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Tuesday, 12 December 2017

Treating Day Trading as a Business

     One of the many things that attracts people to day trading is that you are your own boss and get to work from home. However, if you are a lazy person with no discipline do you think you are going to be a good fit to be your own boss? If you want to have any success with day trading you must treat it as a business and I will outline some key components in this post.

Lead up Moments
     I would wake up late, usually 6:00 pacific time, thus giving myself 30 minutes until the market opened. I would get out of my bed and go straight to my computer. I did not have much for breakfast, maybe a granola bar and some fruit. I then rushed to do my scans and had very poor preparation, often relying on others to post their watch list. Simply put, I did not take it serious enough. I came to the point where I did not even care if I lost money and this is such a dangerous state of mind. After a couple blowups and being honest with myself, I recognized that in order for me to have any success with trading I needed to make some serious changes and I needed to start within myself. 

Treat Day Trading as a Business 

Goals and Vision  
     First and foremost, just like any business, you need to set goals for yourself and have a vision. What is it that you want from day trading, set clear expectations and goals for yourself that are specific, measurable, attainable, realistic and timely (SMART). Did you decide to start day trading for an extra source of income? To become a millionaire? To transition to a different career? To find a new passion? This needs to be identified. Your goals will be different depending on why you started to day trade in the first place and just remember to be realistic with yourself. Far too often people start day trading to try and make a quick buck and they have no vision and long-term goals, which is why most will give up within their first few years. Most businesses struggle to make a profit in their first few years, it takes time, and this can also be said about day trading as it is a business. 

     Your goals should be written down and be somewhere visible. Simply having a goal in mind is not enough and remember to use the SMART acronym. A Short-term goal could be “I want to be consistently profitable with 1 setup/pattern with a 3:1 risk/reward or greater in 3 months time.” A long-term goal could be “I want to turn my $3000 account into $6000 in 1 year.” Although I am not a huge advocate of setting dollar goals, I do believe having a long-term goal in mind is okay as long as it is realistic.  

     I am sure most of you recognized one of my issues; I was waking up way too late and was poorly prepared. I now wake up much earlier to give myself plenty of time to get ready. I recommend eating a good meal that will keep you energized and grabbing a coffee to help keep you laser focused. Giving yourself an adequate amount of time to prepare is so crucial. If you wake up late and are having to rush to your computer this will translate into frantic trading. If you do not already have entries/exits in mind prior to the open from drawing key support/resistance lines and looking at key areas of the chart you will likely just randomly enter with no idea where the stock is heading. Rather, when you wake up with enough time to prepare you can calmly go about your morning routine and this will translate into calm trading, almost robotic like. This is the key here, develop a morning routine that becomes robotic like that helps you prepare for the trading day giving yourself an edge over the latecomers. Also, take a look at your trading environment. Does it have calmness to it? Or do you have papers all over the place and is in an open area where you can hear your screaming kids. I highly recommend having your trading office in a relaxing environment that creates a calming energy. E.g. do not try and trade in a loud environment full of distractions, trading is stressful enough as it is.

Have a Trading Partner 
     This is all about collaboration and helps keep you accountable. This does not necessarily need to be someone you are trading live with everyday, but it should be someone who will help keep you accountable and someone you can review your trades with. A lot of people day trade with tunnel vision, meaning they only see/hope for one scenario and that is all. It may be as simple as having a trading partner to tell you to zoom out for you to realize what the fuck you are doing. Not many people go into business all by themselves, so why should day trading be any different. Share your goals with this person, share your rules, and talk with them during trading hours to discuss potential trades.

Spend Money to Make Money
     I already went over this in my last blog post so I will keep this short. If a new restaurant opened would you go to it if they were too cheap to turn on the heat in the winter or used paper plates because they wanted to save money? Probably not. You need to be well equipped if you want your business to be successful. E.g. decent computer with two or more screens, decent broker and not being cheap with borrow fees, getting a scanner or joining a trading community, and buying educational products. This is your tuition; do not expect to make any money if you are being cheap.  

You may be saying to yourself, I already do all these things, why am I not profitable yet. It takes time, keep working at it. Very few businesses see immediate success and the ones that do are outliers. 

