Stalking A Swing Trade

Stalking A Swing Trade

If you want to swing trade, you need to have patience. Like a lion quietly waiting in the bush. You need to stalk your trades.

Then when the time is finally right… YOU POUNCE!

STALKING CYBERARK SOFTWARE ($CYBR)

After riding it up from Jan – June, I kept it on a special “interesting ideas” watch list. This is the spot where I keep all my ideas that i don’t want to lose track of.

I’ll check this list every weekend and see what’s setting up. There’s about 100 ideas on this list.

On Nov 16 I saw $CYBR setting up. I shared my thoughts on this idea in TRADER’S MINDCHAT.

Here’s what I wrote:

Seeing a symmetrical triangle down on the daily and below. I’m aware of the potential resistance at the 200dma and 40wk line. If we bust above there, we’ve got a clear run to highs at 148. Do we get there? Who knows. That’s why we look at the target as a POTENTIAL and we call it “Potential R”. It’s the next major level of resistance. . Always manage your reward:risk throughout the trade.

TICKER EARNINGS (MM-DD-YYYY) SECTOR SENTIMENT SETUP
$CYBR 02-16-2020 Software Bullish Symmetrical Triangle

TIMEFRAME ENTRY STOP LOSS TARGET POTENTIAL ‘R’
Daily and below $115.70 $111.70 $148.00 8.08

 

This gave us a potential 8R trade! I love that s***!

Check out the TRADE-EMOTIONATOR to calculate the right amount to buy every time.

$CYBR broke out Nov 18. Here’s how I’m playing it.

  1. I am playing it on the 2HR. While I’m AWARE of many timeframes (I keep track of monthly, weekly, daily, 2hr, 30min, 15min), when trading, it’s important to trade on just one.
  2. I hit 1R (1x the amount I risked) when CYBR touched 119.76. That prompted me to raise my stop. Support developed just above my entry point and I moved my stop up to 116.10
  3. I’m using the 5ema as a trailing stop for 1/4 of my position. Same deal for the 10ema. If we close below that, I’ll sell another 1/4.
  4. My ultimate profit target for this is 148. IT’S RARE to get there smoothly. With that profit target, this trade started out as an 8:1 reward:risk. IF at any point the price action makes the ratio less than 3:1 w/o creating a fresh area of support, I’ll take 25% off.

swing trade What are your thoughts? Drop’em below or join TRADER’S MINDCHAT and engage with us 24/7!

Avoid The “Gun Show”

Avoid The “Gun Show”

Have you ever gone to a gym or been to a beach and saw those guys with the gigantic arms and scrawny little chicken legs?

This reminds me of a lot of traders… Way too many traders treat their trading like this. They focus on charts and not much else.

Are you guilty of this? I was at one point. 

From my own experience and from the traders I’ve spoken with over the years, this never ends well.

Most blow up their accounts.

Only a few persevere long enough to learn that it takes a helluva lot more than charts to be a successful trader!

What Leads ALL Traders To Success…

mindwheel

Whether they realize it or not, ALL consistently successful traders follow the Trading Mindwheel.

You might be thinking “WTF is a Mindwheel?”

It’s the 7 core things all traders need in order to zoom down the path of success.

When any one of these are missing, it’s like trying to drive on a flat tire.

If you’ve ever felt stuck at any point in your trading, I can guarantee it’s related to a hole in one or more of these areas.

Mastering the Mindwheel IS your ticket to trading success!

Where To Start?

trading chartsAre you a newbie?

If you’re relatively new to trading, start with 1. Environment and work your way around the wheel.

Have you been trading awhile?

If you’ve been in this game a while, do a self assessment. On a scale of 1 (I suck) to 10 (I’ve completely mastered this), how do you rate yourself in each of the 7 Mindwheel categories?

The more honest you are with yourself, the faster you’ll be able to patch those holes and get speeding toward your goals.

The 7 Core Parts Of The Mindwheel

1. Environment

Does your trading environment fit you? When was the last time you checked? Do you have clarity? Could key elements have greater clarity?

2. Trade Style

Have you explored a variety of trading systems and styles?  Have you found the timeframe that works best for you?  That feels right?  There are thousands of tactics, the key is lining it up with your personality.

