The Healing Power of the Repair Trade

Boris Schlossberg

“When you are shooting a moving target, a shotgun is more useful than a rifle!” Penelope, one of the best traders in my chat room

It’s been a good month of trading in BK. I’ve managed to bank 20% in my own account which is by far the best monthly performance for myself in years, but looking over the trade blotter, I can’t help but appreciate how many times this month my a-- has been saved by the repair trade.

Those of you who have followed me for a long time know that I always trade with a multi-entry approach. My first entry is never my last entry into any trade I take -- be it swing, news or day trade. Of course, you can sneer and say that I am simply averaging down, and as Paul Tudor Jones once famously said, “Only losers average losers.” But while there is great truth to that statement I take exception with calling what I do averaging down.

Typically when traders average down in their positions they do so out of desperation as they try to rescue a losing position. The average down trade is often done reactively with little thought to the overall size and ultimate stop.

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I, on the other hand, always know ahead of time exactly how many entries I will make, exactly how much size I will use and exactly how much risk I will bear. My systematic approach to trading basically assumes that I will be wrong on price but correct on the general vicinity of entry. I think it’s a more humble way of trading because you admit ahead of time that you will likely be wrong. In fact, often you are wrong more than once or twice and yet can still come out a winner by never committing all of your capital to a single price.

If markets are essentially probabilistic entities then it always amazes me why more people don’t trade probabilistically. To me, it’s the height of arrogance to assume that you can pick a price with a degree of certainty greater than 50/50. However, you MAY BE able to prick a price area with a degree of certainty that often approaches 90/10.

Strategies are important, but even the best ones have a very tiny 55/45 edge which can quickly evaporate in the changing environment of market volatility. That’s why to truly improve your trading you need a multi-entry approach and a humble attitude.

You need the healing power of the repair trade.

Why is All Trading Advice so Contradictory?

Boris Schlossberg

Trading is all about exits.
Nah -- trading is all about entries.
Trade with a minimum of 2:1 risk reward ratio
Nah -you’ll never make money if you don’t let your stops be bigger than your profits -- pigs get slaughtered.
If you want to make money trading follow your system rules.
Nah -- rules are meant to be broken -- they are just guidelines.

Spend an hour on the internet researching trading advice and you can easily conclude that this is a schizophrenic business and that no one has a clue as to what they are saying.

Trading advice may seem contradictory on the surface, but actually, it is not. It’s simply a matter of what trading model people choose to follow.

As I’ve noted many times before there are really only two ways to trade -- the lottery model and the insurance model. The lottery model is the traditional approach that looks for 2:1 or greater win ratio, has very few winners but makes sure that they are large enough to pay for the losers.
The insurance model, on the other hand, does the exact opposite, It tries to make almost every trade a winner and avoid losers as much as possible, but when it does get hit the loss is much larger than the wins. Just like the insurance business, it counts on winners (i.e. premium payments) to offset the rare losers.

Once you begin to view trading advice through the prism of these two models it makes much more sense. If you are following the lottery model and every potential trade could be a huge winner while the risk is generally small -- then, of course, you should follow the rules of your system and take every single trade. Discipline is paramount.

On the other hand, if you are trading the insurance way then passing up a single trade means almost nothing -- in fact, it may be hugely advantageous to do so, since you may miss a big loser which is the same thing as banking many winners. Discipline is actually idiotic and discretion is the key to success.

This also goes a long way to explaining why exiting early under the insurance model is actually very smart but under the lottery model can be ruinous. Under the insurance model, you are trying to avoid losses, your wins are practically guaranteed. So an early exit that avoids a major loss is the right move. On the other hand, an early exit from the lottery model can be devastating -- it’s the equivalent of losing your ticket before you can cash it.

The lottery/insurance duality also plays into trade selection. Lottery model traders should be very promiscuous with their entries (their risk is limited, but their payoff is large) but must be very disciplined with their exits (you need to bank massive wins to pay for a large number of losers.) Insurance model traders are just the opposite. They need to be extremely cautious with entries (the last thing you want to do is sell a life insurance policy to an overweight, chain smoking, motorcycle rider who doesn’t wear a helmet), but generally free to exit as they choose.

So when you hear two traders on the Internet yelling at each other, very often they are talking past each other.They are operating under completely different logic regimes. Therefore, before seeking anyone;’s advice or taking anyone’s criticism seriously understand your strategy and trade accordingly.

