Saturday, April 30, 2016

Do Traders Really Need a Mentor?

As children, everything we do in life comes with a coach, a teacher, or a parent directing us and helping us along the way. Words of encouragement are plentiful, and there always seems to be someone looking out for our well-being. As adults, this relationship is much more difficult to establish. Wouldn’t it be nice to have someone assisting you in life and helping you find success in everything you do?

As a technology education teacher, I realized early on the importance of being more than a teacher to my students.  According to Webster’s, a teacher is: “a person or thing that teaches something; a person whose job is to teach students about certain subjects”.  Webster’s defines a mentor as: “someone who teaches, gives help, and advice to a less experienced person; a trusted counselor or guide. I believe my decision to be a mentor to them was crucial in helping my students connect the dots between the theory that I taught and their abilities, potential, and goals. By being a mentor to them I was able to provide the advice, confidence, and the network that allowed them to achieve the level of success they envisioned for themselves at the beginning of my class.  So which one would you want helping you through your journey into trading; a teacher or a mentor?

Why is it so difficult to make consistent profits when you are working to be a day trader? I have all this education, but somehow I just can't connect the dots and make money. Why is that? This is a question I get asked a lot and the answer is really very simple.  A common mistake they make is thinking they can figure out the rules and develop the strategies themselves, but end up losing not just time but most or all of their savings trying to reinvent the wheel. I know because I have been there. Numerous places on the Internet will attempt to give you an education on how to trade stocks but the real secret is not only finding the right education but finding the right mentor as well.  Building a solid foundation on which to base your trading is of the utmost importance to survival in this industry. That is what I focus on when I am mentoring traders. As a mentor I educate traders in the proper way to trade stocks in today's market by helping them build a solid foundation which can ultimately lead to consistent profits. To put it simply I help new traders connect the dots.  

If you examine any successful trader, they typically have one thing in common: a mentor. Nearly every successful person in history had someone who they could confide in and learn from when times were tough. To be successful in life it is very important to have a mentor, a coach, or someone with more experience than you. You need someone who has been where you are and is in a position in life that you desire to be in the future. Most people underestimate the value of a mentor and this is the biggest reasons for failure in any endeavor, especially stock trading. A mentor offers valuable insight to things that only experience can teach as well as a host of other things.  A mentor is a brain to pick, an ear to listen, and a push in the right direction.  A mentor can help to shorten your learning curve and open your mind to new ideas and possibilities.  

Learning from a good mentor or trading coach is one of the best investments you can make for your long term success.  You invest in yourself with workout trainers or lessons from golf pros.  Why not invest in your financial future with someone who can help you use the knowledge you have and help you connect it to the skills to make money in the stock market for years to come?  Most people never get to live off of their trading because they never learn how to apply the knowledge and skills with the rules of the game and play it well.   Why set yourself up for failure?  Trading mentoring programs help transfer knowledge from the experienced traders to those who are just beginning. You get to see the way they interpret market movement and how they play the game. You’ll also understand the strategic trade-offs that they consider before making a trading decision.

Mentoring can be done in two different ways: one-on-one or small group sessions. One-on-one private sessions will obviously cost more, but, with a good mentor, can be tailored to your specific skills, problems, and goals.  On the other hand, a small group session allows for collaboration and discussion that can stimulate the mind and lead to other types of trading techniques that might have otherwise gone untouched.  The most important thing to think about when choosing a trading mentor is whether he or she can teach you something you’re comfortable with, not just what they want to teach.  Bad mentors are usually one-trick ponies who only know a couple of things and try to make money off of unsuspecting amateur traders.  

Now, do you even have to ask yourself if you need a mentor?  I hope not.  This blog should help you realize the importance of mentoring in the success of your trading career.   To sum it up, a mentor can give you the benefit of his or her perspective and experience which is vital in developing your trading identity.  A mentor can help you look at situations in new ways. He or she can ask hard questions and help you solve problems.  A mentor can help you define your trading and ensure that you don’t lose focus and continue down that road even when you become distracted by day-to-day pressures.  A mentor who knows you well can be a strong champion of your positive attributes and an ally during any bumpy spots in your career.  A mentor whose trading you admire can be a strong inspiration. With the help of a good mentor, you can trade more effectively with a clearer view of the goals you are trying to reach.  Having a mentor is not just a great idea, it is a proven concept.

Sunday, April 10, 2016

The Anatomy of Making a Trade

As a fellow trader who mentors new traders and as a moderator in the Warrior Trading chat room, one of the most common questions I get is related to the actual process of planning and making a trade. They understand the setup they want to trade and they know what it looks like on a still chart after the fact, but they have a hard time planning and initiating a trade beforehand so they never enter or enter a trade at the wrong times.  I believe the answer lies in developing a process to your trading.

As a professional educator and engineer, I firmly believe in the process approach to trading.  I can safely say that this is a big secret to my success.  My trading process looks like this:
Morning Routine
Develop Watchlist
Build a trade plan
Initiate the trade according to plan
Execute the trade according to plan
Reflection
This process is slightly modified when I switch to my reversal scans after the morning session. Intraday I eliminate my morning routine and my watchlist becomes the reversal scan.