If you want more on this topic of treating day trading as a business you can read this blog post called 3 Things Every Serious Day Trader Should do in the Morning from Nathan Michaud of Investors Underground:

Saturday, 18 November 2017

13 Reasons Why Most Day Traders Fail

1. Setting Unrealistic Expectations
I am sure almost every trader starting out falls victim to the get rich quick scheme, which is why blowups are so common. I know I did. This is largely due to seeing pictures of other trader’s profits or of their cars and money. Becoming a consistent trader is not going to happen overnight, probably not even within your first year of trading. Just think, doctors spend at least eight years of their lives studying before they earn any money. The knowledge they gain comes from experience, studying and putting in their time. The same can be said about day trading. A realistic time frame to become profitable is likely two or more years of trading with real money, studying/paper trading does not count.  Also, setting dollar goals can be toxic. For example, setting the goal of “I want to turn my 2500 dollar account into 50,000 by the end of the year” is just going to mess you up psychologically because you are already so focused on making money. The best traders are the ones who can separate themselves from the money. Initially, your goal should not be to make X amount of dollars every day. A better goal would be “I want to develop good habits and build discipline by following my rules and focusing on the process not the money.” During your first two years of trading your success should not be measured by how much money you have made/lost. Rather it should be measured by developing good habits, discipline, rules and consistently working to perfect 1-3 niche setups. 

2. No Concept of Risk/Reward
This is huge. If your losses are bigger than your winners then something is wrong. Find yourself exiting trades early? It is likely because you did not even calculate where your exits would be until you entered the trade, thus you had no idea what your risk/reward was. You can't just say I will enter short and risk .10 cents. What if there is strong support .10 cents below your entry, your risk/reward would be 1:1. Prior to entering a trade you need to be calculating where the stock has the potential to go and key areas where you can scale out or add to your position. Key areas can be found by drawing basic support/resistance lines on your charts or VWAP, you don't need any fancy indicators. A risk reward of 1:1 is garbage, 2:1 go play roulette, 3:1 is decent and 4:1 is good/preferable. When I say 3:1, this means you are risking 10 cents to make 30 cents. Risk/Reward is why I do not trade the first 3 minutes of the market. It is far too easy to get dumped on or squeezed out and especially as a newer trader this time frame is a recipe for disaster. That washout long may work once in awhile for you at the open, but just wait till it blows past your stop and you just lost a quarter or half of your account in seconds.

3. Lack of Discipline/No Rules
This one is huge and can even be argued as the most important. If you don't have rules, then what are you doing? If you don't have discipline, then what is preventing you from revenge trading and blowing up your account. Discipline is needed in this business, if you are lazy and just do whatever then forget it. I recommend writing your rules down and having them somewhere visible while you are trading. If you break one of your rules, discuss with yourself why it happened and what you will do to prevent it from happening again. One of my rules is to not short a stock after SSR is triggered. 9/10 times I will get chopped up and take a loss. Yes that 1/10 time the stock continues to collapse can be tempting but trading is about probability and risk/reward so you need to build up your discipline in these types of situations and ignore it if it is one of your rules.

4. Throwing in the Towel
It can be discouraging not making any money or no matter what you do, you just cannot seem to become consistent. When you feel like throwing in the towel, I want you to look back and reflect on how far you have come. You were once learning what a stock was, basic chart patterns and support/resistance. Don't let all of your time and money go to waste, most people quit without even recognizing how far they have come and how much they have actually improved. When I first started trading my anxiety and fear was so bad I would not even trade, I would have my mouse over the buy button but I just could not click my mouse. It was depressing and I was very tempted to just call it quits. However, over time I overcame this fear and became better and better. So if you are thinking about quitting, reflect on your progress and where your troubles are arising. Maybe it is your current system, or lack of discipline. Recognize it and make the necessary changes.

5. Mental Exhaustion
This is a tough one because you are wanting to study everyday but end up burning yourself out in the meantime. It is healthy to take time away from the markets, especially on weekends. Enjoy your time away from the markets, disconnect. It is amazing what taking a break and feeling refreshed can do to your trading. Trading has so many ups and downs and is very difficult mentally, you are likely burnt out without even realizing it. Trading while mentally exhausted will translate into poor judgment and irrational trades, which ultimately leads to bad habits and losses. The market is not going anywhere, learn to get comfortable taking time away from the markets once in awhile and enjoy life. 

