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.
Enjoy what you read? Share it below and be sure to tag @thetraderisk.
Posted in Article, Trading Success, Trading Wisdom
Tagged with Breakouts, Day Trading, Discretionary Trading, Swing Trading, Trade Setups, Trading Psychology
probably about the 4th or 5th article I’ve read that says “get good at one type of trade” which I did for 2 years while managing a very,very slow pharmacy(about 50 RX’s a day, CVS on average does about 300-400 a day) I charted each trade, graphed it and studied it. I had nothing better to do. I love the break outs too and am expanding to just using moving averages to find set ups. the cross hair trader on stocktwits shows great break out strategy. makes it look simple and trading really is….the hard part is believing in yourself,not getting arrogant or cocky, not getting lazy, not breaking your own rules, not getting scared outta a trade,etc….because let’s face it….you have a 50/50 chance on ALL TRADES!
“the hard part is believing in yourself, not getting arrogant or cocky, not getting lazy, not breaking your own rules, not getting scared outta a trade, etc”
Bingo Paul, well said.
Hey Evan – Andrew here from ST Boston.
Great post that I think is accomplished on many levels. For a lot of traders, there is this “gauntlet” they need to run through in order to become better traders. Truth be told that precipice between “great” and “mediocre” rests not on research but with the self.
At the end of the day the only people we trade with are ourselves. True masters remove all the chatter.
Over the last 5 months I’ve been focusing on only one type of setup. An instant in time. And I keep coming back to this because of the famous quote from Bruce Less “I’m not afraid of a man who has kicked 1,000 times but rather the man who has made the same kick 1,000 times”
Also a part of what I think is hilarious is that a lot of us don’t talk about these set-ups because they are so simple, and so basic…..but if we told anyone about them the “edge” would be ironed out.
My pattern is so simple it could be explained on the back of a napkin in 3 sentances. And it does 28% per year.
Andy! Long time no talk, thanks for the comment and hope the East coast has been treating you well.
It’s a great point, the big breakthroughs rarely come from learning a new indicator or tweaking the period of some moving average. Instead, it’s the inner dialogue a trader has with him/herself and the lens from which they view the market.
The Bruce Lee quote is spot on. Happy early new year!
I only read a few of your articles, but this one is the best of them (resonates with me the most), not to put down any other of your posts. Thank you for sharing your experiences and thoughts. Also, congrats on finding your niche.
Thank you Jake! I appreciate the comment. Wish you all the best.
Very insightful article Evan – thank you for sharing your priceless wisdom and experience!
Thanks Amalia glad it was helpful!
5 years later, I was wondering if you still think that about daytrading , considering the instability of the markets, and the bad news piling up about covid-19, trading war with China etc. Markets can easely gap down at the open… I just feel more safety in daytrading. But you’re right about the experience of daytrading , I feel like coming out of a boxing match at the end of the day, it’s exhausting, but I like being able to relax after the markets close without having to fear for my positions.
Good question. 5 years later and I still very much feel the same way. Day trading, and to be clear, I’m referring to discretionary day trading, is just extremely difficult for lots of reasons and I would encourage most traders to explore other styles.
However, you raise a very valid point about the recent volatility and overnight risks. This is precisely the time where day trading makes the most sense. Intraday ranges have greatly increased, volatility is high, so there is a lot more opportunity for day traders to turn a profit and you don’t have to deal with overnight gap risks.
This is the environment to day trade.