The Things I’ve Learned From 5 Years of Trading

This post isn’t a one and done. It will start messy, and may finish that way but I will constantly update and try to organize what I write here.

  • Filed under: Advice to Ambitious Beginners
    • Almost all indicators are derivatives of price and volume.  The more time you spend learning how to read some indicator (e.g. RSI, MACD, etc) is time wasted that you could have been learning the subtleties of price and volume.  In the end, price and the bid/ask are all that will matter.
    • Trading is about survival.  Especially in the early months and years.  Count on the money being gone when the trade is over.  Plan on it.  There are so many opportunities that come around over and over.  Risking <1/2% per trade is a good way to start .  Trust me it’s so much better and easier to start small and finish big than the other way around.  You will constantly improve over time.  It is logical to risk the least when you are the least skilled.
    • Find a mentor
    • Be wary of paying for systems or anything. Traders who advertise big winners and almost no losers are part of the “fuel the big easy money” mindset that will turn your pockets inside out. Learning to trade well takes YEARS of practice and experience.
    • If you have a $10,000 or whatever sized account and think you are going to be able to return 300%, 200%, or even 100% every year that would make you one of the best in the world. Aim realistically
    • If you are fading moves or trying to catch them watching how volume is expanding or contracting with price is a very significant part of the puzzle.  Don’t neglect to watch the volume bars.  They are the second most important indicator.  Some might argue the most important.
  • Filed under: Small Time-frames 
    • Day trading is difficult.  Why?  The smaller the time-frame you trade on the less room for error.  Thus swing trading using daily charts you will have a much wider risk range than trading off a 5 minute chart.-This leads into the way price behaves.  If you see the same pattern on a 5 minute chart as on a daily chart and that pattern seems to lead to a bullish move 85% of the time then do you have the same edge on the 5 minute as on the daily? No you do not.
      Why?
      Think of all the participants, shares, and contracts that have gone off the create the daily pattern vs the number on the 5 minute pattern.  They are similar but there’s simply less of a case being made on the 5 minute pattern.
  • Filed under: Human Behavior

    • Know thyself.
    • I could start writing out a bunch of bullets like “Don’t revenge trade or try to get even”, which is true but this is common sense.  Falling prey to this habit is a matter of personal weakness.  I’ve had to deal with this and there are so very many personal pitfalls in the world of trading that you will be bound to experience many of them. Trading is very personal performance journey where mistakes will be made. Hindsight will make those mistakes obvious and yet you will probably repeat them again. In the end it will be about finding a way to catch yourself from being the weak emotional being your are before mistakes take away capital.
      Easier said than done.
    • Have a plan. You need to have a plan for how you manage your account, how you are going to manage this trade, your day, what your short term goals are, what your long term goals are and so on.  What’s the end game about? What is today about?  Why this trade?  Playing it on the fly or kind of knowing what you are doing and getting away with it will always backfire on you.
  • Filed under: Risk and Reward
    • Manage risk.  Be obsessed with risk.
      Before you take on the trade figure out what you are comfortable losing on the trade.  From there you can calculate the size you want to put on (and should probably divide by two if you are new to trading).
      Seems simple but DO NOT assume the trade is going to work and DO NOT start figuring out how much you can make before realizing what you might lose.For example even now running the passive SPX strategy with covered calls I think to myself how much could I lose if I wake up tomorrow and the SP500 is down 20%
      Seriously I think of that and it comes into play with how I manage my own money.   Is it likely?  No of course not but in managing my own money I want to know every way I am exposed to the market taking it.  Anything can happen to anyone at anytime.
    • The idea of risking 1 to make 2 or 3 is great but it’s not the only way to make money.
      Risk $1 to make $3, you win 40% of the time.  EV is 0.6
      Risk $1 to make $2, you win 50% of the time.  EV is 0.5
      Risk $1 to make $1.5, you win 65% of the time.  EV is 0.625.
      Risk $1 to make $1, you win 80% of the time.  EV is 0.6.
      I’ve found the style that suits me best is to be right more often and accept worse payouts
  • ====================================================
    to be continued…
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