3. Risk-itudes

Where do your trades fall on the Fear vs Greed spectrum?  Are you closer to the betting the farm type or clinging to pocket change?  Winning traders find balance, leverage, and asymmetric reward:risk. They manage it throughout the trade.

4. Pattern Mastery

The market IS human emotion on parade.  We can see collective hope, fear, & greed materialize before us.  Learn how to read it.

5. The Art Of Trading

Betting the right amount at the right time, and ensuring it happens rests not only on you, but on your team (including your broker).  The Trade-Emotionator can help your figure that out!

6. Write Right

Trading w/ clarity involves writing out your plans, reviewing them, and tracking them.  It helps us learn and evolve.  The Trade Tracker gives you core questions to ask yourself on every trade.

7. Vision-Vestment

You made some great trades, made some money, but riches and wealth aren’t the same thing. What are you doing with it? How is it continuing to grow, to serve you, to serve others?

This is the step that keeps tread on the tires. Keeps you motivated. Helps you enter the top 1% of traders in the world.

Neglect this step and eventually your tire becomes bald. It’ll get a flat. You’ll lose your passion and end up walking the rest of the way.

You Don’t Have To Go It Alone

Trading is akin to learning how to ride a bike. You can learn on your own or have others help you.

Whether you have help or not, you’re still going to take some bumps along the way.

The difference is that you’re FAR more likely to learn how to ride if you get help and you’ll be doing it a helluva lot faster too!

No one talks trading like this.

In all of the trading books I’ve read (my personal favs are here), courses I’ve taken, or seminars I’ve attended over the past 20 years, no one talks about the Mindwheel.

That’s why I’m constructing this blog, developing a course, writing a book (look for it mid-2020), and coach traders one on one.

Want me to be YOUR trading coach?

I’m very picky about which traders I work with. I only work with serious action takers who are open minded.

If that sounds like you, check out the rest of the details on the coaching page.

Book the FREE 20min Sesh and we’ll assess where your trading is at right now. Where you’d like it to be. And the steps needed to get you there.

Trade Styles – Straight Up or Blended

Trade Styles – Straight Up or Blended

Why do most trades leave a bad taste in your mouth?

What did O’Neil, Dalio, Minervini and other Market Wizards do differently?

The answer is simple. They understood that becoming a master trader is the same as becoming a master mixologist.

Like trading bartenders, they tasted different styles. Figured out which combos worked well together and which didn’t.

They knew there’d be failures…

Tasting and testing. Trying and failing. They understood that everyone’s taste buds are different. But the thing that mattered most in this bar would be finding a blend that they each loved themselves.

They each tested hundreds of combos until they discovered their own perfect blend.

Giving themselves loads of time to discover the right combinations, they entered this game with the intention of being in it for the long haul.

Becoming a Trade-Ologist

trade stylesFailure is part of the game and should be seen as a growth opportunity.

Ray Dalio knows this all too well. In his book Principles, he describes the hundreds of failures he and his hedge fund Bridgewater had over the years.

Was he discouraged? Yeah, a bit. When he lost nearly everything including his staff and was only an army of one, it can be a bit discouraging.

But like any hero, he picked himself up. Dusted himself off. And carried on.

You can do the same!

Every failure Ray had was an opportunity to grow, to get better, to design stronger and more efficient systems. This perspective enabled Ray to build what is now the biggest hedge-fund in the world!

You can adopt the same perspective!

What if you saw every failed trade as a learning opportunity? Could you flip the script? Become a Master Trade-Ologist yourself?

Getting Started

To find out which trading cocktails you like, you’re going to have to try a few.

Thankfully, you don’t have to start from scratch. There’s a lot of recipe books out there!

Start with Jack Schwager’s Market Wizards. He interviewed the best Trade-Ologists on the planet. You’re bound to find a few you like. When you do, dive deeper into their content. Learn their step by step so you can learn to mix your own!

When you’re ready for other trading recipes, check out our book recommendations page.

What To Avoid…

Every so often you’ll come up with a bad combo. That’s okay. It’s all a part of the trading process and if you’re paying attention, it won’t take you long to figure it out.

This is why testing styles is crucial!

What you want to avoid is what most traders do…

Rather than letting the market tell you that your latest blend is a hit and that you should start putting it on the menu, most traders rush right in.

They run over to the bar.

Grab a bunch of random bottles off the shelf.

Throw s*** together and hope for the best.

