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What do you need to succeed at trading?
A great setup?
Steely risk management skills?
All those nice-sounding ideas are utterly irrelevant to your success.
Because you will never follow the setup, speed is pretty much the same for everyone across the advanced industrialized world and no one has steely risk management skills.
We approach trading education all backward.
We focus on setups, backtests, leverage, execution, correlation risk and a million other factors that we think may give us an edge. And sure, if we turn those ideas into an automated system these become the primary elements of success. I just released a system that checks all those marks. K and I have been trading another system for many months already and it is by far the most profitable account I have.
But… all those systems have the sex appeal of a Vanguard index fund. They are slow. They are deliberate. They can be quiet for days or suddenly explode into an array of trades. If I ever had to actually trade the way my systems do I would blow brains out.
And that is the key element that we always miss.
The human element.
If we want to trade the market for fun as well as profit if we want to engage with the crazy, irrational, fascinating, thrilling, frustrating, infuriating, electrifying mess that is the global financial market we need to do it on our own terms.
How can you make the market adapt to you? The market adapts to no one!
That’s true. But the key succeeding in its wild ocean of trades is to find a space where you can thrive under your own rules.
Can I tell you about my week?
All week long I have been trying to trade stock index futures the “right way” – trading with trend, waiting for the retrace, using proper risk structure. Just like the system I designed.
One small problem.
I am an inveterate top and bottom picker. No matter how hard I try I always abandon continuation trades and look for the “turn”. Naturally, when I am trying to trade one way but actually trade the other, I also get into massive trouble with risk control. I abandon my stops, lever up on size and effectively turn semi-intelligent trades into mindless gambles.
So after a week of bleeding money and feeling totally out of control, I finally decided to forget the “right way” and decided to day trade indices “my way”.
First and foremost it meant short, small exits since no matter how good a trade I have I am never able to hold it for a long time. In fact, the longest I am able to hold a position in something like NQ (the Nasdaq futures) is for 20 points (or basically one-fifth of the typical daily range). Indeed my sweet spot is about 10 NQ points or between 20-40 minutes per trade. I am a guy who always goes for small dopamine hits. I never go for the big move.
Also, I don’t like to get stopped out a lot. Of course, no one likes to get stopped out, but there are plenty of traders who are comfortable losing 1 out of 2 trades. I am not one of them. If I lose more than 3 trades out of 10 I get very antsy and my “discipline” goes right out the door.
So what did that mean in practical terms?
That meant that my stops had to be bigger than my targets but not too big.
Ultimately I settled on the following ratios – in NQ I traded 10 targets 20 stops in YM 25 targets 50 stops in ES 3 targets 6 stops.
Those numbers felt right to “me”. The market couldn’t give a flying f- about my ratios. But that didn’t matter because now I had control of myself and that in turn allowed me to be much more in control of my trading.
Suddenly I felt a much greater sense of calm because each execution became a semi-intelligent trade rather than a mindless gamble. In fact, by doing what I wanted to do rather than what I was “supposed” to do, I made less and less mindless gambles. My inveterate top and bottom picking throughout the day remained, but because I was much calmer now, doing things the way I wanted, I suddenly became much more patient, looking for key telltale signs of turn during the day. I stopped trying to accommodate to market and started instead to exploit it within my own means.
Did I make money? Hellz yes. I went 8 for 1 doing actually better than my win percentage goal. But that’s not really the point.
The point is that you need to make the market your own. You will never change. No motivational talks, no browbeating, no self-loathing or hatred will ever change your trading habits. If you want to have fun in the markets and actually try to make money you need to stop listening to anyone to tell you what to do and discover what it is that you ACTUALLY do. From there you can start to design an approach that makes emotional sense to YOU.
If we want to trade “properly” we should use robots.
If we just want to trade, we need to know who we really are and make peace with that.