Day TradingThe Morning Market Robert C. Joiner L.A. Conference 2012
What can I tell youthat would help you?Day tradingis a gamerequiring emotional intelligence,technical analysis,and money…in that order.
My assumption:You came to this conference to learn something new,something you can take backand apply to your trading,that will help you make more money.Is that right?
Let’s talk about where you areright nowand what would help youmove forward as a trader.
How many hours does it take to master a new skill? According to Malcolm Gladwell in the book Outliers, it takes 10,000 hours. How long is that? If you are trading and working on your craft 40 hours per week, then it will take you 250 weeks. Taking 2 weeks off per year, you can get it done in just 5 years. Work at it for 50 hours a week, and you can get it done in 4 years.
Firstwe have to find ourwhere you are.My theory:There are three levelsof trading.Identifyingyour current levelwill help you move forward.
Level I. Here are some of the questions asked at Level I: What is short selling? How do you place a trade? Which broker should I use? How much equity should I place on each trade?
Level I thinking:$<$$The idea is rightbut the process and the timing is wrong.
You are learning the basics:* how to execute a trade order* how to set up basic charts* learning some technical indicators* finding stocks to trade
Using real money at this pointwould be like handing a knifeto a pre-med studentand giving him permissionto perform brain surgery.
Resist the temptation.Don’t think you’re different.The patience and disciplineyou exhibit here(or fail to exhibit here)will be immediately reflectedin your trading accountand longer termit will prevent you from graduatingto other levels.
The way you progress to the next level:contraction. Narrow your focus. * Try paper trading one stock such as AMZN over and over until you are making a profit. * Just day trade. Don’t try to swing trade, day trade, trade futures all at the same time.* Keep a daily journal of thoughts, charts, reflections, ideas, new books, etc.* Take responsibility for your own trades.
A few hints:Don’t use real money to test new strategies. Trading a chart at the end of the day is a lot easier than trading it in real time.Don’t let your day trades become unintended swing trades.Learn how to lose.
In Level IYou decide if you love to tradeand you’re passionate about itor you don’t.It’s okay either way.Your ability to move to the next levelwill be determined by your passion and by your having survived the financial losses incurred while learning how to trade.
If you could go back in time and tell yourself one thing about tradingthat you know nowbut you didn’t know thenthat would have made the biggest impact upon your future successwhat would you say ?
Level II:Here are some of the questions asked at Level II. * What is the basis for my trade?* When will I take profit? * What will I do if the trade turns against me? * Will I use the same dollar amount on every trade?* Will I use a different dollar amount based on my perception of risk:reward for each trade? * Am I better at trading certain times of the day?
At Level IIwe begin to use real money because we have proven ourselves to be profitable with paper trading, and we begin to humbly admitthat trading stocks is difficultand our biggest enemy isourselves.
At this pointit isn’t our lack of technical knowledge that keeps us from progressing as traders. Rather, it is the knowledge and mastery of the self that matters most.
Some of the personal issues that demand to be resolved are these:* Is being “right” more important to me than making money? Is that why I held onto a losing trade so long?* Is my fear of losing money keeping me from playing a larger game?* Why do I allow the losing trades to run on but cut my winners short?* What is most important to me: executing my trading plan, or exiting this trade with a profit?* Am I unaccustomed to wealth and my guilt feeds my failure?
Two areas determine how much time you’ll spend at Level II:1) Bottlenecks – the speed with which you deal with your personal bottlenecks,2) Critical moments – your mastery of the “critical moments” of trading
Possible Bottlenecks:* Your relationship with money. (Do you feel undeserving? Does having money make you feel guilty? Do you tend to throw money away once you have it?)* Your need to be “right”.* Your definition of winning and losing.* Your ability to take responsibility for your actions
What is your definition of winning?Write it down.What is your definition of losing?Write it down.
The beginning trader thinks “losing = losing money”.The more advanced trader knows“losing is sometimes winning”and embraces this.
Sometimestaking a losing trade is one of the biggest winsyou’ll have that day.Does that mean you’re a loser?Does that mean you didn’t “win”?Learning how to lose successfullywill do more to help your net profitthan anything else you can do.
Learning to lose successfully means:1. You traded what you saw.2. You were focused on the chart and not on your emotions.3. You stuck to your trading plan.4. You did not allow a day trade to become a swing trade.5. You kept your loses tight.6. You accepted the fact that you are not perfect.7. You accepted the fact that every trade will not make money.8. You accepted the fact that being good is different from being right.9. You showed adaptability in the face of new evidence.10. You took responsibility for the trade in front of you.11. You showed discipline in following your trading plan rather than blindly following a “hold and hope” strategy.
It is because of those thingsthat “losing”is sometimes the biggest win you could have that day.
And all of this leads into the second factor that determines the speed with which you’ll advance as a trader:Your performance during the “critical moments” of trading.
The critical moments:* the moment you enter the trade* each moment you decide to stay in the trade* the moment you exit the tradeAt each point, this is where is all comes together: your understanding of the technical indicators, your “basis for the trade”, your definition of winning and losing, your need to be right, your willingness to get out of a trade that isn’t working, your level of confidence in staying in a trade that is making you money…each moment of the trade is a test of that level of performance, of your mastery of the indicators, your discipline of your emotions, and your focus upon this moment and this trade in front of you.
We are constantly learning.What am I doing todayto make tomorrowdifferent from yesterday?
Am I disciplined in doingeverything that I already know?Many times, our progressionto the next level isn’t a new fact or a new indicator. Rather it is taking action and doing the one thing that currently stands in our way.
In Level IIyou either learn to progressas a traderor you get frustrated and quit.
Level IIIHere are some of the questions asked at Level III:* What is the best use of my time?* How can I help others?* What else can I learn?* Am I using the best financial vehicle for my assets?
At Level IIIYou are trading in the zone. There is a more immediate connection between what your mind sees and your trade execution. You trade from a state of humility and calmness. You neither expect nor need to be right on every trade because you have a well-tuned plan for exiting the trade however it turns out. Your emotions are your friends, helping you gain clarity into what is happening right now, in this moment, with this trade.
AIG gap up… …using Heiken-Ashi Candles.
Figuring lines of S/R… …using Fibonacci Retracements and Pivot lines.
I make no assumptions.I do not try to figure out the direction of the trade before the chart develops.The chart in front of me is a blank slate and I am waiting on the chart to speak to me.
What is relationship of price and S/R? …using HA candles, BB, Fibonacci, Pivot lines, and VAP.
Heiken-Ashi Candles… HA Candles use more of an internal moving average of sorts to show price trend. I use HAF (a Heiken-Ashi Fractal) to determine the continuity of that trend.
VAP (Volume at Price) measures bull/bear sentimenton the currently displayed chart.Bollinger Band squeeze shows a bottleneck for price.
What is price doing? Price is breaking through successive lines of support. I find reasons for staying in the short trade based on this fact, plus HAF, VAP gaps, and weakness below the BB midline.
Using different time frames to measure strength and trend direction. …a 10-minute view.
Using Ichimoku & PVT… Price crosses Tenkan-Sen and finds resistance to that line until it breaks through the thin Kumo. PVT stays below 18 moving average for 3 hours.