How to Scale up Size Like a Boss

Boris Schlossberg

Suppose you have a great system working the market. It’s hitting 90% or better of all its trades and you want to start trading in size. How do you do that without blowing up?

You know what I am talking about. You are on a hot streak. Money is pouring into your account every day and instantly you start projecting linearly. Man -- if I just traded ten times the size, I’d be making $10,000 a week and then after a few months I could double it and start making $20,000 a week and pretty soon I’ll be making a cool million a year off this thing!

We’ve all had that trading reverie when the temporary success in the market seduces us into thinking that we are on the way to fast and easy millions. Needless to say, those daydreams always evaporate. Usually, we over leverage and quickly blow up soon thereafter.

Trading is so hard that we have all sorts of contingency plans for not losing our capital, but few of us think about what we should do when we start winning.

I find myself in that position now. I am running a very successful trend trading strategy that is hitting 90% of its trades and has already managed to bank 10% just this month trading at my maximum lever factor of 4 times equity.

Should I increase my leverage?

Hell no.

I am already flying too close to the sun and frankly, 10% is a ridiculous amount of money to make in just a few weeks if you want to maintain a sustainable model for profit. Those of you who have been reading me for a while know that my motto is 4X 4 Forex -- meaning that no single trade ever should exceed four times the size of your account. I believe this is the absolute maximum amount of leverage you should employ in the markets if you want to survive in the markets for more than a month.

So levering up is out of the question.

Still, I am only using 10% of my capital on this strategy and the prospect of going “all-in” is very tempting. But that would be a huge mistake. Like all high probability strategies, my strategy has a very negative risk reward payoff. If I instantly scale up to ten times my size and hit a string of losers, it would wipe out all the gains of the past few weeks. Mathematically it would have no impact on the overall payout of the strategy because I would still be trading within my leverage limits, however, psychologically such massive loss would be brutal.

In fact, that is how all good strategies die. Greedy traders push them to their size limits, then when they hit an inevitable losing streak the sudden increase in scale erases all the hard earned gains so they quit in disgust leaving possibly years of future gains on the table.

So is there a better way?

I think so. The key as with all things trading is to control your greed and ramp scale up gradually. Instead of plowing all in, I intend to finish out this month with the current 10% allocation. If the strategy performs well I will add another 10% of my capital the next month and so on and so on. This way the scope and scale of capital allocation are manageable. The losses -- both psychologically and financially -- are far more tolerable and more importantly, the ultra slow pace of capital increases will not only help me survive the inevitable drawdowns but will also allow me to intimately study the strategy performance under a variety of market regimes.

It’s great to have a winning strategy for a while, but it’s even better to turn it into a lifetime moneymaker.

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Trade Less, Make More

Boris Schlossberg

Suppose you had a setup that was 90% accurate. Your natural inclination would be to trade it as much possible but if you do that you are almost certain to blow up your account.

This Month!
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Rookie traders often make the deadly mistake of conflating high probability with high frequency. In reality, the two are always mutually exclusive. If they weren’t -- then anyone who had a high probability/high-frequency setup would be able to acquire all the wealth in the world within a year’s time.

One of the biggest misconceptions in day trading is that high-frequency shops like Virtu are high probability traders. In fact, just like roulette tables at the casino Virtu makes money only 51%-53% of the time. The rest of the time it scratches out trades or takes small losses. How is then that it wins 99% of the time? Through the law of large numbers. Virtu makes money all the time, not because its trade signals are accurate, but because it makes hundreds of millions of trades per day and the small edge almost always makes it P/L positive.

Retail traders could never replicate that process because it requires massive infrastructure and gargantuan sample size to achieve such results. Yet many traders fail to see that point and start to bang away at prices thinking that just like the big boys -- the more they do the more they’ll make.

The truth is the exact opposite. In retail, trade less, make more is the motto of the day. The only advantage that we have as retail traders is our ability to STEP AWAY from the market. In other words, the only true advantage that retail traders possess is their complete freedom to choose only the best possible set ups and walk away from all others.

This is an incredibly difficult concept to internalize because everywhere else in life we are taught that more input equals greater output so we naturally assume that trading follows the same principles. However, in trading, we are actually inputting nothing. In trading we are in fact absorbing risk, which is why the rules are turned upside down with the general principle being -- the rarer the trade, the better the trade.

