Things I’ve Learnt About Trading

  1. Don’t chase after trades. Let the market come to you. Take what the market gives you, at the market’s own timing. The more you try to chase after wins, the more losses you will get.
  2. Be contented with the profits that you managed to get. Resist the temptation to think about what you could have made, and just focus on the profits you actually made. It’s always better to be in the green than in the red.
  3. Whether you win or lose, just stay the course and stick to your strategy. Switching strategies only makes things worse. (This is assuming your strategy is a sound one and has been fully tested.)
  4. Don’t feel happy when you win a trade, and don’t feel disappointed when you lose a trade. In fact, just don’t feel anything. Be emotionless, as if you were a bot.
  5. Trading is a long-term game. You are merely doing your best to ensure that the odds will work out in your favour in the long run.
  6. Even the world’s best traders suffer losses. Nobody can consistently buy at the lowest and sell at the highest.
  7. Don’t focus on the profits. But rather, focus primarily on flawless execution of your entire strategy. The profits will then take care of themselves.
  8. If your strategy doesn’t have specific rules for (a) entry criteria, (b) stop-loss, (c) take-profit, then you don’t have a complete strategy.
  9. Your strategy rules must be so clearly defined that if you were to let someone else read your strategy rules, he/she would be able to make the exact same trades and get the exact same results as you would.
  10. A mental stop-loss is probably not a good idea.
  11. Trading against the trend is usually not a good idea.
  12. Win-rate means nothing if you’re just scalping for very small profits each time. But it sure feels good to see a high win-rate.
  13. If you only strictly risk 1% per trade, then the good news is that the most you could ever lose in a trade, no matter what happens to the market, is only just 1%. This is a very comforting thing to know.
  14. When you hit a string of losses, you will be glad your bet sizes were kept small.
  15. Everybody’s character is different, and thus every trader will have a specific strategy which will suit him/her. Find the strategy that suits you best. Just because another trader uses that strategy, it doesn’t mean that strategy will necessarily suit your style and temperament.
  16. Nobody ever made money having a great entry into a trade. You only make money when you exit a trade. Your exit strategy is far more important than your entry.
  17. There is no perfect way to take profits. Every take-profit strategy will have its own pros and cons. No take-profit strategy can capture all the available profits all the time. Just find the one that gives you the greatest peace.
  18. Risk management is what keeps you in the game. Revenge trading only hastens the blowing up of your account.
  19. Never give yourself targets, e.g. “I’ll close this trade once this trade hits $300 profit.” or “I’ll take all my profits from this trade once my account balance hits $12,000. I just want my account balance to hit $12,000 before I’m done for today.” The market doesn’t care about your targets.
  20. Approach every trade the same way, regardless of your account balance. Execute every trade the way your strategy dictates. Take profit exactly the way your strategy dictates. Don’t take profits early/late just because your account balance is high/low.
  21. There isn’t a single trader out there who has never wished he/she could have done things differently. Every trader makes mistakes: Jumping into sub-optimum setups, moving to breakeven too early, taking profits too early, fiddling with stop-losses, risking too much per trade. We’ve all been there. It’s how you deal with the mistakes that sets you apart.
  22. And most importantly – React, don’t predict. Take what the market gives you. Never expect anything from the market. The market doesn’t owe you anything.

A Mental Trick To Handle Losses

Here’s a mental trick which I like to use to help manage my mindset when trading, and to help me take losses better.

If you’ve traded long enough, you would know that “revenge trading” is one of the most dangerous mindsets to lapse into when day trading.

Once you start losing (especially if you lose big), you feel angry and you want to hulk smash everything and take risky trades just to get back to breakeven.

Which would obviously lead to even further destruction.

So, what’s the mental trick?

Well, before I go further, I have to first state that the number one rule to prevent lapsing into revenge trading is to keep your risk per trade small.

Small position sizes make you far less attached to every trade, and make you less angry when you lose them.

OK so here’s the mental trick I use:

Before I take any trade, I will determine my remaining account balance assuming I lose the trade and ask myself: “Are you OK with having this remaining account balance assuming you lose this trade?”

If the answer is “Yes”, then I will proceed with the trade.

For example, assume I have an account size of $10,000 and my bet size is $100:

Before jumping into the trade, I will ask myself if I am OK if I am left with $9,900 in the event this trade is a loss.

This makes me mentally prepared in the eventuality that the trade turns out to be a losing one.

And I’ve found that this mental trick serves me quite well in handling losses.

Most of the time, we take trades only thinking that it will be a winning trade, and we refuse to entertain the thought of the trade being a losing one.

And when we see our remaining account balance after a loss, our emotions simply cannot handle it.

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.

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.

Hit And Don’t Get Hit

I just watched the UFC Heavyweight title fight today between Francis Ngannou and Ciryl Gane.

I thought Gane fought great and did well not to get knocked out by Ngannou, but he just wasn’t prepared for Ngannou’s unexpected ground game.

We all know Ngannou has one-punch knockout power, and he can destroy you in a split second.

All it takes is one swing for Ngannou and it’s lights out for you. Game over.

In the same way, I treat day trading as if it’s a fight against Ngannou.

The stock market is a beast, and it can destroy you if you make just the tiniest mistake.

You can’t afford to make even the slightest error. You have to be 100% on point, following your strategy to a tee every single time.

If you get sloppy, the market will destroy you.

If you get greedy, the market will destroy you.

If you get emotional and revenge trade, the market will destroy you.

Always be extremely careful, and always know that you are playing a very dangerous game and can be wiped out at any moment.

It’s like what they always say before a fight: “Protect yourself at all times.”

I’ll Just Jump In Here For A Quick Profit

I love momentum in trading. My entire trading strategy is based on momentum.

So whenever I see a stock trending really well, I will always think to myself “I’ll just jump in and out here for a quick profit!” even though the setup is not the exact setup that I am supposed to trade.

This is especially so when I’ve just had some losing trades and am desperate for some quick profits to feel good about myself.

One word of advice: Don’t. Just don’t.

More often than not, it doesn’t end well for me.

So just don’t do it.