Not only that, they’ll pour whatever money they’ve got into it!

What they’ve done is produced diarrhea in a bottle and now they’ve got it by the truckload.

Sound disgusting? It should!

Don’t f’n do this with your trading account!

It’s insane when you talk about it like a drink but traders do this all the time with their trades.

After they blow up, then they hit the bar for real… ordering a well blended drink.

If only they made the connection…

Conclusion

You can have any trade style you like. Straight up or blended. Complex or simple. It doesn’t really matter.

What does matter is that it tastes good to you. That you can execute it well. And that it helps you meet your trading goals.

What’s your favorite trading style? Drop it down in the comments.

When To Use Margin In Trading

When To Use Margin In Trading

When should we use margin?

This fantastic question popped up today in Trader’s Mindchat!

margin trading

Sounds simple enough, right?

But this question touches on soooo many parts of the game! It’s why I love it!

There’s no one right answer. How you handle margin will be determined by your:

  • Trade Style
  • Asset Class
  • Position Sizing Strategy
  • Risk Management Strategy

How I Personally Handle Margin

I use margin only when trading opportunities are abundant and I’m making progress on the trades I’ve already taken.

I’m not using margin to place bigger bets. I’m using it to place more bets.

For example, suppose I have 4 active trades. Each of them have run far enough to where I’ve raised my stops to breakeven or beyond.

A fifth and sixth trade pop on the radar! Amazing! …But all my cash is tied up in the first four trades.

Rather than exiting a trade prematurely to make room for another, I’ll use margin to take the additional trades.

Now you might be thinking “so what is this guy’s trading style? What’s he trading?”

nyc skyline

My bread and butter is short term swing trading stocks. My average holding period ranges from a few days to a few weeks. This means that I’m dealing with overnight risk so that gets factored in.

Hold up… What’s overnight risk?

Overnight risk is this. Suppose you bought shares of AAPL at $260/share and had a stop loss down at $250. You go to sleep thinking everything is honky dory.

You wake up the next day to find something insane happened…

One of Apple’s factories blew up!

OMG! Thankfully no one was injured but Apple won’t be making iPhones anytime soon. The stock takes a bath and opens down at $230/share.

That’s an example of overnight risk and it has to be managed.

How can you manage overnight risk?

The way I do it is by looking at price charts and finding major support levels.

apple chart

Take a look at this weekly chart of AAPL.

The first area of major support that jumps out at me is around $230. That correlates to both its former 2018 high as well as the current 10wk moving average.

If I’m an overnight holder of AAPL, I need to be prepared for the unlikely event that price suddenly retests that level.

How Does Each Trading Style Handle Margin?

margin trading

At this point you might be thinking to yourself “Okay. That’s great for you. But I use ____ trading style. How about that?”

Day traders and Scalpers:

These guys trade extremely frequently. Some can have upwards of 100 trades per day.

They’re able to make so many trades because they’re aiming to make a very small percentage on each trade. Sometimes just a few pennies.

Part of the idea for these guys is that all those pennies will add up to dollars fast through their quick trades.

To make this work, many of them use leverage (margin) on most of their trades. They may use their full account or even go on margin on a single trade.

This may sound risky. However, because they move so quickly in and out and are not dealing with overnight risk, they may not be risking very much at all.

Swing traders

These guys (like me) are holding for a few days or a few weeks and have to deal with overnight risk. They’ll look at every trade in their portfolio and ask the question “What happens if these all s*** the bed at once?”

Intermediate and Long Term Position Traders

They are holding for months or years. These guys are dealing with overnight risk and asset class risk. Since they’re planning to hold for long periods, they need to ask the question, “What if the entire asset class tanks?”

intermediate and long term traders are able to stomach drawdowns. They’re willing to give back 15%, 20% or more if it means they can capture another 100% or more.

They are more concerned about fundamentals than the shorter term guys because this is where the asset class risk kicks in. Things like Trade Wars, the Fed, Brexit, etc… play a much bigger role.

And what about the asset class? How is margin different?

Margin on Stocks vs Margin on Forex

Margin on Stocks

Most stock brokers offer 2:1 margin. Some offer up to 5:1 margin.

For example, suppose you have a $5,000 account. A broker offering 5:1 margin would be willing to loan you $20,000. You’d be able to trade as though you had $25,000.

