Recently, I was talking with a complete stranger (a 20 year old “kid”) who I met as I was being shuttled from point A to point B. During the commute, he told me how he had 3 jobs, was going to school full time, had no debt, owned a car that he paid for in cash, and saved as much money as he could.
The jobs were mixed: 2 of them having specifically to do with his field of study, and the other completely unrelated. He worked these jobs on the weekend and during the week (when time permitted) in order to pay for his own education. His parents could have paid for his school – they had the money – but he wanted to do it himself. Continue reading
gamble: to take a risky action in the hope of a desired result; to stake something on a contingency; to take a chance
In the context of this definition, trading is gambling; however, so is starting a small business, going to college, getting married, having kids, buying a house, investing in the stock market. Keep that in mind as you read this post.
Dispel Mindset Toxicity or Risk Ruin
Your mindset is a fragile thing. Unlike a trading account which can be re-built over and over again due to additional capital injections obtained through work outside of trading, family, friends, etc., once your trading mindset is crushed, it’s very unlikely that you will have the ability or desire to move forward with trading. It is for this reason that it is extremely important that you treat your trading mindset with great care and sensitivity (I’m talking Hallmark Channel sensitivity). Part of that great care is dispelling and disproving all of the negative, toxic thoughts that enter your mind via external sources (e.g. goons on social media). And that takes us to the reason why I decided to write this post: to dispel the impact that two of the most toxic statements that a trader is forced to hear day in and day out will have on their mindset:
- “95% of traders fail”
- Trading is gambling and if you trade, you’re a gambler
Listen on SoundCloud | Length: 16 minutes
The type of people that you surround yourself with will shape the type of person that you are. If you surround yourself with losers, then you will be a loser.
Read more about this episode →
Screencast Video and downloadable, customizable Objective Trade and Day Grading Tool can be found below.
This screencast is a follow-up to a previous post that I wrote titled Boost Your Trading Performance by Objectively Grading Trades and Days. In that post, I discuss the importance of judging (and grading) each trade that you take and each day that you’re active in the market based not on the P&L outcome, but instead, on your execution of process. As communicated in the post, we can’t control when we get paid, but we can control how well we execute our process. Most of what’s contained in that post lines up with the content in the following screencast and tool, but there are a few differences. These differences include:
- The fact that there’s an actual tool to download and use (below) for personal use (this previously wasn’t available).
- The styling of the tool has been improved upon in the tool available to download as well as in the screencast, compared to the style of the tool in the previous post’s screenshots.
- The total number of potential points for the trade grading scale has increased in the tool available for download as well as in the screencast from 45 points (as seen in the previous post) to 50 points.
- Other minor differences.
Protect Your Mindset at All Costs
The most important (and often overlooked) concept in trading is the following: Your mindset will ultimately be the deciding factor in whether you succeed or fail as a trader.
Think of it this way: Traders do not ultimately fail due to blown up accounts – they can save their money and start a new account (as most successful professional traders have done, sometimes multiple times). Traders ultimately fail due to experiencing a fatal blow to their mindset. Once your mindset is severely damaged, it can be next to impossible to find the strength and courage to continue persevering towards your original goal of being a successful trader. It is for this reason that you must do all that you can do to minimize the possibility of experiencing a fatal blow to your mindset if you want to be a part of the minority of successful traders by proactively developing a strategy to strengthen and protect your mindset. Continue reading
This article, which examined 70M+ trades, emphasizes the importance of keeping your losers small and your winners big. The concept is simple enough, yet the vast majority of traders fail at trading because they struggle to do this effectively over time. As the article explains, most traders do the opposite: They cut their winners quickly and let their losers run, which results in a positive win rate but a negative expectancy (the negative expectancy matters a lot more – unless you like losing money with a high win rate). Note: I refer to R-Multiples a number of times in this post – if you’re not familiar with them, then read Van Tharp’s informative explanation of R-Multiples.
Possessing the ability to both 1) respect (and accept) your initial stop loss (risk) and 2) let your trades run to their targets, amidst a sea of volatility, rotations against your position, and uncertainty, requires four skills (trading virtues, really) which many traders never develop: Patience, Discipline, Confidence, and the ability to read a market Contextually. Continue reading
A link to view and download my Position Sizing Tool Google Sheet can be found at the end of section #1: Measure Risk in R-Multiples.
One common trading hurdle that I see with several traders (even some who are highly followed on Twitter with booming subscription services and chat rooms) is their difficulty in scaling up trade size once they feel that they are in a position to do so. This is something that can be overcome fairly easily by making just three changes to your methodology: Continue reading
One routine that has helped me in my trading career is to keep a record of all of my trades. I use a number of tools to accomplish this, but two that I use most often are Tradervue and Google Sheets. In this post, I’m going to focus on how I use Google Sheets to:
- Grade each trade that I take.
- Grade my overall performance for each day that I actively trade.
Two roads diverged in a wood, and I —
I took the one less traveled by, And that has made all the difference.
– Robert Frost
I have a tremendous amount of respect for anyone going down the entrepreneurial road in life – the road less traveled. We as traders are perhaps the purest form of the entrepreneur.
Many of us left behind secure jobs in corporate America (though as many of us know, that security is merely an illusion). Many of us left behind thriving small businesses (myself included). Many of us were engineers, doctors, teachers, computer programmers, initially taking the more comfortable and paved road in life. But then something happened along the way – there was a divergence in the road, and you decided to take the one less traveled, the one that would lead you to an industry where 90% fail. The fact that you followed your passion to become a trader (no matter where you’re at in your trading career), you have my respect. Continue reading
A link to view and download my Return on Risk Projection Tool Google Sheet can be found at the end of this post.
I talk on Twitter about the importance of defining 1R (your static risk on every trade) as part of your trading methodology. When you keep your risk static on every trade, you significantly decrease the chances of destroying your account via a drawdown or even a few disastrous trades.
All too often, traders are focused on their win rate. However, as the following table illustrates, win rate should always come second to Return on Risk. Continue reading