right way.

It is so easy to get caught up in trying to make back your losses or feel you have to make a trade.  Even though I tried not to let that 100k mark creep into my mind, it snuck up on me.  All of this can be overwhelming.  I see how a lot of traders never come back from their first slump.  They continue in a downward spiral until they hit bottom.  I realize now that this is inevitable and it will happen a many more times in my trading career.  The key is learning how to manage it.  How I manage this will further define me as a trader.  The last thing I want to be known as is a statistic or a one hit wonder.  I have been searching for this my whole life and I have finally found it.  I remember when I bought my first computer.  I was determined to make it pay for itself.  I knew one day I would be able to make a living on my computer.  Now that I have found it, I do not want to watch it go away.  I will work as hard as I can to make sure that it doesn't happen.

The bottom line is I'm starting from the beginning.  Taking it slow and building myself back up.  Taking only the most solid setups.  If I make it to 100k by the end of the year, that would be great.  If not, oh well.  I'll just catch up with it next year.

Sunday, November 15, 2015

The Stock Market Outlook for the Week of 11/16

The stock market slumped to its second-biggest weekly loss of the year Friday, breaking a streak of six consecutive weeks of gains. The biggest decliners were the retail sector due to negative reports and forward looking statements by some of the biggest retailers, energy and large growth sectors.

With third quarter corporate earnings season almost over, of the companies in the S&P 500 that have reported results, 73% of them have beaten earnings estimates, but only 44% of them have exceeded sales expectations.

Analysts are currently anticipating a 3.8% decline in corporate earnings for the third quarter, which is an improvement from estimates of a 7.2% decline that was made at the beginning of earnings season.

Over the past few weeks momentum levels in the large caps rose to unsustainable high levels and are now declining just as rapidly, erasing the strong gains we saw in October. The bears are controlling the markets, with less than 30% of stocks trading above the 200 day moving average.

The 20 day or the short term momentum levels are below the 40th percentile in the broader market and will more than likely move into the low 20th percentile before the market begins to consolidate.

The big news for this week is going to be the FOMC minutes, which will shed some light on what the FED was thinking a few weeks back. Aside from the strong employment number last week, data remains mixed and FED may decide to push back the rate hike till March, which is the most likely scenario.

Saturday, October 10, 2015

My Journey to Warrior Trading

Earlier this week Ross asked me if I would like join his team and become a moderator in the chatroom.  I didn’t have to think twice.  I already felt I had found a trading home because that’s what this community feels like to me.  If you have read my blogs since February, I have done nothing but rave about Ross and the gang at Warrior Trading.  So for me it felt like a natural progressive step to join the team.  I felt honored, then humbled, and then just plain floored when I received the invitation.  These were 3 guys that I look up to and learn from every day, and they wanted me to join their team!  After all this wore off, I began reflecting on how I got here.  What all have I accomplished that earned me this honor.  Am I really deserving?

The first thing I reflected on is my favorite quote that I picked up when I first started teaching.  “No man can become rich without himself enriching others” Andrew Carnegie.  The one thing that has remained constant throughout my trading journey has been the fact that I was always willing to help others.  If I learned 1 new concept or adaptation to my strategy, I would share it.  I believe that no aspiring trader who I have come in contact with can say that I have refused to help or share anything I had related to trading.  Giving a helping hand is truly something I believe in.

When I first started looking seriously into day trading I was looking into penny stocks.  There was someone who was considered the penny stock God who I began to follow. I joined his service and looked at dumping a large amount of money to be one of his "chosen" students.  As I began to research this program I came across another trader who had just became one of this guys students and said he was going to blog about his journey.  I thought that this was perfect.  I would wait to see what happened with him and make my ultimate decision from his assessment. As I read his blog I began to learn something more from him.  I learned that you had to approach this from a business aspect. I learned that this was a marathon, not a sprint.  It was during this time that I realized that penny stocks were not for me, but I continued to follow this blog.  I owe a lot to him because his blog kept me on the right track.  Who would have known after all this time we would end up in the same community again. So who am I talking about?  Jai Catalano of course! His blog is named "Beyond Debt".  Everybody in WT chat knows Jai!  I had no idea he was in the room until he did a review on WT on his blog.

