Trading Is Like Fishing

I don’t know a whole lot about fishing, but I’d like to think that day trading is a lot like fishing.

You have to be really patient and be prepared to wait a loooong time if you want a good catch.

If you’re the kind of angler who gets impatient and changes location every few minutes, you are unlikely to get much returns.

Find a good spot under good conditions, believe strongly in your choice, and just be patient.

Don’t actively go out and chase it. You’ve got to let it come to you.

Rewards will come to those who are the most patient.

5 Important Things I’ve Learnt

1. I must accept that I will lose trades.

Not every trade will be a winner. Nobody can win 100% of the time. A realistic win-rate is most likely between 50-60%, depending on your strategy. So therefore, I will expect to lose almost as many trades as I win.

2. I must accept that I will never be able to enter at the absolute lowest point, nor exit at the absolute highest point.

It is almost impossible to catch the “perfect” entry or exit. Just be happy with getting the profits that you had targetted (if you manage to get them).

3. I must accept that for almost every trade, there will be “red” moments (i.e. being in deficit) and there will be “green” moments (i.e. being in profit).

It is very rare to be able to jump into a trade where it just goes straight up all the way from start to end. There will almost always be agonizing moments where the trade just doesn’t go in your direction before hitting your desired profit target (if you manage to get there).

4. There will be periods of winning, and there will be periods of losing.

I must accept that wins may come in bunches, and losses may also come in bunches. Have to stay mentally strong when the bunches of losses come.

5. I must accept that I will inevitably always make mistakes.

No matter how many times I trade, I believe I will always still make mistakes and there will always be something new to learn every day.

A Bad Trade Is…

Just came across a great quote today so I’m writing this down.

“A bad trade is not a trade that you lost. A bad trade is a trade you made without following your system.”

So good. Will always keep this in mind.

Everyone faces losing trades. It’s all part of trading.

No need to feel bad about a losing trade.

No trading system gives you a 100% win-rate.

What you do need to feel bad about, however, is when you take a trade that is totally against your system.

“I Need To Trade Something”

One of the biggest temptations we fall into during day trading is when we feel the strong need to be trading something, especially during long periods of not seeing your perfect setup appear.

Especially also when you see prices shooting up, thus creating huge FOMO feelings within you.

Frustration builds up. Impatience kicks in. You feel you need to be doing something or else you’re not going to make any profits.

That’s where major discipline is needed to rein in your emotions and tell yourself you will only trade your perfect setups and nothing else.

Trust me, I’ve jumped into a lot of ill-advised trades because I was thinking “I need to be trading something!” and they have almost always turned out badly, and then I feel major remorse after that.

Learn to be patient. Practise self-control. Block out the FOMO.

This is what separates the men from the boys.

Note To Self

The markets can tease you….if you are easily seduced.

The markets can frustrate you…if you are impatient.

The markets can humble you…if you are greedy.

The markets can destroy you…if you lack self-control.

But the markets can also reward you…if you are disciplined, patient, consistent and humble.

Don’t Be Harlan

I don’t play poker and I know very little about the game, but I nonetheless enjoyed the movie Molly’s Game, directed by Aaron Sorkin and starring Jessica Chastain.

The scene which hit me the most was the one above about the poker player Harlan.

It’s almost scary, because of how real it is.

This is a cautionary tale which anyone who day trades should know about.

Harlan “played tight”, and by that I’m assuming it means he was a very careful player.

He was shrewd and gave very little away. According to Molly, Harlan was “playing poker while the others were gambling”.

Harlan was the type of player you hated to play against because you had nothing on him.

But watch what happens to Harlan in the scene above.

He was doing really well that night, but a strange and unexpected loss causes him to snap, and he then starts to degenerate into a revenge gambler.

He started trying to “swing for a home run on every hand”.

He ended up losing BIG. Really BIG.

And that eventually ruined his marriage and his life.

Harlan kept borrowing more and more money, and his famous last words to Molly were “I just got to get back to even”.

I say this scene is really scary because it is so real.

It’s no different from what happens in day trading. Anyone who has tried day trading will understand what Harlan went through.

Revenge trading? Been there, done that.

Telling myself I want to just get back to even? Yup, done that many times as well.

That is why trading discipline and money/risk management is so important.

I’ve learnt things the hard way, and I suspect it’s the same for many other day traders as well.

Always have a stop-loss.

Always only risk a small percentage of your account per trade.

Never take a big risk on any single trade.

Don’t average down when you’re losing.

Don’t swing for the fences.

Don’t let losses get to your head. Once you’re on a losing streak, just walk away.

And lastly, don’t be Harlan.

Patience Is Key

I’m not sure if anyone reading this has ever watched this 1998 movie called “The Conman”, starring Andy Lau.