Margin on Forex

In forex, it’s not uncommon to find brokers offering 100:1 leverage. This is one of the big things that attracts traders with tiny accounts.

Take the same trader with $5,000 and give him 100x leverage. Now all of a sudden he’s trading with $500,000!

These forex traders with small accounts and dollar signs in their eyes are ticking time bombs.

What they need is the beliefs exercises discussed in “The 4-Walled Prison Of A Trader’s Mind” Otherwise they’ll blow themselves up again and again, and have a hard time understanding why.

Conclusion

Margin is a useful tool when used properly. Much like a power tool, there are times and places to use them.

If you want help answering the question “How much should I buy?” checkout the Trade Emotionator. It’ll also let you know if you’re being too aggressive.

Do you use margin? If so, in what ways do you use it?

Comment below.

Market Prep Like A Champ!

Market Prep Like A Champ!

How well you prepare for the trading week sets the tone.

Are you walking into the market prepared? Excited? Relaxed? Or are you scrambling and mostly trading by the seat of your pants?

The unfortunate truth for the majority is the latter…

I traded by the seat of my pants for years! You know what ended up happening?

It was kinda like some schmo from the audience stepping into the boxing ring with Deontay Wilder. Not a great idea!

So what does market prep like a champ look like?

market prep

3 Key Questions To Ask Yourself

First, understand that preparing for the trading week doesn’t have to take a lot of time!

It does, however, take is consistency.

What you want is a trading process that will help you meet your goals, that you can execute well, and that you enjoy doing. If any of those three are missing you’re screwed.

Ask yourself:

  1. Does my trading process help me meet my goals?
  2. Am I able to execute it well?
  3. Is it fun?

Hopefully you answered yes to all three. If you didn’t and would like some help getting back on track, go to my coaching page and book a free 20min sesh with me.

My 2 Step Trading Process

STEP 1: Gauge the ‘Market’s Mood’

  • Review the major indexes on the Monthly, Weekly, and Daily time frames
  • Assess the number of New Highs vs New Lows being made
  • Observe what kinds of stocks are setting up. The total number of setups there are. And the types of setups there are (bullish or bearish, early or late stage).

STEP 2: Find Trade Ideas for the week

  • Assess every setup I found in ‘Step 1’
  • Determine the Reward:Risk of all trades
  • Dive deeper into the setups that offer at least 3:1
  • Place working orders with my broker

This whole process takes only a couple of hours each weekend. It actually takes longer to create the content around it than it does to perform the exercise itself.

My process actually hasn’t changed much from before I quit my day job.

The key for you with all of this is making it your own. Modeling success works. Attempting to clone it does not.

I made this short video outlining my market prep for the week of 11-11-2019. Enjoy!

A High-Value Trading Process Sets You For Life

A High-Value Trading Process Sets You For Life

What does me being fat, sick, & nearly dead have to do with my trading process? …I’ll tell you the story. How putting blinders on and grinding through a process that stopped working nearly grinded me into dust. And no, it didn’t stop at my trading. My business, my family, and my health were all suffering. I felt on the brink of death. But first let me emphasize…

The most important part of any trading process is that it works for you.

Trading’s serious business.  It’s your money, your life. You’re the Boss and your process is your Employee.

It’s up to you to grow and evolve your Process… or fire it altogether. The success or failure of your process is entirely up to you. Own that and you are more than halfway toward success.

So… does your current process really work for you?

WRITE OUT YOUR *IDEAL* PROCESS

A lot of coaches will have you write out your current process.

Not me.

That’s the version of you from the past. The *ideal* version of you lives in the future — and I want to help you get there ASAP. To do that, focus on where you want to go, not where you’re standing.

Everyone’s process is different.

There’s no right or wrong way to trade. However, there is a right and a wrong way for you to trade.

How will you know? The market will tell you, if you listen. Your successes. Your Failures. That’s the market speaking to you. Listen to it.  Learn from it. Build that into your process.

AND DON’T BE AFRAID TO FAIL…

Stock Trading Plan Failed - 002You’re going to come up with your “Ideal” process. Test it. It will likely fail in some way…

It could be a big failure. It could be a small failure. But it will likely fail in some way and that’s okay! You Want it to Fail!