Over the next several months I made the transition to listed stocks and tried several other communities.  I worked hard and I went about it in the systematic way I learned from following Jai's blog.  I realized moderate success and I was pleased with my progress, but I hadn't found a "home". Someplace that just felt right to me.  I realized that I was long biased and I knew that I needed to focus on long strategies.  By this time I had invested $1000 in an educational DVD from the chat community I was in, but their main strategies centered around shorting stocks. The DVD covered some long strategies but I just had a feeling something was missing.

I left that community and I tried trading on my own for a while, relying heavily on Twitter.  I had enough knowledge to stay in the game, but again I knew something was missing.  By now school had started and I put off my trading for a while.  Then in October I started searching around again and there was another DVD coming out by the same guy as the first DVD I bought. It was to have live trades recorded so I bought that one and again just focused on the long setups.  It helped a little more but just couldn't find that piece of the puzzle I was missing.  I was making a few dollars with my trading which I felt was good based on the 10% - 90% stat.  I just wasn't content.  I made a decision while on Christmas vacation that starting in 2015 I would go all in.  I knew this is what I wanted to do and I was going to work hard at making it happen for me.  I was determined to find the right community. I also started a blog to document my journey into full time trading.

As I was searching the internet the next day for possible communities to join I came across a link to a free webinar that had been previously recorded.  The description sounded like something that I would be interested in so I checked it out ( Check out Ross's picture on this webinar!  After I saw that webinar I knew I had found something.  Of course I didn't rush in.  I took advantage of a couple of free chat days and the 2 week free trial before I took the leap in February of 2015.  But the way Ross taught and explained his setups and strategies won me over the very first time I saw that webinar.  Being a teacher myself and teaching classes for new teachers I am able to recognize very quickly a natural teacher.  I believe he is more of a natural teacher than I am.  

If you have followed my blog from the beginning you will see how I have adapted and refined my trading strategies.  You will see how I progressed through the different tools I have used.  I encourage you to read it if you haven't and see just how much change you may experience in your journey.  I will continue to grow and refine my trading and tools I use because I believe that this is the secret to success.  I feel I work harder than the average new trader.  I felt I had too in order to reach my goals.  I'm up until 1am studying charts not only of my trades but others who made similar trades as I did. Twitter is an awesome resource if you use it correctly. I watch and re-watch videos and webinars and compare the notes I took from them to make sure I'm not missing anything.  I'm up at 7:30am (used to be 6am) looking to see what happened overseas and how the market is reacting to it. Then I begin preparing my watchlist for the day. I put in a lot of time to get to this point.  I didn't realize it until I reflected back on how much time I invested in this.

So how did I get here?  Hard work and dedication.  Patience and determination.  If I didn't accept months of making $40, $50 and $60 wins while I was learning how to deal with the emotional part of trading I would not be here.  I couldn't look at everyone in chat and on Twitter making hundreds and thousands of dollars and compare myself with them to determine how successful I was.  I had to look at me; my trades; my risk; my profit % and set my rate of growth based on me and my goals.  I had to continuously ask myself; Am I progressing?  Am I growing as a trader?  Am I focusing on the right things?  Am I working hard enough to ensure my success?  All these things matter,

Now I'm in a position to be able to do more to help others,  I will continue to work hard to improve so that I can share that success with the WT community.  Is it added pressure? YES!  I don't want to let my team or community down but it is the kind of pressure that will drive me to continue improving and becoming more successful in my trading.

Thanks to Ross, Mike, and Jeff for this opportunity.  Thanks for all of the support that everyone has shown me as I enter this new phase of my trading career and just know I will be working harder than ever to help all those I can realize their goals and dreams.  See you in chat!

PS:  I will be doing a video outlining my strategies and how I trade so you can understand my alerts better,  Hope to finish it this weekend!

Tuesday, September 22, 2015

How I Overcame my Fear of Taking Trades

A fellow trader asked me to do a blog about how I overcame my fear to take trades.  I have to admit that it was a long process for me to truly overcome my fear of trading.  Once I realized that it is natural to feel the way I do because to be a successful trader you have to react contrary to human nature.  This caused me to go out and try to understand what is happening in my brain so that I could figure out how to retrain my way of thinking.