The first question I get when I start presenting this is, “Does HOW you do things actually matter”? Think about something significant you do.  Then think of how it can best be done. Now, consider how you do it currently. This is a great thought process for traders to have. When you take a trade, you need to ensure that you are focused on the right things prior to entering it as well as during the trade. Creating a system for this thought process will take away most of the emotional hang-ups traders experience when looking to enter into a trade as well as managing it while they are in it.

The first thing we must do is develop a perspective of what matters.  This will come from education and practice.  Once a trader has the perspective of what matters, they can proceed to identify the specific processes on which to focus. In each of the steps in my process, there are key leverage points that often make the difference between me having a successful trade or an unsuccessful trade.  The key to success in most full time traders and, often not sufficiently focused upon by beginning traders, is the planning process that enables a trader to focus the important elements of a trade which maximizes their chances of success.

So why do I feel that developing a process important in trading? It is important because it describes how a trade will be put together, provides the focus for executing and managing them, and after the trade, provide a tool for reflecting on to determine if there is something that you missed or could improve on for the next time.

I start my trading process by following the same routine when I get up in the morning.  Trading cannot be looked at as a hobby.  You have to approach trading seriously and as such I wake up, go work out, take a shower, get dressed, and eat breakfast prior to firing up my trading station.  I am awake, alert, and motivated when I start building my watchlist.  This morning routine has helped my mental preparation coming into the market tremendously.  So whatever you do, starting the morning out the same way will pay invaluable dividends.   However, rolling out of bed and throwing water on your face 30 minutes prior to open just doesn’t give you enough time to get prepared for the market open.  Sitting at your computer in your pj’s or underwear does not put you in the right mindset to attack the market.  I know because I have experienced all of these scenarios.

My watchlist comes from a specific scan that I use every morning.  I will not look anywhere else because I am confident that the stocks on that scanner will have the best opportunity to setup for me to trade.  I will vet each stock the same way using a checklist I have to determine if it is actually tradeable for me.  My watchlist is built by 9am and I will not add anything to it after that time.  This allows me to watch the tickers on my watchlist for the 30 minutes into the open.  This actually leads into the next step in my process.

During the 30 minutes prior to open I am watching the tickers on my watchlist and developing trade plans for them based on the price action I am seeing.  This helped me with that deer in the headlight look I used to get when the opening bell rung and all of the lights started flashing on my charts. When the bell rings I’ll have my plans in place written on note cards because it is too easy to forget what you saw on each ticker coming into the open.  What is my plan if it sets up to the long side? What’s my plan if it sets up to the short side?  What setup do I want to see? What are my profit targets? Where will my stop be? Is the profit window large enough for the trade to make sense? Just asking yourself questions like these when you are planning your trades will give you a big advantage because you can then go in with a battle plan and stick to it.  If it is written down in my face I can easily refer to it and that eliminates the anxiety that I used to feel when that bell rang.  All I’m doing at the open is looking for my signal and trigger to enter the trade.

Once the stock sets up, signals, and triggers an entry, I will enter without question, well that is the plan anyway.  Sometimes I may second guess myself, but not often.  I have my profit targets written out on my trade plan and well as the technical level that I am basing my stops on, so after entry I am just concentrating on hitting my marks and booking profit.  There are some that say that knowing when to exit is the hardest part of the trade.  It can be extremely tough to not exit the trade too early if you do not have a pre-set plan. So if you have a plan ahead of time and you stick to it, you will have a better chance of letting your winning trades work and cutting your losses off quickly instead of the other way around.  This will also help with managing your emotions while in the trade.  Last week I talked to our Warrior Pro students about filtering out the noise.  This strategy goes a long way to help do that so that you can focus on the trade.

Once the trade is done I will reflect on how well my plan worked and how well I stuck to what I had written.  Most of the reflection on my trades will come in the evening when I review and recap my trades from the day.   I believe one of the key things forgotten is reflection. “What did I do right?”, “What did I do wrong?”, “Should I have sold earlier?”, etc. are all extremely important for the development of your trading. Just because you made good profits doesn’t mean you are a perfect trader. How you play both sides of the table are extremely important.  Write down or do a video recap of the trade and everything that comes to mind lesson wise. Then, file it away with other past lessons and use them as a reference for the future. Some lessons hit harder than others, but be confident that with time you will only get better. It only takes one time of getting your hand slammed in a door to figure out to be more careful, but may take two or three times to learn to turn on the lights before walking around your house at night.

Why are processes in trading important? They are important because they describe how things are done to prepare for a trade and then provides the focus for executing them.  It helps filter out the emotional social noise giving you a better chance for a more successful winning trade.  It provides you with a tool to go back and reflect on your trades and make you a better trader.   If you focus on the right processes, in the right way, you can design your way to trading success.