In this sense, failure is a sign that you’re pushing your limits.  If you’re not failing it means you’re not pushing yourself hard enough. Like Evan Carmichael says “If you’re not failing, it’s a sign you’re racing against 3 year olds.”

Every time you fail — you find your limit — and guess what? You’ve got valuable info to help you improve!

Use this info. Push the wall a little further until you fail again. The more you get out there and do this the further you’ll go. After your 10th failure you’ll look back in awe at how far you’ve come. You’ll look at that first failiure and laugh! You’ll be going farther and faster than you dreamed possible. And it will be because you’re failing forward!

So like Tim Kennedy says “Hurry up and fail”.

WANT TRADES FIXED? CREATE YOUR SOLID SIX!

Want to guarantee your growth and success in the market?? Of course you do! Are you willing to do the work to get there? Yes? Great!  Add The Solid Six to your trading process.

I’ll give you The Solid Six and share what it looks like for me. They’re good examples but in order for you to succeed you MUST make it your own. No carbon copy of someone else’s process will work for you.

I find it useful to have a trading process for every account that I have.

Yes, there may be overlap. Yes, that’s a good thing! If we analyze the market once and use that analysis for multiple trading systems, processes, and/or accounts, think of all the time you saved!

 

Trade Stocks Intention Matters

1. SET YOUR INTENT

Blow past this step like most traders and it almost guarantees failure.

Think about it. You’ll have a very different process if you are trading for Primary Income vs Play Money. Retirement vs Buying a Home. A Child’s Education vs Family Vacation… Set your intent!

And be Crystal Clear about your Why.

A powerful Why will keep you in the game and pull you forward! More on this in Forging a Trading Mindset of STEEL.

Here’s a sample of intent from my own Supplemental Income Account:

What I Want, Why I Want It, & How I’ll Get It:

  • WHAT: Minimal touch during the trading-day (minimal mental real-estate).
  • WHY: I want to focus on coaching traders and helping you as much as possible during the day. If I’m trading in a way that draws my focus away from my primary purpose, I won’t be happy and I won’t execute well over the long term.
  • HOW: Develop trading plans at night/on weekends. Set alerts. Use buy and sell stop orders so I don’t need to be active intraday. 
  • WHAT: Monthly supplemental income regardless of market conditions.
  • WHY: I want cash to be flowing to me consistently. The more income I generate, the more I have to contribute to my family, community, and the world.
  • HOW: Trade Credit Spreads in the direction of the dominant trend. On a breakout, cover the short side, let the long side run, AND add another credit spread below support / resistance.
  • WHAT: Avoid blowing up, stay in the game as long as possible. 
  • WHY: If I lose all of my chips, I can’t bet. Losses cost both money and time. They work exponentially against me. A -10% loss takes +11% to get back to even. A -50% loss takes +100% to get back to even. 
  • HOW: A Blow Up for me is a drawdown of -25%. Don’t risk more than 2% of capital per trade. This allows me up to 12 regular size losses in a row before blowing up. (Prepare for the anomaly!  It’s possible to lose 3X more on any trade than you intended. I’ll hold no more than 3 positions in this account. If the market implodes, my max drawdown is -18%)

There’s about a dozen other intents in my process but you get the idea. Figure out What you want, Why you want it, and How you’ll get it.

 

Trade Stocks Market Health Gauge

2. GAUGE MARKET HEALTH

“3 out of every 4 stocks will follow the trend of the market.” William O’Neil

If you’re trading stocks, wouldn’t you want a 75% better chance of being right?? Of course you would! So find a way gauge market conditions for your trading.

There’s lots of ways you can do this.

Some people run scans every week and let the results speak to them. (That’s what I used to do.)

Others will read newsletters, read the paper, or listen to other people’s opinions.

Any combination of this –or something completely different– is fine. What you want is consistency. If you’re reading someone’s newsletter today, doing your own research tomorrow, and listening to CNBC the day after that, your head will be spinning and your results will suffer.

My process evolved into three phases: 

PHASE A: Analyze the BIG 5 Indexes. (S&P 500, NASDAQ, NYSE, DOW, & Russel). Look at their Daily, Weekly, and Monthly charts. Find the trend on each. Consider the Distribution Day Count. See if there has been any clustering of Distribution Days. Find Support, Resistance, and Trend Lines. Note what the Moving Averages are doing. Are they stacked on top of one another or are they tangled?

