Trader… Control Yourself

Boris Schlossberg

What do you need to succeed at trading?

A great setup?
Lightning-fast execution?
Steely risk management skills?
All those nice-sounding ideas are utterly irrelevant to your success.

Why?

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.

Whaaaaaaat?

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.

Sound familiar?

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.

A Guaranteed Way To Control Stupid Trades

Boris Schlossberg

This is going to one of my shortest, but probably most important trading column ever. In all my years on Wall Street I have never, ever used this word before, but today I will. I can guarantee you a way to avoid every stupid, impulsive, account wrecking trade you have ever made from this point on.

Before I tell you how let me be clear. I am not saying I can stop you from losing money. I am just saying I can stop you from losing money in the stupid let-me-just-try-this-trade-because-I-am-bored-and-now-I-am-wrong-and-now-I-am-going-to-add-to-my-position-until-I-get-margined-out way that all retail traders lose their money.

How many times have you had great weeks, months, quarters only to squander it all away on an idiotic idea that made you fight the market in size too large until they carried you on stretcher? I’ve done that at least a dozen times in my career. And guess what? There is no way to prevent it.

But there is a way to control it.

Professionals on Wall Street always use a process when it comes to trading, which means that your entries, exits, sizing and any adjustments are all pre-planned and well established before you click the screen and place a trade. But as traders we are always going to be tempted by risk. Sometimes those ideas will pan out sometimes they won’t, but the unifying factor of all those trades is that they stand outside of your process and are therefore vulnerable to the possibility of ruin.

So here is my solution to controlling the non-process trade. One unit. The minimum trade. Yes for most of you on retail platforms that means .01 of a standard lot and 10 cents per pip. Here is the key point. The one unit rule is INVIOLABLE. It doesn’t matter if you have a million dollars in your account or just one thousand. If you adjust the minimum size to the size of your account you will eventually lose all your money because you will inevitably scale the trade. If you start with 10 cents/pips then even if it goes -1000 pips against you you will not lose more than $100.00 and by that time you will hopefully cover because you will realize how stupid you are being.

Why do we blow up our accounts trading impulsively? Because we hate to be wrong, but also because we don’t like to lose money. When you trade 1 unit you don’t lose money, just your pride and eventually your common sense prevails over your ego and you move on to bigger and better ideas.

The key point is that discipline will never work. We will always be tempted by random trades. And frankly we shouldn’t even try to suppress that urge, because its part of why we get involved in the markets in the first place – to explore the nature of risk. However using the 1 unit rule, allows you to scratch that itch while keeping your serious capital out of harms way.

Save $74.00 every month off BK Membership

That’s the only guarantee I can offer you when it comes to trading and it may be the best advice I can give.

How to Establish Control of Your Trading

Boris Schlossberg

By definition speculative markets are chaotic and unpredictable. The very lure of reward that attracts you to trading carries the threat of risk that can wreak havoc with both your self worth and your net worth. That is why first and foremost trading requires you to develop an ironclad routine in on order to succeed in the markets.

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My son, to whom I often refer to as an idiot savant ( please no outraged flames, its just family humor) for his ability to so perceptibly analyze human nature while completely failing to analyze even the most basic of problems in physics, was the one who pointed this out to me at a dinner this week.

“Dad,” he noted, “You know how in Millionaire Traders you wrote that an athletic mindset was one thing in common for all your interview subjects? Well what do all athletes do? They follow a routine day in and day out, week in and week out.”

He was indeed correct. Athletes in order hone their bodies follow a very rigorous schedule. I remember one bodybuilder who said that he associated the days of the week not by their name, but by the muscle group to be worked on. So Mondays were for legs, Tuesdays were for lats, Wednesday were for arms and so on.

Such monomaniacal devotion to your art may be well beyond all of us, but as retail traders we can still take some valuable lessons from this approach. Having a well regulated routine – a set time, on a set date, for a set task – is one of the best things you can do for your trading.

Typically, most retail traders review their charts and trades on the weekend in the quiet of their own study. But whatever time you choose, it’s critical that you allocate that 1 hour a week to thinking about what you did and what you plan to do. Those who day trade should create a set time each day to do the same.

Markets cannot be controlled, but your reaction to the markets can be. Trading is a much a game of controlling your own psyche as it is the art of reading the mind of the market. Without a routine you will never be prepared to conquer the challenges that speculation presents.