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.

Profit.ly 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