 

PHASE B: Look at the # of New Highs vs New Lows being made on the NYSE.  TradingView makes this real easy to do.  You can overlay it right on the chart!

It’ll be real hard for the indexes to move higher or lower w/o the stocks within them doing the same. Just look at what happened at the end of December and into early January!

New Lows dried up and the market rallied.

You don’t need to watch the news if that’s not your thing. You can just watch the charts. This is evidence.  It’s how I trade. But the important thing always and forever is that the process works for You.

 

PHASE C: Observe the stocks on your watch list.  How are they behaving? If they’re setting up, it’s a sign to take action. If they’re not, its a sign to wait. Only the stocks on my watch list matter to me in this regard. All others are noise. It’s through consistency that we get clarity. This is true if you are running scans, reading a newsletter, following a social feed, or watching the news. Try listening to too much and all you’ll hear is noise.

When we’re consistent, the noise starts to fade away.

There’s calm in the chaos because its the chaos we’re used to.

*Want some scripts I use to automate a lot of this?  Grab it here FREE!

 

Hunt For Stock Ideas

3. HUNT FOR IDEAS

A reliable way of finding ideas is crucial.

A consistent way will help you spot nuance.

For example… you run a set of scans. All of a sudden, half a dozen banking stocks pop up. It’s unusual. You check the industry group.  Low and behold, XLF (the ETF that tracks the Finance Sector) is setting up. Not only that, 5 of the 6 stocks passing your scans are all setting up in similar patterns!

Guess what?? Thanks to your consistent process, you caught a group move and you’re poised to pounce well ahead of the crowd!

Here’s how I find great trade ideas:

 

FIRST: On weekends I’ll look at a list of stocks I keep called “Interesting Ideas”. I’ll add to and prune this list. I’ll get ideas from a few places but will define and limit my sources. Any source not in my written process is ignored. This is key in filtering out the noise.

I get ideas from what’s trending on StockTwits and Twitter. I’ll look at IBD’s Leaderboard and Swing Trader. I’ll also look at ChartYourTrade’s Advanced Stock Reports. This gives me different perspectives and allows me to triangulate for myself the best of the best ideas.

 

SECOND: I go through my list and look for clean, tight trades with great reward:risk. Every trade should offer me 5:1 or better. For every dollar I put at risk I want the potential to make at least $5 back. It doesn’t always work out that way but the potential has to be there.  This does a few things:

  • Forces me to focus on only the best of the best trades.
  • Allows me to lose 4 times in a row, be right on the 5th time and come out ahead.
  • Helps prevent over-trading since most trades won’t make the cut.

Execute Your Trades

4. EXECUTE TRADES

Before executing any trade, ALL aspects of the trade must be thought through carefully.

Is your mind is right? The mind gets overlooked all the time… It’s critical. It’s another reason most traders fail.

Think about it. How often do you execute well while fearful? Ticked off? …Or fill in any other negative emotion?

If you want to execute like a true pro, get your ducks are in a row. A race-car driver will check their gauges, tires, and crew before hitting the track.

Do the same for your trades.

ASK YOURSELF:

  • Are you in the right state of mind?
  • Does the trade you’re considering fit your process?
  • How much risk do you want on this trade?  In your portfolio?
  • Have you considered this idea from all angles?
  • What might the person on the other side of the trade be thinking?

I ask myself about 20 questions before I place any trade… and its SUPER EASY to skip a step if we don’t plan ahead.

That’s why I put together a template to help remember all this. I call it the “Trade Tracker.”

*Grab the Trade Tracker FREE here.

 

Manage Your Trades Well

5. MANAGE YOUR TRADES

Frequency

Ask yourself, how frequently will trades need to be managed? Everyday? Once a week? More? Less?

Knowing this will help to prevent you from developing “Tickacitis”. The infamous disease traders get as they become glued to their screens, pulling out their phones, constantly checking their balance even though it has nothing to do with the trade.

Rules & Signals

Write out the rules and signals that will tell you when to add or when get out of a trade. Determine IF you will scale in or out. You don’t need to make all/none decisions.

How Hot Do You Want It?

Traders get burned when they don’t understand Portfolio Heat. The amount you stand to lose if shit really hits the fan. Don’t plan for this and your account could go to Zero or even worse… You get a margin call and you have to pay your broker!