This week I realized that this principle can be extended even further. Like every forex junkie I follow the market almost 24 hours/day, often waking up on cue at 2 AM to check on Tokyo afternoon trade before catching a few more hours shut eye ahead of my regular wake up time for the London open. While I doubt I will ever give up those habits, I realized that my actual TRADING TIME is contained to only 10% of the trading day. On a day to day basis, almost all of my profitable trades occur between 900-1100 NY when the major economic news of the day is released.

Now FX is a 24/hour a day affair, and occasionally news breaks that is so vital that it can move markets for hundreds of points at any hour of the night, and as forex traders, we certainly want to take advantage of such volatility. But most of the time forex market is like war -- hours of boredom interspersed by minutes of action which is why it behooves all of us to ask -- when do I make the most money during the day and then focus on trading those hours only.

10 Truths About Trading That No One Tells You

Boris Schlossberg

1. You can get paid rebates every time you make a trade. Do 10 trades/day and you can make 5-10% per year without making a single pip of profit.

2. If you use anything greater than 10X leverage on your opening trade your chance of losing all your money is 100% (that’s my opinion, not fact, but it’s as good as fact because it’s based on cold hard experience of 30 years worth of trading)

3. News (both scheduled and unscheduled) is the single biggest driver of price movement. If you are making all your buy/sell decisions from a chart only -- you are like a blindfolded hiker walking off the edge of Grand Canyon.

4. Big breakouts almost always have continuity. Fading them is the ultimate rookie move

5. Stops are never optional. Trading without them is like driving Indianapolis 500 without a seat belt. You WILL die.

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6. If the news is good but price falls -- trust price.

7. Charts, asset class quotes, real time news, institutional-type squawk box, automatic trade journaling are all free or near free -- just ask me for resources.

8. There are three possible trade outcomes -- win, lose and scratch. The most profitable traders scratch 25% of their trades.

9. You can win frequently or you can win big -- but you can never do both.

10. There are only two strategies in all of trading -- trend and counter trend.

Trade like Zuck

Boris Schlossberg

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Mark Zuckerberg shares an interesting management technique to quickly put ideas to work. Instead of waiting for his approval on a project, engineers can simply create their own apps, additions or functionalities to the Facebook platform and roll them out without any oversight. Here is the catch. Instead of rolling these new concepts out to a billion users, the initial sample set is only 10,000 or 100,000 users. If the feedback and positive (and I assume the software does not crash) Facebook rolls it out in waves until everyone has the latest widget.

So how does this apply to us as retail traders? Easy. We can mimic the FB method and benefit from its fast paced results. Suppose you have an idea for a strategy. You can spend countless hours back-testing, tweaking it and rewriting it -- all of which will be chucked out the window the moment you actually make a trade in live market conditions. Instead, write out your basic rules on a piece of paper. Test them manually on a chart ( if you use software it will inevitably give you bad data unless you spend thousands of dollars cleaning up the price feed) and then “roll it out” on a small audience.

In this case, “audience” is actually your money. Just like FB doesn’t care about failing on 10,000 users, you shouldn’t care about failing on $1000.00 dollars. Trade at 0.01 size for 10 cents a pip and see if the ideas are working. If you are getting a positive response increase your “audience” step by step -- as long the experience continues to improve. Ultimately, if the idea is good enough it can go into your permanent portfolio and become a key part of your “investment experience.”

By thinking of your money as “the audience” you create the proper psychological distance to evaluate your trading ideas objectively. You no longer need to “win” on every trade. Instead, can focus on improving the startegy to impress your “audience” which in the longer will be a positive experience for everyone involved.

When God Failed at Trading

Boris Schlossberg

This week marks a rather embarrassing end to one of the most illustrious careers in trading. Andrew Hall, a long time legend in the oil markets better know as “God” has to shut down his Astenbeck Master Commodities Fund II Ltd. after suffering a -30% loss in funds.

Mr. Hall achieved a great of notoriety when at the absolute nadir of the financial crisis he insisted that Citibank -- his then employer -- make good on his $100M payment even though the company was effectively bankrupt. But let’s set aside the fact that Mr. Hall collected 100M via a taxpayer bailout and promptly lost 500M of investors money this year before he finally shut down the fund, and just look at his departing statement.

In explaining the reasons for his failure Mr. Hall noted that “Algorithmic trading systems have increasingly come to dominate” and the trajectory of prices is chaotic, he said. “Investing in oil under current market conditions using an approach based primarily on fundamentals has, therefore, become increasingly challenging. It seems quite likely this will continue to be the case for some time to come.”

