This seems like an interesting topic. I’ll chime in. I’ll give a little history of my trading to help the reader understand my background. This is also my first post. I’ve read some of the forum posts but haven’t responded to anything up until this post. I think there are aspiring traders that just haven’t gotten it yet. That are missing that one thing. My post might give that one person something to lean on to push their trading where they want it to be.
I started trading around 2003 or 2004. I definitely wasn’t profitable right away. Just like many people, I found there was a whole world of technical indicators out there and courses and everything else newbies face. I’ve tried that all. Indicators. Moving averages. It took me about two years or so to finally get consistently profitable. What pushed me over to the side I wanted to be on wasn’t any indicator or course or anything else I’ve tried. It really was when I came up with my own system. I’ve been trading that same system since 2006. Largely the same system with minor tweaks for improvement along the way. But the base system is largely the same.
Everyone is different. Every trader is different. They first need to understand who they are. An action Jackson trader will be bored out of his mind trading the bonds. It will never work. At the same time, some can’t imagine sitting in front of the screen for 6 hours watching every tick. It would drive some crazy. Figure out yourself and your personality. Every market really is different and that’s due to the people behind that market that are trading that market. Don’t try to change yourself to trade a market not right for you. For me personally, I trade the ES. It’s a good middle ground between the bonds where it feels you’re watching paint dry and the NQ that moves faster than a mouse. The ES gives me enough trades and gives me enough time to make a proper decision. The ES isn’t for everyone either. I know some that trade NQ that absolutely hate trading the ES. Understand yourself and find a market that suites that personality.
Second, every indicator works. The free ones to the ones you pay $10,000 for. Some traders don’t use indicators and that also works in trading. They all work exactly the same. They don’t work 100% of the time. There are many traders that buy a new indicator. The shiny new toy if you will. They try it and lose a few trades and look for the next best thing. They don’t give it a chance. Trading isn’t about that. You hardly ever find anything trading or non-trading that’s 0% or 100%. Most traders want a trade that they believe will 100% go in their favor. That isn’t viable. The traders actually making money consistently look at a series of trades instead of the next trade. Here’s what I mean. Every trader has setups they use and it really doesn’t matter what the setup is. A lot of traders look at the very next trade. That’s not the correct way to trade. Because now they’ve set their expectation that the next trade is supposed to be a winner. That leads to disappointment or worse. They start adding to a loser or negotiating with their stop or completely remove the stop since they have this belief the trade is a sure thing. They need to look at trading as a series of trades. The next trade can be a winner or loser and it shouldn’t matter which one it is. After 50 trades or 100 trades, are they ahead or behind with their equity curve? That’s how pros would approach trading.
Think of the above from a casino perspective. They design these games to favor the casino. The house always wins because the odds are skewed in their favor. Do they lose? All the time. Nearly 50% of the time. But they still come out ahead. Sure people come in and play and get lucky but the house knows the more they play the better off the casino is. It’s almost the same thing with trading. The difference is the casino has discipline. The average trader doesn’t. You almost have 3 kinds of traders. Ones with an up sloping equity curve. They lose but the losses are kept under control and their equity curve goes from the bottom left to the top right. That first group seems to be the minority. There’s another group that has the opposite equity curve. They just lose. I believe the overwhelming number of traders are in this last group. They make money. Sometimes for weeks or months. Then one trade destroys their account. One single trade wipes out weeks and weeks of gains or more. So you have this up sloping equity curve and then the sharp drop. And they start the process all over again.
Another thing about trading is how you lead your life. It shows up in trading. What I mean is if a trader wakes up and sits down at the computer and starts clicking away. And they do it whatever time they wake up. There’s no structure there. Their trading is going to reflect that. Traders that want to make it need to have structure in their life. The way they lead their finances and life will surely show up in trading. If a trader goes out Sunday night drinking and shows up Monday morning with a half hangover, what’s the chance that trader is going to be successful that day? Another example is positive thinking. If your outlook on life is so negative and the world is out to get you, that isn’t going to help either.