HERE’S WHAT I DO:

I keep the heat down by only adding to a trade once my stops have been moved up. That way I’m not risking my starting capital. I’m risking my profits. Van Tharp calls this ‘Market’s Money’ and goes through several position sizing strategies around this concept in his book “The Definitive Guide to Position Sizing.”  Mark Minervini calls it ‘Free Rolling’ and discusses it in “Think and Trade like a Champion”.

Example:

I like to trade credit spreads. When they breakout, I’ll cover the short end and let the long end run. This gives me 2 ways to win And potentially win BIG! …but if I’m not careful, I can take massive losses. So I do the following:

I. Take off credit spreads at +50% profit IF there are more than half the time left to expiration. Selling spreads gives us a time target, whatever it happens to be.  If we make more than +50% profit before halftime, the Reward:Risk shifts out of your favor so take the profits. 

II. When Breaking Out:
a. Cover the short option as it goes in the money.
b. Let the long option run.  Use staggered stop losses so I’m not completely wiped out of the trade unless its seriously breaking down.  Use the low of the breakout day, a short term moving average (5 or 10ema), and the low of the pattern.

III. Take Profits at Multiples of my Risk (R) 2-3R, 4-5R, 6-7R  Look for a “natural reaction” or pullback. Raise stops below it and below a moving average.  Always look for multiple signals lining up.

IV. At 2-3R profit, first contracts are sold and others are moved to breakeven.

V. Mark time of sale on the Trade Tracker.  Print out charts EOD.

Post Analysis Of Trades

6. POST-ANALYSIS OF THE WHOLE SHEBANG

This final step is the one that will help you continuously level-up your trading for the rest of your life. If followed correctly, it will create a feedback loop. This loop will help you make the adjustments necessary to obtain success beyond your wildest dreams.

Skipping this step, however, can spell disaster. And it nearly did for me…

Fat, Sick, and Nearly Dead

You may have seen the documentary on NetFlix with Joe Cross (@JoetheJuicer). Well, that’s how I ended up feeling as a result of only reviewing my trades and not my trading process.

I was trading extremely well for about 7 years and was getting better each year. Then in May 2015 my daughter Lily was born. She’s one of the greatest blessings in my life and my love for her grows every day.

Unfortunately my idea of fatherhood didn’t mix well with my then trading process.

At the time of her birth I was still working a full-time day job, operating my first business providing market research and analysis to roughly 100 clients, and was trading my own accounts.

I had conflicting beliefs that were tearing me apart, though I didn’t fully realize it at the time. My idea of being a “good” dad meant being available to Lily, supporting my wife Melissa, and being present for those “special” moments like learning to crawl and seeing Santa. I believed that being a great entrepreneur meant providing outstanding service to my clients and I still do. As a solo-preneur at the time, managing that and being a new dad was challenging. Throw in day job that I still wanted to perform well at had me feeling as though I was being drawn and quartered.

This triple job insanity lasted for about 6 months.

I thought perseverance was the answer. Perseverance worked for me my whole life so naturally I thought it would here as well. If I could just continue to push hard and grind it out I thought I’d eventually pop out the other side and all would be okay.

To get everything done I had to make some cuts. Unwittingly, the first thing I cut was my health. I stopped exercising and to make myself feel better, I’d load up on ice-cream. I could tell you the Blizzard of the month at Dairy Queen. It was delicious but my health suffered badly. I was up to nearly 200lbs. About 40lbs overweight for my 5′ 9″ frame. If this weren’t enough I started getting sick frequently. Developed skin problems I’d never had before. And my marriage was on the ropes.

Melissa and I had many conversations about all I was trying to do and how it was effecting the family. To her credit, she never so much as hinted that I should give up on my dreams.

I was extremely stressed. My trading was erratic.

I felt like I was failing as a trader, a business owner, a father, and husband. My whole life was slipping through my fingers.

My breaking point finally came soon after Thanksgiving 2015. I was writing up my weekly newsletter and Melissa entered the room. “We’re getting ready to visit Santa. Do you want to… oh you’re working.” That was the final straw for me. “Fuck this!” I said to myself. I’d had it. I wasn’t going to miss out anymore!