This is, of course, utter nonsense. Hall misread the power of technology and the ability of frackers to compete at ever lower price points, which completely destroyed his thesis that the OPEC production cuts would work. In other words, Hall was trading the market with 1990’s-2000’s mindset while the market completely changed in front of him.

This, I think, is the absolute key lesson for anyone who trades. Markets are not static environments. Their structure changes all the time and it is the trader’s job to constantly question his underlying model of analysis to make sure it’s in alignment with the current reality of trade. The single most dangerous word in trading is -- ALWAYS. As in market’s always do this…etc. That is a straight path to failure.

This is also perhaps the market’s greatest gift to us. Aside from the financial remuneration, markets teach us to be humble and mentally flexible -- gifts that pay lifelong dividends way outside of the financial arena.

Reading about Mr. Hall’s demise, I’ve thought about all of my own “God-like” moments of sheer arrogance that ended up in disaster and this led me to look back the most popular column I ever wrote -- Don’t Trade Like Tony Montana. So I will end with just a few paragraphs from that piece which are always worth re-reading.

I’ve been thinking about the Tony Montana character lately, realizing that I sometimes do a bizarre imitation of the “say-hello-to-my-leeetle-friend” scene when I fight the tape in FX. Did you stop me out as tried to short the top? No problem I can take it. Here is another order to sell. Another stop? Give it to me. More? Go ahead I’ll take it all — I am stronger than the market, I can take it all. In any case, you get the idea. After a while, your trading account starts to look like Tony Montana’s body and you begin to realize that maybe this is not such a good idea.

Sun Tzu once said, “He who knows when he can fight and when he cannot, will be victorious.” This is perhaps some of the greatest advice that we can absorb as traders. Very often we trade not to win but satisfy our ego. Taking on the world, or the market is a romantic idea that we’ve all been taught, but in finance, that is a very expensive way to conduct your business. As guys, we may all yearn for our inner Tony Montana, but as traders, we should wise enough to know better.

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How to Make Money When Your Business Depends on Luck

Boris Schlossberg

Let’s be honest, trading is a very volatile business. Probability is just a fancy word for luck and the variability of returns is order magnitude greater than in any other retail business.

Imagine that you decided to go into the coffee cart business. You staked out a corner on a busy New York street and set up your stand. Within a month -- at most three -- you would have a very good idea of how many coffee cups you would sell each day. Believe me, I know. I talk to my local coffee guys every day and they all have a very good grasp of the market. Now, like with any other business the coffee cart stand could face an existential threat -- there could be a natural disaster or a city maintenance project that could curtail all traffic for a certain period of time -- but that is a different issue. On day to day basis, if you are selling coffee cups and pastries you know within 5% either way just how much revenue you will do per day.

Now let’s consider FX day trading. Projecting your daily revenue within +/-5% margin is a laughable notion. Markets are incredibly lumpy -- even if you engage with them on an hour by hour basis. Some days the activity is torrid and all set ups are working. Other days there are literally no trades and yet on other days, the volatility wreaks havoc with your best-laid plans and nothing works.

The hardest part of being an FX day trader ( or any trader for that matter) is the very high level of uncertainty that surrounds the day to day operations of your work. So how do you succeed in a business that often depends on luck? First of all by accepting and coming to terms with that very fact.

Almost all the energy and effort in trading is spent on finding “the secret” -- a sure fire way to bank money with the certainty of gasoline station owner on a busy interstate highway. Sorry, no such secret exists unless you are Virtu, have hundreds of millions of dollars of hardware and software at your disposal and can make up to 100 million trades per day allowing the law of large numbers drop all those sub penny profits into a big fat wad of money. For us regular retail traders such possibilities are out of reach.

In fact, I would argue that this obsession with consistency is the single most toxic idea in trading and is responsible for almost all the failure in the business. It has certainly been true with me. It’s taken me years to realize and slowly accept the near constant element of luck in everything we do.

In order to help me deal with the emotional reality of the market, here are some concrete things I do to put the odds in my favor as much as possible every single day.