Know when not to trade. Some traders make money consistently in the morning. They go out to lunch. Their environment changes. They come back in the afternoon and give it all back and maybe more. In the morning you’re refreshed. Going out to lunch takes you out of the environment and when you get back you need to adjust like you’re sitting down for the first time in the morning. Most don’t do that. They don’t get a feel of what the market is doing. They’ve also been away for a while and are anxious to make money so they start clicking away without much thought. Early in the morning you have trading on your mind. After lunch you could have 10 other things on your mind. Life events also influence trading. Something out of the norm really good or really bad takes place in ones life, that’s not the time to trade. Their mind is not 100% focused on trading. Even smaller events. If a guy has a fight with his wife or girlfriend, his mind isn’t clear to trade. He’s thinking about that fight. That leads to mistakes and mistakes in trading are expensive.
Everyday is new. Everyday is fresh. Don’t try to make back a big loss. Or try to make back a trade you missed out on. That’s also going to clutter your mind. Imagine you were trying to make back a loss. The trade is working for you and you have an order to get out but the market hasn’t reached that point yet. The market starts demonstrating signs it’s done with the move. You don’t see that. You do but you don’t want to believe it. Instead of taking whatever amount you made, you got stubborn and just wanted the market to go to the price you actually want to get out at. What happens next? The market was showing signs of turning around and it does. That leads to another loss. Instead of making back 3/4 of that loss and looking for another trade, stubbornness got the better of you. I’ll give you a personal example. Earlier this week I had a trade I made $1,600 on. Not a big deal. That trade was an early morning trade. I put the order a little after the market opened. I didn’t get filled until 10:45 or so. Here’s what’s interesting about the story. When I placed the order, I placed my stop and my target to exit. The target I placed was 2749.75. At the time, the market was trading around 2690 or so. So I’m expecting a huge up move in the market. That particular day, Fed chair Powell was due to give a speech. My initial entry order was 2684. I also felt the ES might pause at 2686 and was ready to take the trade long at that level since the risk was similar. I got in around 2686. The market went up but more sideways as it seemed it was waiting for the speech to start. After it got above 2692, I moved the stop to 2687.75. We were 10 minutes away from the speech and the market was right around 2693. I’ve seen many times where the market dips down quickly with these speeches before immediately moving up. There was a real possibility of that. At that point, I had a tough call to make. Take the $1600 or let the trade ride knowing the stop would still make me a little under $500 if the ES dipped quickly and then moved up. I ultimately decided I didn’t have enough of a buffer and took the $1600. As soon as the speech started, the ES moved up quickly. My adjusted stop would have held and I would have remained in the trade. Even all the other locations where I would have moved the stop would have held also. That day, the ES closed 2745. Now keep in mind I placed a target around the open for the market to go to 2749.75. Basically I was expecting a huge 60 point move up in the ES or a 600 point move up in the DOW. There’s a good reason for that but that’s for another day. Anyway, when I decided I didn’t have enough of a buffer, I made the decision to take $1600 versus the real possibility of the market whipsawing down first and only making $500. Of course if the stop was in the original location or had I built more buffer in the trade, I would have been inclined to let it ride. It just happened that I was too close without enough buffer. Now we get to the point and good part of the story. Had I left the trade on for whatever reason, the stop would have held. The market also made a huge move up that day and came within points of my exit location. The ES that day closed at 2745. Based on my entry, I would have made $14,750 instead of $1600. That’s a nice day and very big difference. This is where the psychology part kicks in. Imagine I came in the next two days and tried to make back what I missed because the market owes me that money. I’d be making the wrong decisions. My head wouldn’t be clear and I wouldn’t be able to see the market for what it is. It happened that I didn’t take any trade the day after or today. That’s not a factor of that day. I had orders yesterday and still do today. I placed my orders this morning at 9:08. I just cancelled my order. It was to short the ES at 2761. We’re very late on a Friday with an early look at the market imbalance of $1.6 billion to the buy side. Today’s big reading is a direct result of the MSCI re-balance today. Plus fund managers added to their net longs and I got that news a few minutes ago. The correct decision is to cancel the orders. Not hope the ES hits that price and immediately moves down with a few minutes left. They weren’t hit yesterday and haven’t yet hit today. But I came in and left that missed trade in the past. If I hadn’t, I’d be making a lot of bad mistakes that would have lead to bad results. The point of my story is to highlight what I said earlier. Don’t try to make back losses and don’t try to make back missed trades. Yeah it’s tough knowing you called it and had the trade. It’s even tougher knowing the stop moved where I’d make something either way. But you can’t cry over spilled milk. Yeah it sucks to miss a huge day like that especially knowing I had the bird in hand. But I can’t think about that stuff the next day. The next day is the next day. It’s a new day. The past should have no relevance on what you do the next day.
