“Trading is a psychological game. Most people think they are playing against the market, but the market doesn´t care. You’re really playing against yourself.”
One of the comments we received recently was “help on sticking to a trading plan and executing it”. This also addresses some of the feedback we received including “not taking enough trades”, and “not doing anything with the portfolio”. These are great comments and it starts with one question, what is your goal?
Last year in the bull market everyone was a genius trading. Bull markets are easy, really easy. You put money in; it goes up on every triangle, wedge and channel formation. This not only creates a lot of wins, but creates a lot of “experts” as well. The trend is simply up how much easier can it get. That all changed in February of this year. Do you have the mental capacity to trade or are you just wanting to be in every hand?
“Only when the tide goes out do you discover who’s been swimming naked.” Warren Buffet
Bear markets expose those who have been “swimming naked”. Those that were geniuses in the bull market are now trying to satisfy their emotional impulses by continually trading. When a trade goes bad it was “the whales” or “market manipulation”, not their impulsive behaviors or just a losing trade.
“The most important thing to do if you find yourself in a hole is to stop digging.” Warren Buffet
Many have, or are starting to realize, the money made in the bull market as trading gurus is slowing eroding away during this market correction. Their lack of discipline has them digging a deeper & deeper hole in their account. If you find yourself in this situation “STOP DIGGING”.
What is your Goal?
“Time is your friend; Impulse is your enemy” Jack Bogle
If your goal is to just be in the action, then you are really looking to play the game just to play. If your goal is to make money in the longer term, then you must learn to control your emotions. Like poker, trading is an emotional game NOT a game of intellect.
Anyone that has played can teach you the game of poker, the basic rules, which hands are better than others, what good hands look like, what to bet, the overall basics. This is just knowledge of the game. What they can not teach you is controlling your emotions starting with impulsive behaviors.
Removing impulsive natures from your mentality is what separates winners from losers. Poker is not a game of chance, it is a game of emotions. Trading is simply the same.
“Money is made by sitting, not trading.” – Jesse Livermore
When I started playing poker I learned the hard way. I wanted to be in every hand that had the potential to be a winner. I knew the rules, but I couldn’t control my impulsive nature to be in every hand.
Then suddenly I would get pocket Kings. Yeah baby, heads up against Jacks, unfortunately I only had 1/3 my original stack left.
“Don’t focus on making money; focus on protecting what you have.” – Paul Tudor Jones
My lack of discipline, lack of strategy, planning and emotional control, resulted in finally getting a double up hand, and still being in the hole. Doubling up a 1/3 stack is still only 2/3’s a stack. Do the same thing over and over and eventually you are walking to the ATM.
“The four most dangerous words in investing are This time it’s different” – John Templeton
I would sit back down at the table and say “This time is different”. But that impulsive nature took over and there I was playing bad hands again. Had I just been conservative, exercising patience and discipline, controlling that impulsive emotion I would have been in a position to make money when strong hands came.
Discipline and Patience:
“The stock market is a device for transferring money from the impatient to the patient” – Warren Buffet
There are periods, like the past month, that we are simply throwing hands away. Exercising the patience and discipline to be successful, or at least give us a chance. Conserving capital in a trading account matters so when we get a good setup, we our adding to our stack not trading to get even.
Lets take a look at the hands we threw away or simply trades we did not take. Yes there were triggers all right, but lets see how impulsive trading would have worked.
The last trade for Bitcoin was on the 14th. This type of position and structure was conducive to entering a trade. It met our criterion in accordance with our strategy. It triggered and though at times it looked coyote ugly, we stuck with our plan and 8 days later it was a winner.
Shortly after, on the 18th, there was another potential setup, yet more aggressive. Trading a trend continuation, into resistance, in a consolidating market is simply aggressive. This one would have been a winner as well. On a roll baby we can’t lose right!
On September 3rd the same type of setup. Another perfect trend continuation pattern, not much different than the previous except and inside bar vs pinbar. BOOM Loser and it negated the prior win. Damn Whales!
September 9th a setup out of support. Triggered, active, came close but on the 19th stopped out. That was high risk as the R:R was less than 1 so we never would have thought to take it, but the setup was there. Lets say we skipped that one.
September 18th higher low, inside bar yeah baby trade on right? Boom knocked out the next day! It also knocked out the shorts as well. Double whammy! It was market manipulation I tell you!
Had we played every hand from August 1st to now, our stack would simply be getting smaller not larger.
There is a potential trade setup here. Can you identify and reason why this one is different then the past two? Interested to hear your comments. Would you consider this conservative, aggressive or highly aggressive?
What is your Goal?
The goal of a successful trader is to make the best trades. Money is secondary.” – Alexander Elder
So ask yourself, are you sitting at the table just to play every hand or are you in this to make money? I’m not implying that every hand will be a winner, but playing stronger hands over time gives you a higher probability of success
In order to be successful at trading or anything you must control impulsive behaviors. Our strategy is positioning to respond to the market not react, taking quality setups not posting daily trades. There are many sites that do this and if you have a need to trade daily, there are plenty to choose from. We take a conservative approach to trading, and it may not suit everyone, however we will start posting more aggressive trades, tracking them separately, but do not expect them daily.
“Assiduity is the ability to sit on your ass and do nothing until a great opportunities presents itself” – Charlie Munger
Short term trading is not appropriate for most people. Not because it is impossible to learn, but because most people do not have the ability to: 1. Anticipate rather than react. 2. Recognize that the root of the losing performance is in their reactive behavior.
All markets have a basic nature: the majority of the population supplies the liquidity and profit opportunities for the tiny minority. YOU have a choice as far as which group you would like to belong to. Most people are not aware this, and just go with their “instincts”.
What separates that minority? Their internal awareness and emotional intelligence. If this sounds alien to you, then most likely you are part of the majority, the reactive herd. If you are antsy, impatient and think “every turning point should be a trade”, that is classic herd mentality. Open your eyes, it is your behavior and unrealistic expectations that are emptying your account, nothing else.
“Trading is a waiting game. You sit, you wait, and you make a lot of money all at once. Profits come in bunches. The trick when going sideways between home runs is not to lose too much in between.” -Michael Covel
You don’t go out and look for “good trades”, instead you WAIT until they come to you (this is what having criteria is all about) . The MARKET chooses, NOT YOU. Learn to respect the market, because if you think you know better, be prepared to donate your capital. This is the philosophy that we trade by. If the market makes us wait, we WAIT. If that means no trades in a particular market for 2 weeks, then that’s what we adhere to.
Speculating in financial markets is NOT easy money. In fact it is the hardest money you will ever make. The market, along with brokers, exchanges and other industry participants would like you to think it is easy though. I wonder why?
Quality trades do not present themselves often in corrective consolidating markets. Learning to control your emotions is what will separate you from the herd. This takes time as instinctively we are programmed to react. What separates us from animals is our potential ability to control these emotions. This begins with exercising patience.
We post trades in other market like Forex, stocks and cryptos. Why? We are simply traders and at the end of the day does it really matter? If you do not have the means to do this, then paper trade and take this opportunity to learn about other markets.
“The big money is not in the buying and selling… but in the waiting” Charlie Munger