The reason why I believed that I could retrain my brain is because when I was in college I was diagnosed with dyslexia.  I had been able to mask the problem up until that point because I learned how to adapt to my disability and function in school just like an average student.  My teachers nor my parents ever knew.  Then when I started college I had a professor who wanted us to write in pen because she wanted to see our corrections.  That wouldn't have been a problem if we did it out of class but we had to write essays in class.  So I tried to adapt again and buy erasable ink pens.  My professor knew that trick. Needless to say she once she saw all the corrections I had to make she knew I had a problem and referred  me to be tested.

What I Learned

Once I began getting help with my dyslexia I began to gain confidence in myself and I was able to take more chances and risks as it related to my scholastic career.  All this was made possible because they helped me reprogram my brain as to how it processed the information I was taking in and the information that was coming out of it.  So once I made the connection with the fear I had in trading and whether or not I was seeing the patterns or the setups correctly with the same fear I had with my schoolwork, I knew I needed to do some research on the psychological aspect of trading.

So in my research I found something called Neurofinance.  This studies the relationship between the brain and money. Studies have shown that trading activates the same primitive centers in the brain that are responsible for self-preservation. These are the primal emotional and defensive layers of the brain that do not respond very well to will power (self talk). In fact, the brain is hardwired to prevent you from turning off its primal circuits, its core defensive and reactive processes.

Why? These processes, such as fight, flight and pursuit have great survival value. When these primal parts of the brain are in control of your trading you are most likely to automatically do the opposite of what you consciously intend. It may feel like self-sabotage, but it is not diabolical… it is biological. It is just your self-preservation instincts taking control. It is difficult to manage an instinct, which is one reason why so many traders under-perform and eventually fail.

Normal human instinctual fear, which may be worsened by your genetic makeup, will interfere with trading success because it will make you more reactive to the randomness in the market. Winning traders are either not afraid or carefully manage their fear.

Most traders who trade scared are also trading scarred.  Normal losing trades and periods of drawdown are processed normally, as expectable--if somewhat disappointing--events. When losses are substantial, however, they can be processed as traumatic events. Instead of being processed through normal, explicit, verbal channels, they activate the flight/fight emergency mechanisms of mind and body, leaving their emotional imprint. Later, events similar to the traumatic losses--even normal ones--can trigger the emotional and physical reactions of emergency, including paralyzing anxiety.

Once trading becomes associated with painful experiences, traders come to expect losses and betrayal by the market. Because risk cannot be eliminated from trading, the inability to tolerate risk works against you. It makes you late in pulling the trigger (waiting for confirmation) or makes it impossible to stay in a good trade and let winners run.

To trade successfully, you need to reduce fear to a level where it is healthy, i.e. you respect the reality of risk, but your judgment and behavior are not impaired by fear.  To eliminate self-sabotage, you have to reduce your fear to manageable levels. You can’t trade well with a scared brain.

How I Overcame my Fear to Take Trades

Once I realized the problem I had to think of ways to train my brain to have a trader's mentality.  The first obstacle I faced was the confidence in my ability to identify a setup, plan, and execute a successful trade.  My confidence was shot because of what I explained a little earlier.  My emotions kept associating the painful experiences when I wanted to enter a trade.  I had suffered some losses and had lost over 1/2 of my account.  I started believing that I really didn't know what I was doing, which I didn't.  So my first step was to become educated.  I picked 1 strategy to learn, which was the ABCD long setup that Nate teaches in his DVD.  I learned and I practiced using the On-Demand feature on the TOS platform.  I practiced making a trading plan by establishing entry and exits and using position sizing to establish the correct risk/reward. Once my education was complete I was ready to move on to the next step.

