The Horse Problem:
It's A Confidence Crisis:
I am finally caught up on my emails & reviews. It took me way longer than I thought. I am a horrible mutli-tasker, but starting tomorrow I get to concentrate on the markets again where I make my real money. I wanted to go over a summary of the top three themes of my emails about trading.
Question: Welsh - when the moment comes to make a trade, I freeze. I then end up missing the trade. How can I break this pattern?
There is NO WAY you can make money in the market if you have a fear of losing. I did not say you should fear loss. You need to take calculated risks in the market. I always enter a trade with an amount I am willing to lose. That's right. You can say every trade I have ever entered I thought I was going to lose, because I have a stop in mind. This is why I try to be selective in my entries. If you are selective in your entries, and you get stopped out anyway - I say that was a risk worth taking. Motion creates emotion. Making money creates confidence. Stop playing the 'should of' game and take your calculated risks!
Question: Welsh - I average 5-10 trades a day. Is that too much?
WAY TOO MUCH TRADING! Let's face the facts. Most traders are one step away from degenerate gamblers. I know I am. Know your strengths & weaknesses. My weaknesses - I have a tendency to overtrade. Sometimes, I get caught up in the volume action too much, when the best trades are letting the winners run. To prevent my degenerate gambler personality, I use excel spreadsheets that I review weekly. Here is an example of January 2015. I don't do these spreadsheets for window dressing. It's for me to control myself. Back in the early 1800s when I started to trade before twitter, I found the only accountable person was myself. My excel spreadsheet holds me accountable & prevents me from doing stupid things like overtrading. Personally for me, the rule is LESS IS BEST. It's a trading guideline that I have taped right to my desk, #9: Do not overtrade, simple mathematics, the more you trade the more likely to lose over time the long term profits. Statistically, I run best when I do less than 10 trades a week.
Question: Welsh - I can't seem to shake the pattern day trader (PDT) rule. What can I do?
For those that don't know, the PDT rule is in effect for accounts $25k & lower. It's a trade restriction. Believe it or not, it's there to protect you. So many want the quick money. So many think by looking a chart it's going to magically come to them. That's not how it works for 99% of traders. My simple suggestion for this? Stop this overtrading nonsense & let your winners run! You will not believe some of the spreadsheets I reviewed. Some people paid more in commission then they realized in gains. This is no way to make money long term. One email reader did not like this response. Said it was too hard. This trade is for you buddy....all it took was $5k in capital. My stop/loss was 4.80 as the 52 week high is 4.73 so I risked $300.
Notice the trade was done in the morning with my cover 30 seconds before close. I went for a 8 mile run today in between. I won't be told you cannot get out of the PDT rule because I don't believe it. You can get out of it if you stop overtrading and let your winners run like above & make money. The only thing holding you back is you. I am confident that you can do this. Trading is not easy, it's not supposed to be & it never will be. Put in the time to do it right now, and you won't regret it later.
The Horse Problem Answer:
If you said the farmer lost money because he needed a horse to plow his farm & could not buy it back because he did not have $150 of capital to buy the horse back when the crops were ready to harvest, you are correct. Think like a trader. It's always the opportunity cost, and that's the bottom line.