Andy Lau (known as “King” in the movie) plays an ex-convict who was once an expert gambler, and Nick Cheung (known as “Dragon”) is a wannabe gambler who wants to learn the tricks of the trade from King.

My favourite scene from the movie is timestamped above.

The horse race is about to begin, and Dragon thinks that his mentor King has all his bets ready and is about to call the betting house to place all his bets.

However, King actually calls a noodle restaurant instead to order food to be delivered to their apartment.

Dragon is perplexed and asks King: “We wasted so much time analyzing the bets. Why didn’t you even bet a penny?”

To which King replied: “I saw no safe bets. Why would I bet? The horse trainers only bet less than ten races a season. If you bet on every race, even Bill Gates will go broke.”

Dragon then said: “This is boring!”

To which King said: “Do you want to be a happy loser or a boring winner?”

I think this is a great lesson for day trading the stock market as well.

  1. Good trades don’t come all that often.
  2. You have to be very patient and not jump into bad trades.
  3. Nobody said day trading isn’t boring. A large part of it involves waiting for the right trade to come.

Patience is key.

Things I Hate And Their Actual Loss Value

There are many things we probably hate about day trading. Things that stand in our way of successful trades.

It’s just the nature of the beast.

If day trading were so easy, everyone would be highly profitable by now.

But if I were to really analyze it objectively, there are things I hate which don’t actually result in any losses, and things I hate which result in HUGE losses.

It ranges across a spectrum.

And the trick is to avoid the things which result in huge losses.

Things I HateActual Loss
1Seeing a stock shoot up but not having a position in it as it did not fit my criteria.ZERO
2Not finding any good trades to trade in a day, because none of them fit my criteria.ZERO
3Jumping into a trade just to make a quick buck even though it did not fit my criteria, only to lose the trade.MODERATE
4Entering into a trade because I tried to anticipate a perfect setup, but losing the trade because the perfect setup did not materialise.MODERATE
5Not stopping after making multiple losing trades, i.e. not setting a cap on daily losses.HIGH
6Revenge trading – Getting over emotional over losing, and continuing to trade until I get to breakeven, but eventually blowing up half my account.HIGH

When you look at it this way, items 1 and 2 don’t seem that bad after all.

Sure, it doesn’t feel good to see a stock shoot up when I decided not to trade it. And it doesn’t feel good when I wait a whole day but can’t find any good trades to get into.

But you actually lose NOTHING if you don’t trade. And that is any time better than losing hundreds or thousands of dollars on trades you could have avoided.

Ranging Market

Definition of “Ranging Market”: A Ranging Market a market where the price is moving back and forth between a higher price and a lower price. It is commonly referred to as range bound, choppy, sideways or flat market.

As a trend trader, my biggest enemy is a ranging market, because there is nothing to be gained from a ranging market as it has no clear trends.

You’d end up losing most trades if you traded in it.

How do I identify a ranging market?

Personally, my favourite indicators of a ranging market are:

  1. ADX is constantly below 25.
  2. VWAP is a relatively flat line.

The big challenge is in learning to walk away on days when the market is trading sideways.

I think today was such a day.

It’s like you’re all ready and raring to go make some good trades, only for the realisation to slowly sink in.

Yes, it’s frustrating to not be able to find good trade setups.

My older self did not know how to identify a sideways market.

My older self would have tried to force some trades, tried to “see” some setups that aren’t actually there, and tried to jump into some impromptu trades for a quick profit.

And I would likely have had lost money on those trades. And in some instances, I might have even gotten emotional and revenge traded, eventually ending the day with even greater losses.

Been there, done that.

But today, I decided to just shut down my computer and walk away. No trading for today.

And I’m at peace with that.

Remember, it’s far better to have zero profits for the day than to make losses.

Focus On Technique, Not On Profits

Michael Phelps has one of the most beautiful butterfly techniques ever, which is a big reason why he was so good.

One thing you have to learn as a competitive swimmer is that technique is everything. Once you master the technique, the speed will come naturally.

The majority of your time and efforts should be on perfecting your stroke.

In the same way, I believe that for day trading, you have to focus on perfecting your execution and not so much on your P&L.

Obsess about adhering to every single step of your trading plan/strategy.

Obsess about risk management and minimising your losses.

Obsess about not jumping into a trade too early.

Obsess about keeping your emotions in check regardless of whether you win or lose.

Granted, your trading strategy should be a winning one (i.e. have an edge), and once you’ve found that – which I don’t believe is a difficult thing to do – it is then up to you to aim for perfect execution.

And once you master all that, I believe the profits should come naturally.

I’m definitely not there yet, but I’m working hard in the hope of getting there one day.