I then had to convince myself that losing was OK.  That taking losses occasionally was part of the business and there was no way around it.  It was even more difficult convincing myself because my account was so small.  A few small losses and I would have been done.  This is the 2nd largest reason most new traders fail or quit.  The ones that are smart enough to get the education often only have a little money left to fund an account so mentally it is very difficult to accept losses.  Human nature makes you want to protect the little capital you have

I had to look at it this way.  I give myself about $150 a week for gas, food, and personal incidentals. I would play the lottery every week spending $100 to $150 a week.  I figured that If I'm willing to throw that money away for a million to 1 chance of making any decent money and I was OK with it, then I should be OK risking $50 in a trade to make $100 on something that I have a better than average of coming out a winner.  In the lottery I had no control over whether I won or not outside of picking the numbers or the scratch-off and buying the tickets.  On a trade I had a lot more control over the entry and the outcome of the trade.  The lottery was a gamble, the trade was an investment.  

With that I didn't have much trouble entering trades but then another problem surfaced.  When I was in the trade I was a nervous wreck.  I would consistently take the trade off as soon as I made over $25 if the price action slowed down.  I didn't use the exit strategy I had.  I found myself watching my P&L.  If I was up $40 or $50 and I saw my unrealized gains dropping I immediately sold.  I began to hide my P&L and traded the chart and tried to stick to my plan.  Some I did well and some I still got scared when I saw too many red candles print and I took it off early.  What helped me get better with letting my trades work was studying the charts of my trades every night and seeing how my plan worked but I didn't trade it correctly.  I guess the only good thing that happened during this time was that I was sticking to my stops and not letting losing trades get out of hand.  

This is how I programmed my mind to become a trader.

1. I got educated.  Even being an educator I sometimes forget the value of education and how important it is to have someone help you organize the information so that it makes sense.

2. I learned and became proficient with 1 setup at a time.  This helped my confidence as well.

3. Practice trading.  I admit I practiced with my money more than I should have at first but once I learned how to use the on-demand feature on TOS I began practicing trades at nights and on weekends.  The more I practiced the more entering and letting trades work become automatic

4. I used small position sizing at first to reduce the effect of my emotions.  I was more inclined to let a 100 share position size have the room it needed to work.  I was able to stick to my plan and let my winners run.  I had to in order to make $ with a 100 share position!

5. I hid my unrealized gains so that I couldn't see whether I was up or down on a trade.  This also helped to keep my emotions in check and focus on the trade.

6. I never traded alone.  I needed to be a part of a community that trades my setups because when I was new, and even today, I need support throughout the trading day. I could always ask a question to a moderator in chat when I felt lost.

7. I found a mentor to give me in depth individualized instruction and feedback.  Again I wanted someone who trades the same setups and has the same trading ideology that I have

8. I stopped watching my TweetDeck and chat trying to catch every move.  Just because there are people on Twitter and in chat calling out trades all day doesn't mean I'm not looking at the right stocks.  I just stuck to my scans and my setup.  Besides, 60% of whats called out is BS anyway.

Once you have your education out the way, the key is staying small until you are ready.  There is no shame in making $50 a day to start with on 100 share positions when you are trading the entire move. Slowly increase your share size and risk making sure you are completely comfortable at every step letting the trade work.  That is what I did. Stick to your stops.  1 missed stop can destroy months of hard work.  Remember, no one is perfect.  You will make mistakes.  I make mistakes.  But if you stay disciplined and trade within yourself, you will make it.  You will minimize the effects of your mistakes.  Work with a proven guru and community.  One that fits your style of trading.  Everyone knows I have found mine and how it has improved my trading.  I know now what they mean by "this is a marathon, not a sprint".

I hope this helps and that this is what those who asked me about this wanted.  As always just shoot me an email if you want to.

Sunday, September 20, 2015

My 2 Ways of Finding Support and Resistance

Support and resistance are common terms for area's on the chart where the price of a stock has a difficult time breaking through.  Support levels tend to stop a price from falling below a specific point and resistance levels act like a ceiling that a price can't break above.  Knowing where these levels are make it much easier to decide when to enter and exit trades.  So the question becomes; how do we find these levels?  Well there are several different ways to identify these levels but in this blog I will only discuss the ones I use and how I identify these levels.  It seems to me that this is an art form using a little creativity merged with exact science.  But, it has proven to be very successful for me and it has saved me from taking many marginal and bad trades.