  1. Control size. This is the ONLY variable over which traders have full control, yet this is often the first and the worst mistake most people make. Remember rule #1 of trading -- you can’t trade if you don’t have the capital to trade. In FX where leverage can run as high as 400:1 the first thing most rookies do is put the pedal to the metal and gun for the highest possible return. Their chance of flame out is 100%. Sometimes it takes seconds, sometimes it takes days sometimes it takes months -- but they always get margin called. My preferred size is 1X lever -- literally no leverage on the opening trade. SInce I will often add several trades to the same position or will open several positions at once and will turn over my account as much as 10 times each day, all of those factors create more than enough leverage for me. In addition, I have an EA that will automatically close out all trades the moment a certain dollar threshold is reached (-$1000.00 in my case). I highly recommend you do the same. Pip stops are fine but dollar stops are definitive and keep you alive when the natural temptation is to avoid taking a manageable loss.
  2. Trade you plan. Make a checklist of all the factors that trigger a trade. If just one variable is not checked off then don’t trade -- because then you are not trading your setup, you are just gambling aimlessly like a drunken sailor at the casino. What are the chances that you can do that and survive? Don’t be a sucker. Trade. Your. Plan.
  3. When the markets get tough -- don’t abandon your plan -- adjust. Speculation is observation. All your initial trading rules came from observing the behavior of the market and then creating a model to trade it. The more you observe, the better your model will become. For me, sometimes tiny little adjustments such as easing the point of entry by half a pip in order to allow for the spread, or widening out the parameters to allow for higher volatility movements have made all the difference. Markets change constantly, so you must adjust accordingly. This is what makes trading so challenging but also rewarding.

Despite the fact that this business is often driven by luck, it is also one of the few places where almost all decisions are within your control. That is power that doesn’t exist in any other aspect of life so use it to the fullest and have fun in the markets.

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You are a F-ing Idiot to be Long the Market

Boris Schlossberg

I was bearish Nasdaq in ‘99. I was bearish New York real estate in 2005. So I was early which in trading terms means that I was wrong. But I wasn’t trading stocks or real estate. I was looking at those assets an investor and while everyone else was getting margined out of their stock accounts or turned upside down on their mortgage, I (like some 19th-century immigrant) stayed in cold, hard cash. For a while, in 2008-09 I didn’t even keep my money in a bank and bought T-bills directly from the Treasury instead.

Now if you are the type of person who never sells your investments, never needs liquidity and always buys every dip in the market you can ignore every word of this column. I am sure you will be richer than Warren Buffett and I commend you on your ability to not need your money.

If on the other hand, you are looking to use your money for stuff like food, housing, travel, medical bills, you know, -- life, then just as day follows night, there will come a time when you will wake up in the morning and half your savings will be gone before you could even login into your Ameritrade account.

I don’t want to rehash all the old arguments -- that FAANG+M are the new Nifty Fifty. That my Upper West Side Apple store which routinely did more than 100M+ in business per year is now barren most of the time (yes it’s just the kind of bullshit anecdotal evidence that usually isn’t worth much -- except when you are trying to gauge relative rather than absolute change.) There are many analysts much smarter than me that have made much better arguments as to the stretchiness of valuation.

No. What I want to tell you exactly how the crash will happen since I’ve lived through all of them starting with the “Big One” in 1987.

There will be some unexpected catalyst, or perhaps no catalyst at all -- just a price cascade that will take the S&P down by 100 points in less than a minute. At first, the algos will step in and try their usual mean-reversion, vol-dampening routine but traders spooked by the move and investors looking to cash out long held profits will create customer flows that will quickly overwhelm the machines. The Spoos will start to dive again. Then, ignition algos seeing momentum will start to mercilessly pound the bids and drive the futures even lower. HFTs which only like to handle a couple of hundred shares at a clip will instantly turn off and suddenly all equity bids will disappear from the market. The exchanges will trigger circuit breakers and stop trading altogether. Now you will not be able to sell out at any price.

After a period of some time, the exchanges will once again reopen and once again investors will clamor to sell in order to salvage the profits build up over the years. Because really -- who at this point is not long the market? Do you REALLY think that at 18,000 Dow someone will step in and say -- “Wow -- what bargain!” No -- that’s going to happen later, much later, when the Dow is at 10,000 and you are left to wonder how 10 years of investment profits could be erased in a matter of 10 days.

I have absolutely no idea of when this will happen, but I do know that like all the other times before I will be safe rather than sorry and will stay in cold hard cash and let the rally pass me by.

Trader – Get Ready for Takeoff

Boris Schlossberg

What do you think is the third largest cause of death in the United States of America?

