four lessons learned from trading in 2013

Successful trading is about living a well balanced life

Trading success is rarely achieved by an understanding of the markets alone. Success generally accompanies traders who understand and accept the ebbs and flows of the trading lifestyle, live in a state of happiness, live free of emotional baggage, live confidently, and live with hobbies outside of trading. If a trader is not living a well-balanced life there are so many factors that have the potential to limit one’s performance. Ever try trading on little to no sleep? How about after an argument with your family or significant other? How about squeezing in a 20-minute trading session before a prior obligation? How about that big loss you took last week? How about an 8-hour trading session of nothing but chasing losses? These are all negative mental thoughts, physical states, and emotions that threaten a trader’s ability to trade objectively and operate at peak performance. The market is too difficult to profit from without addressing this external baggage. Go to sleep earlier. Exercise. Eat better. Be happier. Be confident.

The market is one massive ball of chaos

We all see the same charts. We all have access to the same information, ahem. We are all educated by the same books. And we are all after the same thing. We all want our next trade to make us money. We fight for a piece of the pie as the market zigs and zags tossing around account pnls like a puppy thrashing around his favorite chew toy. It’s tough. Fear, greed, complacency.  These are emotions each and every one of us feel at one point or another in various degrees. It’s because of these shared emotional behaviors built in our DNA that allow the market to consistently deceive the majority of traders. We battle against each other, and ourselves, day in and day out fueling the markets’ movement. The market will never be easy; it just can’t be.

Successful trading requires multiple layers of risk management

It only takes 1 moment when you are not on top of your game to ruin the past days, weeks, or even months of your trading account. You find yourself in a weak state of mind and you’re ready to commit to a trade that has gone against you. You’re throwing out your rules and you’re moving all in deeper and deeper as the stock falls. You think to yourself, I know this can turn around and make back all of my money and then some. You have been patient for so long and it’s time the market pays your dues. Flash forward 5 hours later and you’re sitting at your desk staring at your screen in disbelief thinking, why in the world did I do that? If I could just have that one trade back. If I just closed out that loss when I had the chance, when my rules told me to… Can you relate? Have you ever been in that situation before? I know I have. Just 1 or 2 of these days per year can crush your overall trading results. Even as a profitable short-term discretionary trader I learned I need something automated, rigid, and mechanical that can act as my safety net. Rules, stop losses, journals, these will protect me 97% of the time but for those other 3% I need something more. This is why I developed an automated solution to the problem, NinjaTrader Risk Analyzer, which adds an additional layer of risk management to my day to day trading.

Spend less time obsessing about trading

I have no doubt I spent more time this year than any other in the past reading, improving, self-analyzing, and a whole lot more to get me ahead as a trader. Ironically, one thing I made a point to do was spend less time in front of the charts actually trading. I left behind the lifestyle of being glued to the charts all pre-market, regular hours, and after hours sessions drooling over potential trade setups, worried I might miss a big move. It’s just unnecessary. Not to mention nearly impossible to operate at peak performance for such a long stretch of time. For my trading style, and personality, the greatest opportunities to make money are from 9:45AM to 11:45AM EST each and every day. That is my block of time to trade. Sure, if I am in a position I will occasionally hold it past noon. Sure, there are times I will put on a trade in the afternoon. But for the most part, 90% of my day trading is taking place within a 2-hour window in the morning. This adjustment has made me take fewer, higher quality setups that my pnl has seemed to really like.