Psychological Levels

Often called "psych" levels, psychological levels occur when price ends in 0's. It's human nature to gravitate towards round numbers when discussing any topic that involves numbers. The most common psych levels are whole and ½ dollar marks with the most powerful being the whole dollar mark.   This level is used mostly during intraday day trading.  Here is an example.  In this chart on FIT  you can clearly see their effect on price action around the whole and 1/2 dollar marks at 42, 41.50, and 41.  The daily level is identified by the green line and the yellow lines designate the intraday whole and 1/2 dollar marks that acted as support or resistance.

I simply identify these levels on the chart as they act as support or resistance so that I can be aware of them later in the day.

Swing Highs & Lows

Another great way to find daily support and resistance levels is to mark levels in the past where price had a difficult time breaking through on the daily chart. As price moves up and down, each level that price has bounced off of could be a level in the future that price bounces off of again. This is a manually intensive method and takes time to draw on the stocks that we are looking to trade, but it pays off as it helps us with establishing a successful trading plan. These levels can help us with potential entry and exit points.  To put it simply, I am only marking the tops of the peaks and the lows of the valleys 

As you can see on the daily chart on NFLX. I have identified areas of support and resistance levels where the stock price bounced up or reversed.  I also take it a step farther and identify levels of consolidation.  Not all levels I have drawn will be in play in a particular day but I usually leave the daily levels on my chart for future reference.

Now here is the intraday chart on a day that I traded NFLX.  You can see where I used the level of resistance at $101.50 which was a level from the daily as well as a half dollar mark intraday to establish an entry point to take the trade.  When an area on the daily and an area in the intraday chart line up it makes for a potentially strong area of support or resistance.  The next level on the daily was at the whole dollar $95 mark which I set as my profit target.  As you can see it had a little hiccup coming down at the $96 mark but it didn't hold initially.  Then you can see when it bounced off of the $95 area it consolidated for a while around the $96 mark which acted as support before it failed and made the move down to the 93.50's (1/2 dollar mark).  Later you see $96 held as resistance before it came back and settled around the $95 mark.  This is a perfect example of why the whole and 1/2 dollar marks intraday are significant and cannot be discounted.

As I mentioned before there are several approaches to identifying these levels but I am from the school of "KISS" (Keep it Simple Stupid).  As long as it is effective I will use it and so far it has improved my trading tremendously.  I am not perfect and it is not an exact science so it takes patience and practice. Trading requires lifelong education and even the seasoned professions have to study the markets and adapt their strategies religiously so you will find me studying and practicing every night and some on the weekends.  I have set study times to make sure I put my time in.  I hope this helps those who asked me about how I go about finding these levels.  A video will be coming soon.

Friday, September 18, 2015

Which Statistic Do You Want to Be: 90 or 10?

I know this may be a blog that you may not want to read.  Maybe by now you are in "education overload" because everyone and their mother is stressing and offering education.  I also know that you are tired of hearing that 90% of all people that try day trading fail.  I have been hearing that for years as well and I am sick of it too.  But I sat back and thought about it this week because our state is in the process of changing the way we evaluate teachers.  Now, teachers will be evaluated on the success of their students.  I wondered why in the last 5 years there hasn't been an improvement in the 90% failure rate of day traders.  We have seen a boom in the last few years in gurus offering "education packages" to help you get started in the right way.  And still, we are stuck with the 90% rule.  So why can't we get past this.  As a professional educator complete with advanced degrees, I can say without a shadow of a doubt that most of the education being offered by these gurus to aspiring day traders is missing the mark.

 The largest fatal mistake an aspiring day trader makes has to deal with education.  Some believe that they can watch a few free videos and webinars and then they are ready to attack the market.  Then you have some that choose a guru and education package that is based on glitz and glamour and the promise of money and freedom that do not produce.  Or you have those proud individuals who believe they know what to do and that they do not need anyone to tell them how to trade because it's simply buy low and sell high.  How hard is that?  But those individuals that really drives me crazy are the ones who are too lazy to want to learn and just wants to pay a guru to provide them with alerts.  Since I have started my journey into trading several years ago, I have associated with many aspiring traders and I can count on 1 hand those who are still trading with me.

