--back to work tomorrow ping...
--back to work tomorrow ping...
by Jason Leavitt LeavittBrothers.com July 16, 2013
From the start they had the talent and skills to navigate the market, and they simply aren’t prone to making the same dumb, repeated mistakes the rest of us do.
This is the assumption, or perhaps this is the excuse offered by losing traders. But in reality, successful traders exhibit similar characteristics that can be learned, and they do certain things that anyone can do. One of these is the topic of this essay.
INCORRECT ASSUMPTIONS
The incorrect assumption is that good traders are good at everything. Uptrends and downtrends, big ranges, small ranges, and choppy markets, big gaps or no gaps - that they can flawlessly float from one indicator to the next and from one strategy to the next as the market changes.
None of this is true. In fact the exact opposite is true.
DO ONE THING WELL
The best traders focus on doing one thing well. The best traders identify a trade, or possibly two trades, that work, that jives with their personality, and they execute over and over and over. They specialize in doing one thing very well, and they completely ignore everything else and they resist the temptation change.
It then goes without saying unsuccessful traders are painfully unfocused. They constantly jump from one strategy to the next in hopes of finding a Holy Grail which doesn’t exist. First they trade an MACD crossover system. After a month, they give up and try a Stochastic oscillator system they saw on a message board. After a month of that they try trading Fibs. Then they try Median Lines. Then they try buying dips instead of breakouts. It goes on and on, and after six months they realize if they would have just stuck with their original MACD system, they would have been just fine.
BEST ADVICE
The best advice I can give to a new trader or a struggling trader is to find a trade that works, one that jives with their personality, get good at it, and do it over and over, and do not be tempted to trade other methodologies.
If I was running a hedge fund, and I interviewed you for a trading position, the first question I’d ask is: what’s your trade? What is the single trade that works – although I know it won’t work all the time – that you are comfortable executing? I’d want to know you’re not one of those traders who constantly jumps from set up to set up desperately hoping to find something.
LIKE NO OTHER ENDEAVOR
Unlike many other endeavors, trading allows you to do this. If you were a golfer, you’d have to be good at driving and putting and a short game. You’d have to be good playing in the rain or when it’s windy.
If you play chess, you have to be good at the open, the middle game, the end game and various scenarios based on what pieces are on the board.
But trading doesn’t force you to be good at many things. As hard as trading is, trading allows you to identify certain conditions that you’re good at navigating and then permits you to only trade when those conditions are present. You can literally suck at 99% of what’s out there and still make a living trading if you get good at one or two specific set ups.
With this realization, trading isn’t so intimidating any more. You don’t have to be good at a lot of things, and you don’t have to understand much either. In your little corner of the world you can identify a simple set up that works, and then execute it over and over.
ANECDOTAL OBSERVATIONS
I’ve been running LeavittBrothers.com for almost 11 years, and I have a pretty good feel for who makes money and who doesn’t. I could pull up charts posted by successful traders and compare them to charts from three or four or five years ago, and they’d be identical - same time frame, same duration, same indicators, same parameters on the indicators, same boring stuff. But that’s why they’re successful. They do the same thing over and over. This doesn’t mean what they do always works. In a given 12 month period what they do may only work eight or nine months, but these traders have learned that it’s best to go back and forth between trading aggressively and sitting on the sidelines than it is to constantly change strategy when the one they’re using stops working.
WRAP UP
After meeting many successful and unsuccessful traders, this is the most obvious and glaring difference.
Successful traders specialize in being great at one thing.
Unsuccessful traders constantly jump from one strategy to the next.
You need to take complete inventory of your skills, your talents, your temperament and study different trading styles and pick something that works, something that jives with your personality, something you can execute and commit to becoming good at that, and completely ignore everything else.
Entries are less important than most traders think. Said another way, pinching pennies with entries will cost you dollars. Too many times I've hesitated to chase a stock 10 cents, and it cost me a couple bucks.
Often the hard trade is the one I should make while the easy trade is the one that fizzles.
The big money is made riding the big trends. You can definitely make a living shooting for little winners, but you have to nail big moves if you want to get rich (it does you no good to buy a stock at 15, sell it at 18 and then watch it rally to 45).
I don't know which set ups are going to be "good ones" and which are going to fizzle out. Anyone who says differently will probably try and sell you real estate by the Bay. Because of this, trading is somewhat of a numbers game. Get in very good set ups when the trading environment is conducive, play good defense and then let the law of large numbers work out.
There are many ways to trade the market, but there are no bonus points for trading a certain way. Traders need to take inventory of who they are and what they are and then find a trading methodology that jives with their personality. Then don't stray - stick with it. It's better to specialize in one type of trade and execute that trade over and over than be a jack of all trades (no pun intended).
Screen time does not always result in more profits. I've spent hours analyzing every angle of one particular stock and then had the trade go against me; I've also spent 10 seconds deciding to enter a stock that visually had a great pattern and an easily identifiable entry level and made a lot of money. This isn't an excuse to be lazy, but it does tell me over-analyzing isn't wise. On a related note, if you spend two hours dissecting a chart and deciding to play it, it's much harder to cut it loose when it goes against you because so much time is invested, but if little time is invested, it's fairly easy to dump it and move o.
I'm better at entering good set ups and then letting the market do the work for me than actively managing positions. In fact back when I was trading and working a restaurant job at the same time, I made more money when I worked lunch shifts (because I had no choice but to put a stop in place and let the chart play out) than when I sat and starred at my computer screen all day (because I was my own worst enemy; I did dumb things like panic when a stock went slightly against me).
I don't have to know why something happened to make money. In fact most of the time I don't have a clue. This is why I prefer story books and biographies to how-to books.
In many cases, being smart hinders progress because the smart guy tries to figure everything out; he constantly asks why. I've seen way too many smart people fail miserably at trading because they try to put everything in a nice, neat box. Don't fall into the trap.
Keep it simple. Trading isn't a game you're trying to figure out. If all I do is recognize the trend and commit to only trading good set ups in that direction, it's really not that hard to make money.
Think longer term. If I'm trying to make money right now, I'll probably lose, but if I'm trying to make X over the next couple months, I tend to be more relaxed and I trade better. Said another way, a baseball player should not try to go 1-for-3. Instead he should strive for 10-for-30 because it enables him to have a bad game here and there but still accomplish the goal.