Everything I’ve said above has something to do with how traders think. What they believe to be true and how they carry on in life. Those traders that are struggling and on the edge have to have a need to make this happen. Not a want. A need. If you want to go to the mall for a new shirt, you may or you may not. It’s not that important. If you need to get your medicine from CVS and you’re out and they close at 9pm and it’s 8:30, you need to go. You will find a way. Traders need to be successful. Want isn’t good enough.
Treat it like a business not like a hobby. Any other business, you’re watching inventory or taking care of customers and everything else that comes along with what business you started. Trading is the same. You’re going into business for yourself. To trade. Treat it that way with the same respect you would any other business.
Ultimately yes you need a winning strategy. But the win rate isn’t something to focus on. I know traders with 30% or 40% win rates that actually make money. That comes back to knowing yourself. Are you OK losing that many traders for that one big trade? Or would you rather have a system with 80% winners? Both systems are able to make money. Keep a journal and note what works and what doesn’t. Note what you were looking at at the time.
The less things you have on your charts the better. If you have 5 indicators, 3 say buy and 2 say sell. Your mind will be spinning and you’re just going to confuse yourself.
Be specific in how you enter and exit trades. Write it down. Yes on a piece of paper. If you can’t explain your system to someone else, it’s too ambiguous. You’ll take trades one day for one reason and take trades another day for an entirely different reason. For new traders, start with one setup. Make sure you can make money on it and paper trade it if you have to. Once you know it makes money, stick to that one. Once you get good, add other setups to your arsenal. But in the beginning start with just one. Be really good at that one instead of mediocre at 20 different setups.
The point to everything I’ve written is most systems will work. You need to find one that fits your personality like a glove. Watch your risk because there’s no such thing as 100% trade. Is it going to rain today? 65% chance. Does that mean it will? Does that mean it won’t? It means there’s a 65% it will. Not 100%. Think like that with your trades. Think of them as a series of trades. It’s very similar to poker. You look at a ton of hands. You might lose a little here and a little there. You fold and fold and fold. Then you hit a monster hand and rake in a big pot. Trading is similar. Poker players aren’t worried about one hand where they lost the ante. They look at the session they played. Or week. Or month. But they definitely don’t let it bother them if they lose one hand. Especially if the loss was insignificant. Trading should be the same. Don’t try to guess which trades work and which ones won’t. Take every setup that your system gives you and keep the losses small enough that they don’t kill your account. Stop trying to guess which ones will work and only take those. You’ll be disappointed when they don’t and that will lead to negative implications. You want to play the game tomorrow not be the guy watching the game from the sidelines. Don’t get in the habit of passing up on trades and trying to guess which ones are winners and which ones aren’t. If your system tells you to take a trade, take it. Have a plan for how you’ll manage that trade. It either works or it doesn’t. Don’t get emotionally attached to the trade. You should feel the same if it worked or it didn’t. Don’t get up in a rage if it didn’t work. Don’t celebrate and jump up and down and get all excited if it works. It’s just a trade in a series of trades.
I can go on and on about this. I think this is a good place to stop and a decent start to this conversation.
That’s how I think you put a good system in place.