Trader Mindset

Latest Episodes:

Getting over the weirdness of adding to winners Apr 02, 2018

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Most rookies are looking to take profits when the have a winning trade. Professionals look to continue riding the trend for all it's worth. As I've said here before, inexperienced traders need the boost to their self-esteem by posting smaller wins to validate their behavior as traders. Small or not, a win is a win and that's what's important to them. We advocate something that takes a little more evolution.

I have found in almost 30 years of teaching that a trader's unwillingness to add to winners is more of an uncomfortable, emotional problem than it is to understand the math involved.

Like any behavior, it takes some getting used to, but if you do it enough times, you can make it a good habit and replace the bad habit of having price targets.

Why you should add to winners Mar 30, 2018

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You're doing the work anyway, you might as well get paid for it.

Study how the security behaved after you took profits at your price target. What percentage of them continued to move in your favor?

What was the average gain beyond your price target that you might have earned had you stayed in the trade?

What to do when the markets snap back Mar 29, 2018

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It looked like some of the markets were about to run, but they all came back.

How do you handle snap backs?

Michael Martin discusses how he handles quick reversals in the markets immediately after he establishes a position.

How I put distance between myself and the markets Mar 28, 2018

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When it's time to chill, it's time to chill. Spying on the market during the time you've earmarked to put some distance between yourself and the market defeats the purpose of the break.

How I use intraday charts Mar 27, 2018

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I don't use them per se, but I test the intraday data around key inflection points in a simulator. I don't look at nor study intraday charts.

Why it's smart to Trade below your maximum risk Mar 26, 2018

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Your max risk per trade is just that - your max. You might consider trading within that risk measurement. Why? Murphy's Law. Take that into account when you are position sizing your trades.

You can normalize risk across all instruments so that you can think of each security in terms of risk units, that is, shares or contracts per unit. That's achieved by calculating the volatility of each instrument. In position sizing this way, you won't trade one more aggressively than another. They'll all be the same risk % to your overall account.

For example, given the prevailing volatilities, 26 contracts of Sugar might be equal to only 6 contracts of Crude Oil in terms of percentage risk to your capital. Each would be a 1% risk unit even though Sugar has 4x plus more contracts than Crude Oil.

Why trading baskets might yield higher returns Mar 23, 2018

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You have to surrender control for this strategy to work for you.

If you're hyper-vigilant once you're filled, or you have a strong emotional need to monitor your trades tick-by-tick, this isn't for you.

Two things a stock's price reveals Mar 22, 2018

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Despite the enormous "want" from investors from this growth opportunity, the stock is low priced. Why is that?

Does price move first and fundamentals follow (as PTJ said), or is it the other way around?

IMHO, price is the only thing that will tell you the truth, and in this case it doesn't matter if you uptime and downtime the chart - the answer is the same. Investors are in a "wait and see" mode.

Two things the price tells you are 1) what everyone is thinking about the prospects for growth; and 2) the overall trend of the security. If it's cheap, it's cheap for a reason.

Sperandeo on inflation and Bitcoin Mar 21, 2018

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Ultimately, blockchain technology is solid, but Bitcoin is a tulip bubble.

Two reasons for trading a basket of securities Mar 20, 2018

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Don't put all your hope in one trade. If you trade a basket of names, the net upside can be greater than that of the one name you're counting on - and you've diversified your risk.

Trade smaller positions and manage risk with protective stop order placement.