Here is what I know; education is the key to success in day trading.  You cannot expect to master a skill if you skip through a curriculum and not fully educate yourself.  This profession requires lifelong learning.  Above all of that, you must choose the right educational package and guru.  You must make sure that you take it serious and not take any shortcuts. While most gurus and their educational packages out there are horrible and just want your money, there are good people that truly want to help.  The hard part as a person brand new to this industry is to know how to navigate though the sea of gurus.  I am writing this blog to help those who may be lost at sea in this to find their way home.

Education, experience and knowledge are 3 of the most important factors when it comes to beginning your trading career.  You do not need to try and save money on education by ignoring it's importance. This is why you need to invest in your education and knowledge.  I would recommend finding a coach or mentor to help you get through this period.  Someone who is not trying to sell their own trading education packages but someone who knows and understand what you are going through during this time.  I feel that this is the most important time in a new traders career dealing with expectations and emotions.

The next step is to research professional traders and get to know their style of teaching and trading before you purchase any education package.  The best traders will have free lessons posted on YouTube or their Web page so that you will be able to "test drive" their style.  You want to find someone that actually trades everyday and that trading is their primary source of income.  Also you want to find a community with several professional traders with complementing styles.  This will give you a good chance for a well rounded education.

I have found a community with excellent and complete trading education packages that are written by traders who actually trade everyday. In fact, I can see their trades, scans, and charts on my screen in real time as I trade throughout the day. I would rather learn from successful trading educators who are willing to apply their knowledge, strategies and education with their own capital rather than just talk about it.  The community I have found is Warrior Trading.  Ross, Mike, and Jeff are trading and teaching real time throughout the trading day.  Unfortunately I found them too late to take advantage of the packages with the simulator. The content is second to none and I have experienced all three of them teaching so I can say beyond a shadow of a doubt they are the real deal.  They have occasional free chat days and you can find some great videos on Ross's YouTube channel.

At the time I wrote this I was a subscriber/member of the WT community and not a paid affiliate so my thoughts and feelings were genuine and based on my own personal experiences.  I am now a moderator in the chat room and one of the Warrior Pro instructors and my feelings has even grown stronger because I have input in the education we provide.

The Warrior Pro Bundle includes 3 live small group mentor sessions a week.  You will hear from Ross, Mike, and myself in these sessions.  This is invaluable because we will be trading and teaching the same setups that you just learned about.  We can help you analyze your trades and walk you through what you did right and what you did wrong.  You will have more confidence when you know you have trading mentors behind you as well as with you all day in chat.  Getting a mentor was the smartest thing I have done to date in my trading career.  I trade less, get bigger moves, and make more money now.  I have to thank Mike for mentoring me and for helping me become a better trader.  Remember, to be successful in trading you must be willing to learn throughout your career.  Even the gurus have a mentor that helped them get to where they are and stay on their game.

I really feel the biggest reason traders fail is because they do no get the proper education from the beginning.  Every new trader I meet and get to talk to I try and get them to understand that getting the right education is priority one.  If you have 2k and want to start trading look at investing in your education first and start saving up again because if you take a short cut you will be saving up again to pay for your education.  I don't care what anyone says you do not learn how to trade by blowing up your account.  The only thing you learn by blowing up your account is that you need to get educated before you trade again.  People that say that and say they are just paying tuition to the market to learn are just trying to make themselves feel better about the money they lost.  I know because I used to be that person.

Take it from me.  Education is the key to your sustained success in trading. Period.

Saturday, September 12, 2015

What I Learned This Summer

Now that the summer has pretty much come to an end, I feel that it is time for me to reflect on the things I learned this summer.  I started out the summer full of excitement and enthusiasm and I truly believed I was ready to trade full time and make a living at it.  However, the very first lesson I learned was that you cannot have these types of emotions in trading.  They prevent you from making sound decisions when trading.  The first thing I had to do was to get my emotions in check so that I could approach this with my eyes wide open.  Once my eyes were open, I saw just how much I didn't know and how unprepared I was to do this full time.  You see, being consistently profitable for 6 months is just part of the equation. It is an important part, but understanding how to adapt to the changing markets and managing emotions on a daily basis were skills I lacked and it showed because the day I went live was the beginning of the summer lull in the markets.  Now I see that it was the best thing that could have ever happened to me.  Some people say blowing up a couple of accounts are the best thing but for me,this summer was it.