Respiratory disease?




The third largest cause of death in America is medical errors.


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That’s an astounding fact because it means hundreds of thousands of people in America die needlessly.

The number would be even higher if it weren’t for Peter Pronovost a critical care specialist at Johns Hopkins Hospital who 2001 decided to make a checklist to tackle just one problem that killed many patients -- line infection. As detailed in the New Yorker article, “On a sheet of plain paper, he plotted out the steps to take in order to avoid infections when putting a line in. Doctors are supposed to (1) wash their hands with soap, (2) clean the patient’s skin with chlorhexidine antiseptic, (3) put sterile drapes over the entire patient, (4) wear a sterile mask, hat, gown, and gloves, and (5) put a sterile dressing over the catheter site once the line is in. Check, check, check, check, check. These steps are no-brainers; they have been known and taught for years. So it seemed silly to make a checklist just for them. Still, Pronovost asked the nurses in his I.C.U. to observe the doctors for a month as they put lines into patients, and record how often they completed each step. In more than a third of patients, they skipped at least one.

The next month, he and his team persuaded the hospital administration to authorize nurses to stop doctors if they saw them skipping a step on the checklist; nurses were also to ask them each day whether any lines ought to be removed, so as not to leave them in longer than necessary. This was revolutionary. Nurses have always had their ways of nudging a doctor into doing the right thing, ranging from the gentle reminder (“Um, did you forget to put on your mask, doctor?”) to more forceful methods (I’ve had a nurse body check me when she thought I hadn’t put enough drapes on a patient). But many nurses aren’t sure whether this is their place, or whether a given step is worth a confrontation. (Does it really matter whether a patient’s legs are draped for a line going into the chest?) The new rule made it clear: if doctors didn’t follow every step on the checklist, the nurses would have a backup from the administration to intervene.

Pronovost and his colleagues monitored what happened for a year afterward. The results were so dramatic that they weren’t sure whether to believe them: the ten-day line-infection rate went from eleven per cent to zero. So they followed patients for fifteen more months. Only two line infections occurred during the entire period. They calculated that, in this one hospital, the checklist had prevented forty-three infections and eight deaths, and saved two million dollars in costs.”

The checklist became standard operating procedure in many hospitals across the US and is probably responsible for saving countless lives. It is also an idea borrowed from the aviation industry which despite all of our complaints is the safest mode of transportation in the world precisely because of its near religious adherence to the checklist.

Over my more than twenty years in the business, I’ve met a lot of pilots who were also traders. The job, with its large layover times (pilots on average only work 10 days per month) lends itself to trading. Pilots were fascinating because generally, they were very good traders. This wasn’t because they were necessarily more creative or more knowledgeable about the markets, but because to the man (they were all men) they followed a checklist and only took trades that met all of the setup criteria.

Although trading problems are trivial in comparison to those of critical care professionals, the process of failure is the same in both disciplines. How many of our trades die an unnecessary “death” because we enter them by mistake -- i.e. when all of the rules of the setup have not been met?

About two weeks ago I forced both K and myself to write out a checklist for each one of our setups. It wasn’t a very complicated checklist, but it made us focus on trades that were truly legitimate rather than just “close enough”. Much like with Dr. Pronovost the BK results have been nothing short of remarkable. This week and last I have gone more than 20 straight trades without a loss and K has been profitable almost every single day since then. Furthermore, as I continued to focus on only taking the trades that checked every box, I was able to refine my exits strategies allowing me to reduce the risk even further. And best of all, I was able to program these tweaks into my EA so that now they are part of the overall trading structure.

At its most basic level, the checklist helps every trader to create best practices for each setup which ultimately creates sustainable, repeatable profit opportunities.

So, trader, get ready for takeoff with a checklist in hand -- otherwise, it’s going to be a bumpy ride.

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Keeping Stupid at Bay – Making Trading Decisions That Matter.

Boris Schlossberg

There is a common and all too painfully true cliche that most Americans spend more time planning their vacations than their retirement. We simply focus on the wrong things and then wonder how did we screw up our life so badly.

Yesterday, I had my own vacation-to- retirement moment and it slapped me into stone cold sober into a becoming a much more serious trader.

