It sounds to good to be true, but I am here to tell you that there is an "answer" to being a profitable trader.
As always it's going to come down to:
I can't stress enough how important having the proper mindset it. In the book "Trading in the Zone," Mark Douglas talks about accepting the risk.
Many of us think that because we've made the choice to become traders, we've "accepted the risk" of trading. Let me stress to you that that is NOT true. You can become a trader, and not accept the risk of trading at the same time.
Not accepting the risk is the basis of all of the future mistakes you might make.
Even though I've been trading for over 5 years, not accepting the risk of a trade is the thing I need to work on the most.
What am I risking? For me it is not the money. Whether it was through music, through flipping houses, through driving for Uber, the Podcast, our Healthcare company, or trading, I've always had the ability to make money. It's likely that all of us have the ability to replenish any amount of money that can be lost on a trade, or through a series of bad trades that take place over a large amount of time.
I'm not risking money, I'm risking "being wrong." On the podcast, Charlie jokingly calls me "The one who knows almost everything there is to know about everything." He called me that off the cuff one day, but he's stuck with it. I don't know everything there is to know about everything, but I do study anything I want to learn. I've always been that way.
On a personal note, in my first band back in 2005, we didn't have internet on our phones, but we did have a service called "Cha Cha." To make money on the road, I took the job of answering questions on ChaCha. Users that wanted to "google" something would text a question to 242242, and someone on the other side would send back the answer. In that way, I spent my entire day answering random facts for people that did not have the capabilities we had today of looking up anything we want. That's not super important to trading, but it is important to note that I've always been someone that tried to be "right" about everything. I've always tried to be "right" by looking up the answers to everything.
Trading presents a unique opportunity to make mistakes that we don't have in our personal lives.
The answer to this problem is to accept that the only way to keep yourself from putting on a losing trade is to never take a trade at all. There are no guarantees in trading. The only guaranteed outcome you can have in trading is to not trade. Then, you'll never lose.
What's the idea here? There is no strategy known to man that will result in 0 loses. Billionaire investor Carl Icahn just lost almost a billion dollars on Hertz (Car Rental). He owned 40% of the company, and they just filed for bankruptcy. Warren Buffet bought a massive stake in Delta at the onset of the lockdown, and sold that position for an unknown loss.
What's important is not "being perfect," it's trading your strategy perfectly.
One of the hardest things to master in life, and in trading, is patience. A lack of patience will cause you to get in trades that are outside of your strategy. It will cause you to get in early when waiting for a specific point.
Last week, I saw that my biggest issue was patience. I jumped in too early on trades, and I jumped in trades before they had completed the show of strength I require for many of my bounce points.
Patience is key to trading your strategy. Wait. If you miss it, there will be another move tomorrow. That's the beauty of day trading. Every day brings a whole new batch of opportunities. You have to be ready to capitalize on those opportunities.
I'll be writing on this more in the future, but I've had a major brush with discipline in my life. Over the last few months, I've had to remind myself that it is okay to follow discipline on things. Being a strong Libertarian, I tend to reject rules that I feel are "arbitrary." By the way, most rules are arbitrary!
Rules on trading are arbitrary to the point that you need to set rules that work for you. The subjective part is that not everyone has to follow the same rules. Some people do well risking large amounts of money, so people do not. Some people can handle a loose strategy, some cannot.
The only arbitrary part of the rules is that you need to come up with the rules that work for you. We call this the "Strategy." The strategy I use is not the only strategy in the trading world, but it is one of the only ones that works for me. Since the rules are not the same for everyone, they can seem arbitrary and subjective, but I promise you they are not. Once you figure out what the rules need to be, you need to follow them.
Life example: I was a raging alcoholic and yes, drug addict.. barely 2 years ago. Even though my drug of choice was Marijuana, I still consider myself an addict. Yes, I know it isn't technically addictive.. But, screw that. Anything that makes you feel different is addictive. Caffeine, Alcohol, Weed, Sex, Pills, and... taking risky trades. I was able to kick most of my bad habits overnight when it came to the alcohol and drugs, but I have always had an issue kicking my bad habits when it came to trading. Last week I had what you might call an "Epiphany." I need to treat my bad habits in trading like I treated my other bad habits in life. On June 28th, I'll be hitting 2 years of sobriety, and today I hit 2 days of being a completely disciplined trader.
It sounds way too simple, but the answer to trading is finding a strategy that works for you, and trading that strategy with patience and discipline.
We back-test, we forward-test, and we test again. Through all of that we develop trading methods that show a profit over time. Assuming that there is no human-error involved in trading that strategy, the only reason you would lose over time is that you didn't trade the strategy. That's why I've renewed my focus on "red and green boxes."
Until you can look back through a month worth of trading and say "I traded the strategy perfectly, and I still lost money," you don't need to lose faith in your strategy. As you go, keep a running total of what your P/L would look like if you traded it perfectly, and what it actually looks like. Make it a goal to fix the problems you continue to have.
Your strategy, discipline, patience, etc., is worthless if you fail at the implementation. That's why I've been doing the "One-Share Challenge." I'm perfecting the implementation of the strategy, before I up my share size any further. Doing this challenge takes patience, and discipline. I strongly recommend that each of you perfect the execution of the strategy before risking too much money. It's easy to have a great idea, but it's a completely different story to implement that idea. Practice being a disciplined trader in any way you can. Become that person, and be proud of your discipline. Trust me, you won't regret the effort that's going into this career. Don't be the person that regrets not trying hard enough, or not risking enough money. It's all worth it in the end.