The next emotion I had to deal with was disappointment.  I fully expected to make twice as much as I was making before since I could give trading my full attention.  When things started out slow I started forcing trades and really got frustrated.  Once I slowed down and began to define myself as a trader and establish my go-to setups I began to settle in and start trading without emotion.  I had to learn to react the same toward a $50 loss as I did toward a $500 gain.  I had to approach each trade the same with the same focus and discipline regardless of the results of my previous trade.  I think a lot of inexperienced traders never get out of this cycle.  I also watched a lot of Clay Trader's videos and they were a big help as well. His motto is "Trade Without Emotion".

I also realized that I needed a true mentor.  Even the very successful gurus still have mentors that they talk to and work with every day.  Having a mentor really gave me more insight in my trades and kept me focused on the important aspects of my setups and strategies.  I learned the true importance of support and resistance levels and how to trade off of them.  I also learned how to use the moving averages for my intraday trades.  Both helped me be more selective in my trades.  There is always something new to learn about my setups and how to trade them in different market conditions.  It also helps that my mentor is in Warrior Trading chat everyday teaching.  It has made a tremendous difference in my trading.

I was also introduced to another "guru" that had a similar trading setup to what I trade.  Kunal from Bulls on Wall Street produced several free webinars, one being 4 days long.  His chat seems to be set up similar to Ross's but it is on steroids.  He is smart and is all in when it comes to trading and education.  I didn't try his chat because I feel the DTW community fits my personality better but I always catch his webinars and videos he posts on YouTube. I learned how to identify and the importance of the daily levels from my mentor Mike in DTW, I learned how to enter early and trade off of support or resistance versus waiting for confirmation candlestick patterns from Kunal's teachings.

I tried my hand at making video journals of my trades and I have shared a few on YouTube.  Talking through my trades seems to help me analyze them a little better. It seems like after a few weeks I forget small details from key trades but with the video and the chart it will keep it fresh in my mind.  It's also a better way for me to share what I am doing with others and get good feedback on my trades.  All of this helps me continue to improve and grow as a trader.

I didn't intend on going back to work but I received an offer that I just couldn't refuse.  I can still trade in the morning but just not at home.  I only use a laptop and an extra monitor and it helps me focus on only the best setups.  Since I went on vacation a month ago I have not used my trading station.  I have only used my traveling setup and my trading has been more focused.  I think I will stick to this until I get more solid in my trading.  I think I went too big too soon.  If I can make good money with this setup, I will continue to trade with my laptop and extra screen.

I guess everything that I learned this summer can be summed up in one word; education.  It doesn't matter how much capital you have, what tools you have, or what market you trade.  Without education, you will not succeed. Period.  But, there is so much information out there you have to know how to use it and put it together where it makes sense.  That's where choosing the right community to become a part of and having a true mentor comes in to play.

I feel I have turned the corner and I'm ready to start another chapter in my trading life.  I've even toyed with the idea of starting a trading coaching service for brand new "average joe" traders like me who are wanting to get started in trading but are overwhelmed with all that is out there.  But, I will continue learning and growing as a trader because this is what I want to do the rest of my life. Stats for the Summer                                            All Trades           Long             Short

Total Net Profit$27k$20k$6,659.49
Gross Profit$29k$21k$7,109.76
Gross Loss$1,809.72$1,359.45$450.27
Profit Factor15.815.815.79
Total Trades14611036
Percent Profitable79.45%80%77.78%
Winning Trades1168828
Losing Trades30228
Avg Trade Net Profit$183.40$182.88$184.99
Avg Winning Trade$246.43$244.05$253.92
Avg % Gain3.54%3.49%3.7%
Avg Losing Trade$60.32$61.79$56.28
Avg % Loss0.86%0.95%0.6%
Ratio Avg Win to Avg Loss4.093.954.51
Largest Winning Trade$2,512.00$2,512.00$1,362.00
Largest Losing Trade$196.21$196.21$119.00
Largest Winner as % Gross Profit8.79%11.7%19.16%
Largest Loser as % Gross Loss10.84%14.43%26.43%
Max Consec Winning Trades131311
Max Consec Losing Trades433