After years of answering emails filled with questions from newer traders I felt it’s time to set a few things straight. Here’s what it means to really trade for a living (according to me, that is).
1. Day trading is exciting! This is why I trade
False. Good trading is boring, or as Jack D. Schwager so eloquently explains, “trading just as in archery, wherever there is effort, force, straining, or struggling it is wrong.” A good trader is calm and collected. With experience your mindset, heart rate, and excitement level remain in this state throughout the entire trading process.
How to Keep Calm
Here’s an exercise to help build a calm and level head when entering “battle” as some traders call it. This technique is also one which many pro athletes will use (to some degree) and it’s one I often use when gearing up for a race. It’s a visualization technique and it goes like this:
You will need to read through the exercise first, and then try it with your eyes closed.
Now, close your eyes… you’re sitting at your computer, hand on the mouse, it’s morning. The markets are open and you’re getting ready to make your first trade. You identify your levels and the criteria for entry. You don’t hesitate, once things line up you pull the trigger. You’ve accepted that this trade will be a loser, even before your order is filled.
You’re now in the trade and things are beginning to move, first against you by a few ticks, remain calm, you’re stop and targets are in place, there’s nothing for you to do, but sit patiently and wait. Calmly you glance over at the time, noting when you placed the trade, then back to the charts. Minimize your DOM, you won’t need it for a while. Now picture you’re state of mind, calm breathing, you’re simply an observer watching the markets, waiting for either a signal to tighten your stop, or your profit target to be hit. A few minutes pass and the trade starts to move a few ticks in your favor. You once again remain calm and don’t mess with your stop or target.
A few more minutes go by and you’re up a few points approaching your target. According to your criteria it’s now time to tighten your stop so you move it from the initial point to a closer level which reduces your risk. Not too tight mind you, there’s still some wiggle room. Finally, price continues inching in your favor and ding! Your profit target gets hit. Now it’s time to record the trade and move on to the next one.
You observe yourself, patient, calm, and focused. Now come back to reality and on your next trade, take a deep breath and keep a clean head.
Visualization is a proven way to improve performance when you’re away from the screen, off the court, or preparing for a race. Know exactly what you’re going to do and when you’re going to do it.
2. To be considered a full-time trader I have trade all day long
False. I’ve found that trading less yields more profits. Spending 16 hours in front of the screen is just not productive, not to mention unhealthy. If you’ve read The Four Hour Work Week by Tim Ferriss you’re probably familiar with the viewpoint that being productive isn’t a factor of squeezing as much as you can into your day. In fact, productivity is not the goal at all, efficiency is.
If 80% of your profits come between the hours of 7-10 AM, is it worth spending another 5 hours in front of the screen to potentially make 20% more, with the risk of giving it all back? No. Spend your time where it’s the most effective, doing the things that are working.
Therefore, if trading the Euro is going well in the morning session, focus on that block of time, make your trades, take your profits and get out. Go do something else for the rest of the afternoon. Just because you’re not actively trading doesn’t mean you can’t be thinking about trading, strategizing or reviewing charts after hours.
To me, being “full-time” in the sense of hours worked is NOT the goal. Making the most amount of money with only the amount of time required to the point of diminishing marginal returns is.
Focus on a block of time each day to trade and be as diligent and alert as you can be. Then get out and do something else fdilor a while. You’ll find you’re trading improves.
3. Most traders lose money
True. Actually, all traders lose money. What keeps professional traders net positive on balance is their ability to see the forest for the trees and not let one (or a few) individual trades impact them negatively. Set your sites on the bigger picture and make the system fit the numbers. That’s helped me stay calm in rocky times.
One losing trade is not big deal if you’re position sized accordingly. While books like Reminiscences of a Stock Operator depict “The Boy Plunger” Jesse Livermore taking huge risks and reaping huge rewards. He also lived a life of excessive highs and deepening lows.
Strive for balance, track your net worth and shoot for a smooth equity curve extending up and to the right. If your trading is sending this curve into a tizzy (and feels like riding a wild bull), you’re position size is too big.
4. A traders mind is his greatest asset
True. “A man is what he things about all day long.” – Ralph Waldo Emerson.
We are made up of the things we believe and as traders our mindset is everything. A great trader walks with confidence and conviction. Whether or not others share the same believes as you is irrelevant. The only thing that matters is your conviction to your beliefs.
Train your mind to make quick decisive decision and respond quickly. Develop a sense of feel by practicing, not until you get it right, but until you can’t get it wrong. Train yourself to see the markets through your eyes and your beliefs, not the media and talking heads on TV.
5. Anyone can make it in this business
False. It takes a certain type of individual to make it as a trader consistently over the long term. How do you know if you possess these skills? You don’t until you take the plunge, although I can tell you from experience it takes a strong drive, determination, and willingness to be patient and see things through.
The way we react to life’s challenges makes us who we are. Weigh the opportunity costs. Factor in the time required. Ask yourself, what are you willing to give up to succeed. Once the answer becomes “whatever it takes,” you know you’re in the right place.