Within about 2 weeks I had come up with a plan to get my health, my relationships, my business, and my trading back on track and in that order. If we’re not well ourselves, it’s nearly impossible to care for others well. Within 3 months I dropped nearly 45lbs and was down to 155lbs, the lowest I’d been since high school. I was eating well. I started spending more time w/ my family and brought on others to help with my business. I also adjusted my trading process to fit my new lifestyle.

I was winning, and things started clicking again.

Consistent Review

I hope this story shows the need for a consistent review of not only your trades, but your whole process. I do a weekly review and immediately incorporate any new knowledge I obtain. Some coaches advise against this blanketly and suggest it’s system hopping. Given all I’ve been through, I see that as naive. Both the market and our lives give us continuous feedback. If we’re open, we’re learning all the time. If we refuse lessons today, we’ll surely get them again tomorrow, next week, or next month.  Why wait to evolve??

Consider this. You write your plan but you overlook some crucial element. Maybe your stock reports earnings next week. You know volatility will spike so you’ve planned ahead. What you didn’t plan for is that another stock in the same industry group as yours reports tomorrow. Earnings are terrible and it tanks; taking the whole industry group (including your stock) down with it.

Do you wait until next month or next quarter to incorporate this new found knowledge? Or will you start looking at when other stocks in the same industry as yours report earnings as well? Will you begin to better manage your risk now or will you wait?

Frequency Of Review

You can perform a post analysis as frequently as you like. The more you do it, the more you’ll gain from it. I find regularity to help keep me on track and spot changes easier. It can be done weekly, bi-weekly, monthly, quarterly… whatever your preference.

Just like anything else, you need to put in the reps. Like Gary Vee says, you get the benefits of doing push-ups by actually doing the push-ups. Trading is no different.


BONUSES:

If you really want to take it to the Next Level, try adding these bonuses to the mix.

CREATE A GREAT ENVIRONMENT

Our environments can help us or hinder us. An inspiring environment offers us HUGE leverage. This includes both our physical space as well as our mental space.

Here’s 3 things I do to create a great mental space:

  1. REMINDERS: Add reminders to stick to the process. Even though I talk about it all day long I still need to remind myself. I’ll scroll through my own Instagram Feed, set the background image on my phone to the Trade Tracker, and keep the notebook where this process is written by my side.
  2. MEDITATION: Meditate 2x/day (first thing in the morning and then mid-day). At about 5am I’m doing the Tony Robbins Priming Exercise.  Somewhere between 12pm and 2pm I’m doing 10-20 minutes of Headspace.
    1. Here is another article w/ a ton of useful nuggets about Mindfulness Meditation.
  3. GRAFFITI: I have an Excel file of #inspiring quotes. I’ll go through them and write 1/day on the whiteboard in my office as a reminder of greatness. These get shared on my Insta Stories often.

WRITE WHAT FULFILLMENT IS FOR YOU

You wrote out your whole trading process. Time to do it for your life!

Ask yourself “What does fulfillment look like to me?”

This broader perspective can give you clarity in all areas of your life.

What does fulfillment look like for your work? Your trading? Your health? Family? Home?

Maybe you find out you don’t want to give as much time to trading as you thought you did. It ebbs and flows over time. I was pedal to the metal w/ my trading. That all changed when my daughter was born. Life changes. So do our ideas of fulfillment. If we want to stay happy we’ll need to stay aligned.

Fulfillment or lack of fulfillment can bleed into other areas of our live. We want to approach this with intent. If we don’t design the lives we want, someone else will design our lives for us.

I recently went through this exercise again. I found that I needed to adjust my trading. It was taking up too much of my time and far too much mental real-estate. While I want to be the best trader I can be, my goal isn’t to be the next Paul Tudor Jones. My goal is to create more wealth in the world. To be one of the top trading coaches in the world. To help as many traders as I possibly can trade fearlessly. That means less time trading, more time coaching, writing blogs like this, doing workshops, leading groups like Trader’s Mindchat.

Getting what we want out of life doesn’t happen on it own. Asking yourself the right set of questions is the start. Next, we need to take steps to make it happen. Build momentum. Build consistency. Run with others to go farther and faster.

I WANT TO HELP YOU

Thanks for reading this far. It’s a sign that you’re serious about improving your life, the lives of those around you, and of course your trading. I’d love to offer you a FREE 1 on 1 Coaching Call w/ me.

Email me at Mike@marawealth.com and lets go farther and faster together.