Every Wednesday I have to pull myself from the desk to run over to 30 Rock to do a couple of hours of hits for CNBC. I always take the subway, because no real New Yorker would be dumb enough to get caught in midtown traffic. But NYC subway has been a disaster lately. The system is a victim of its own success as ridership is at all time highs, while capital spending has lagged for a decade. This results in track fires, train delays and produces a never ending cat and mouse game between commuters and the system.

Although, I am only 20 minutes away from the studio the trip can take an hour because I have to time the trains, brave the tourists and get through NBC security. I’ve developed all sorts of shortcuts from using the MTA app, to following the employee paths around the former Time-Life buildings in order to avoid the sidewalk hogging tourists, to getting to know all the NBC security personnel by name so I can jump the line every time I am there. All of these elaborate logistics are in place because I CANNOT AFFORD TO FAIL. I can’t be late to the studio because we shoot live. In ten years of doing this, I only missed one hit when the subway train just stopped dead in its tracks and trapped me. If this was trading you could say I’ve only had one losing trade.

But here is the interesting thing.

Yesterday I realized that I actually spend more time and care on my weekly trip to 30 Rock than I do on my trading plan and I bet many of you are guilty of the same crime.

Ask yourself a simple question.
Why am I in this trade right now?

Because price was running and I wanted to get in.
Because the markets haven’t moved for hours and I am bored.
Because I just lost money and I want it back
Because I am right.

If you answered yes to any of those questions -- you are not trading to plan. None of those answers are in any legitimate trading plan ever. Worse, even if you answered no to all those questions, but still took a trade that sort of, kind of, close to your setup -- you are still not trading to plan.

The only way to trade to plan is
Of your strategy
Sets up.

So if you want to start taking your trading more seriously than your commute make sure you answer these three simple questions every time before you hit send.

What is my opening trade size? I trade at 1X leverage -- never more. That alone has saved me from a whole lot of stupid because no matter how many rules I broke I could only do so much damage to my account. Conversely, if you trade with high leverage and do 99% of things right you can still lose all your money when the market forces a margin call.
What are my trading rules and is THIS trade I am about to take meeting each and every of them? If the answer is no -- then you are not trading -- you are goofing off.
What is my maximum loss in actual, real dollars (or pounds, or yen or francs)? Percentage means nothing. It’s an abstract mathematical concept that you will quickly ignore at the first sign of heat in the market. But tell yourself -- I WILL NOT LOSE MORE THAT $500 on any given TRADE EVER -- and see how much more effective your risk control will become. Money is real. Percent is not.

That’s it. Just those three simple questions will separate you from the vast majority of your fellow traders you will start making real business decisions that matter.

The Winning Way to Set Trading Goals

Boris Schlossberg

In life, if you really want to achieve something -- set a goal. Most people start out the New Year by resolving to lose weight or get in shape and fail miserably at those tasks. If on the other hand, everyone resolved to lose just 5 pounds or to walk briskly for 20 minutes twice each week, many of those resolutions would be kept.

See How We Made +71 pips in 90 Minutes Live Trading the ECB


In order to make goals viable and achievable, they have to be concrete and realistic. As human beings, we are very bad at abstract targets but set a hard number in front of us and we will go after it like a bloodhound on a hunt.

Yet when it comes to trading, many gurus will tell you NOT to set goals. The markets are utterly unpredictable, they’ll say. You can’t set hard targets on a daily basis, like a car salesman or donut store owner. Financial speculation just does not lend itself to consistency, so it’s not advisable to set targets, you’ll just get frustrated.

It is true that trading is not like any other business. Unless you are a dealer and have reliable customer flow against which you can trade, financial speculation has all the consistency of unset jello. Some days every trade turns to gold and other days you do nothing but bleed money. In that environment expecting to make a steady daily paycheck is woefully unrealistic.

But that does not mean that traders should not set hard target goals. It simply means that those goals should be measured on a longer time frame than 24 hours. If you are trading a high-frequency system, one of the best ways to measure your performance is to compare the actual results against results on a monthly, quarterly and annual basis.

By having at least 100 trades in your records, you will be able the law of large numbers tell you if the strategy is performing to spec or not. Looking at your trading from a longer term perspective eliminates most of the day to day angst of our profession and allows the trader to examine his performance in a rational, quantifiable way. It also creates the single most important aspect of goal setting — realistic expectations.

Just as no normal person would resolve to lose 200 pounds in a month, so too no real trader would expect to earn 100% in a year. Setting realistic targets against the backdrop of market tested results is the much more professional way of approaching the trading business. I recommend you give it a try.