I had a great meetup with a local trader about day trading and all things relating to it. A burning question was what is the best advise for someone who has just started full time?
What could we suggest that would help a trader avoid the many pitfalls of trading full time? The first thing that came to mind?
You have to know what a losing trade looks like.
Why this? It is not terribly zen, prophetic or layered in meaning. Know what a losing trade looks like. Gee thanks Einstein.
Here’s the thing. When you go full time there should be one thing on your mind above all else at least for the first 6 months.
You must stay in the game
You must hang on as you work through the challenges that trading full time brings.
You aren’t to know your 6 year old will come asking for cookies just as a trade is turning for the worse.
You aren’t to know that being at home all the time means you now become the resident cleaner, cook and chauffeur.
You aren’t to know that being by yourself, all day, 5 days a week means you start talking to yourself and makes you break out the air guitar on random occasions.
Trading full time requires routine. A way of trading that is a part of your personality, discipline and a Twitter account. I had at least 3 different routines since going full time, each requiring a different system. That was just in the first week.
I needed those different routines because what I had wasn’t fitting into the family unit. You can only discover what works if you are still in the game.
Trading is your business. It will become a part of who you are. It is your answer to the first question at every party you go to. You must stay in the game because trading is a part of your definition.
Winning trades are important and an important validation tool. But it is not what keeps you around long enough to discover the real you as a trader. Multiple winning trades can be wiped out by one moment of ill-discipline.
In truth, they are wiped out by human nature, and that is a tough thing to control.
Watch your losses
It is your losers, and more importantly their size that determine how long you stay active in this business.
The question is, do you really know what a losing position looks like?
Do you know when a trade has lost it’s statistical edge? You must be able to visualise it before you place the trade. Visualise it’s personality, and be able to act on it immediately because you can see your edge has slipped away. This comes from study, and time in the markets.
If you can do that, and you can cut and run on those instances, the market will return those losses to you.
If you know what your losing trades look like, you can stick around long enough to accept the rewards. It might be through your skill, or just plain dumb luck when you catch a run on data you didn’t know was being released, or an institutional order that gave you trade an almighty turbo boost.
You can’t hit that home run if you already back in the dugout
You must stay in the game.
So what does your losing trade look like?
My best attempt at an American analogy, my apologies if it makes no sense ↩︎