How I Took my Trading to the Next Level
It’s that time of year again: going to ugly sweater Christmas parties, planning for the new year, and looking back over the accomplishments and mistakes of the year. This is my favorite time of the year, and, no, it’s not for the Christmas parties.
It’s because it’s a time I take a detailed look at what’s worked well and what’s not worked so well, and then make adjustments to move forward.
With another year of trading day in and day out, full of successes and challenges, here are the 3 important lessons I learned trading throughout 2014.
Trading is easier when you don’t have opinions
It’s funny, friends and family will often ask me what my “top stock picks” are, or what I think about company xyz.
That’s a tough question for me to answer given my trading style which relies on me not having an opinion on what stocks might do going forward.
So naturally when I tell them, “I don’t have any top picks, I really have no idea what any stock is going to do,” it gets some interesting looks.
When you trade on your personal opinions, and not what the market is actually showing you, it can lead to some difficult situations.
Over the course of this year, I’ve narrowed my trading down to just one type of setup — breakouts.
I’ve given up trying to catch falling stocks, buy dips, or anything else without market confirmation.
For me, I just couldn’t justify the mental drain to get me out of those situations when things didn’t work, even with rules in place.
For example, if I were buying something because it’s “gone too far” and then it continues to drop — when should I exit? It’s now gone even further, presumably more stretched, and it’s an even better buy, right?
When you remove your personal bias out of your analysis and truly analyze the markets through an objective lens, you become empowered with clarity and the ability to drop losing positions easily and ride winning trades happily.
Becoming a master in one type of trading setup has done wonders for both my mental state and my trading account.
This mentality served me well as a young discretionary trader but over time (present day) the systems and strategies I trade go beyond just a single setup.
Day trading takes years off your life
This was the biggest pivot for me in 2014.
Those that have followed the blog and analysis from the start know I primarily traded the markets as an intraday trader.
But proudly (thankfully), not anymore.
Over the course of this year, I have fully transitioned to swing trading.
On the good days, life is great when you’re a day trader.
Where else can you bring home a week’s paycheck in one good trade that lasts 20 minutes?
But on the bad days, life sucks.
I’m not just talking about the financial side of things, you should always be managing risk appropriately on a per trade and per day basis. It’s the mental side of the equation that can make you miserable.
Trading is difficult. But day trading for a living is outright mental.
The shorter your time frame, the faster the feedback loop on your trading decisions is, and the more your mental fortitude will be tested.
Day trading is almost entirely about managing your self rather than the actual trading. The market has a unique way of finding ways to push your buttons, and as soon as your discipline waivers, you’ll make a costly mistake, that hopefully for your sake, will end with just one mistake and not spiral into a black hole of regret.
Throw into the mix some additional hurdles such as: breaking news (halts), high-frequency trading algos, and just an overall noisy, random-like price action, which all combine to give you the utmost pleasant trading environment.
This isn’t written with intent to bash day traders or to suggest that it’s impossible to turn a profit within that time frame, because there is tremendous opportunity in the day trading space.
But from my experience, you have to be some sort of mutant to be able to handle the emotional ride. Or, you simply need to automate your trading so your decision making is more hands off.
Over the course of the year, I’ve come to terms with the fact that the frustration that comes along with intraday trading does not compensate for the resulting gains.
To all those full-time day traders out there, I salute you.
How I took my trading to the next level
Know what you’re good at
Some of the small changes I made to my process this year:
- Adjusting the times I allow myself to look at the markets
- Adjusting the total number of positions I have open at any time
As well as some bigger structural changes:
- Dropping the day trading time frame
- Mastering and focusing on just one type of setup
Knowing what you’re good at, but also knowing what’s working is critical to success.
The only way you can determine what those things are is by doing the hard work and asking the tough questions. It requires you to take a step back and review your trades, practices, and approach to the markets.
Dropping day trading wasn’t for the hell of it. It happened out of necessity.
Looking over my monthly performance for over a year of data showed very clearly where the bulk of my profits were coming from — swing trades. Add in the fact, 80% of my monthly expenses (commissions) were coming from day trades and that they were the primary source for putting me on tilt, all suggested something had to change.
Building in a proactive approach, where you ask questions and analyze your trading regularly, (daily, weekly or monthly) is critical to keep moving forward.
This doesn’t mean you should start changing everything all at once as soon as you start losing money. You need to get good at identifying what good losses are and what bad ones look like.
I wouldn’t be where I am today if it wasn’t for periodically questioning why I do what I do, and hunting for ways to optimize my trading.
What changes have you made this year?
Do you know what kinds of setups, times of day, and stocks you make the most money on?
If the answer is no, then you need to get serious about allocating more time in the new year to review your trade history.
Thanks for reading and good luck out there.
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