6. No Defined Strategy
This is the trader who just trades whatever, whenever, looking for the holy grail system. Going from guru to guru trying everyone’s strategy, while blowing their account up in the meantime. It takes a long time to develop a strategy and a lot of data, you can not expect to learn someone else's strategy right away and expect to become consistent. If you want to use other people’s setups/strategies that is fine but give them time to work and tweak it to match your style. Don't give it a few weeks and toss it away and run to the next guru, it takes time and patience.

7. No Follow Up
This is the trader who just comes to the market and forgets about everything by the end of the day. There needs to be frequent reviews of your trades, what you did well and what you did poorly. This will help reinforce your rules, discipline as well as build muscle memory. Save the charts, make notes, start a journal, do whatever it is you feel will help you. A lot of the time history repeats itself. If a stock gaps up and dumps at the open, there is a good chance it will do that the next time it gaps up. If you have this knowledge, you will have a greater edge over others.

8. Not Enough Capital
I would say the minimum you should fund your account with is 3500. Anything less than this is just not giving yourself enough margin for error, which will happen. Also, I don’t recommend funding an account with a perfect thousand such as 3000 or 4000. Rather, I recommend funding with a number such as 3500 or 3750. This comes down to psychology, which is such a critical component of trading. If you fund your account with 3000 and on your first day of trading you lose 250, you will be at 2750. Seeing that 2 is going to mess you up psychologically, and your initial thought will be “dam I need to get back above 3000.” The next day you will be eager to get back above 3000 and boom now you are at 2500 and so on. If you fund with 3500 and take that same loss of 250, you will be at 3250, which in my opinion, is not going to be as psychologically devastating.

9. Not Focusing on Yourself Enough
I see this far too often. People racing to twitter to check what everyone else is trading, looking for a stock tip to make a quick buck or admiring all the p/l posts from their guru. I swear some people are more concerned about other trader’s p/l than their own. Focus on yourself, not what others are doing. It is okay to try and mirror other trader’s style of trading but it is best to tweak it to match your personality/style. Also get off facebook, instagram or your porno websites during trading hours. Treat this as a business, stay focused. If nothing is happening in the markets then go do something else, get away from the screens and preserve your mental capital. If you find yourself getting distracted or focusing more on other things, then you simply do not want it bad enough. 

10. Shit Broker
This can be tough, especially if you are under PDT. Don’t cheap out on the trading software, you will need real-time data, level two and decent charting. My first broker didn’t even have charting or level two, I am sure you can imagine how that went. Also, having a broker that has decent borrows/short list is definitely going to be an advantage. Being charged more than $6.00 a trade is a rip off and I would recommend either trying to negotiate or look elsewhere. Also, you got to spend money to make money in this business. Don't cheap out on borrows or your trading software.

11. Shit Computer
You don’t need anything too fancy, but you do need a reliable computer with good internet connection. I would say the minimum screen requirement is two, if you are only trading on one screen then you are setting yourself up for failure. For me, three screens is the perfect amount. This allows me to have everything organized nicely and visually I can just see better. 

12. Not Well Equipped
Don't come to the playground with your water gun when everyone else is coming with their AK-47 and expect to win. You need to be well equipped, yes you will have to spend some money but you can't be cheap in this business. You will need an adequate scanner such as trade-ideas, good charting/level 2, reliable broker etc.. If you are using twitter as your scanner you are too late to the party. By the time it is alerted on twitter and you are looking to buy, others are already locking in profits. I use this scanner trade-ideas you can get 15% off with VANCITY15 

13. Lack of Screen Time
It takes a lot of screen time to build muscle memory in recognizing your setups, dilution, when to take the trade vs. not take the trade. The more muscle memory you build the less you will hesitate. I recommend recording your screen so that you can re-watch everything again in real time. This is a lot better than just looking at a screen shot because you can re-watch level 2 and the chart and see what you did well and where you went wrong in real time. I use ezvid, it is free to download and I typically just record my screen the first 30 minutes of the market open as this is when I am most actively trading.

Have Questions or Comments? Feel free to email me: