hello everyone and welcome to building a
professional training plan webinar know
that you can hear me just type in a why
or a yes or a hello in the question area
just let me get a sense that you can
hear me okay I don't think they can't
hear me why is that testing one two
three can you all hear me okay
only getting a few people attentive
you
testing 1 2 3 is that can anybody hear
me now I'm getting such you can okay all
right good I apologize for that
everybody I don't know something was
wrong with the regular studio microphone
that I have so I switched over
microphones and we'll just have to use
this
I hope this sounds ok if it's too hot or
if it's the sound quality isn't good let
me know if you would please and it
sounds good okay great great
ok fine terrific all right everybody
will start again then I apologize for
the little technical difficulty there
but welcome to the webinar of building a
professional trading plant I see a lot
of folks here who are familiar and a lot
of folks who are not familiar new faces
as well so I'd like to welcome both the
old not old in terms of age but old in
terms of having either worked with you
or working with you or been involved in
some way shape or form in my services
and my trading and for those of you who
are new welcome and glad you could join
us tonight this this should be good this
is this is a we should have a lot of fun
doing this tonight if as always if you
have questions and helen is on here
already giving me a question saying
please record so I'll just say that I've
got the recording on and everything
should be okay from here on out okay
let's have some fun here if you have
questions go ahead and type them in and
I will be happy to get to them but we're
going to go into great detail tonight on
how to build a professional trading plan
you should just know that you know the
let me the information provided here is
you know pretty good I think I'm pretty
accurate but it may not work for you may
not be appropriate for you or your style
of trading so as always as a trader
you're independent and you're always
encouraged to do your own research and
draw your own conclusions about what's
presented to you whether it's from me or
from anybody else that's important to do
and just keep in mind that trading is
very risky and there's always a high
degree of risk you should always consult
a certified financial adviser and a tax
advisor before making any trading
investments trading decisions or
investment decisions I always like to
start with a couple of quotes and here
are two from two people I respect an
awful lot Jason Allen Jankowski and also
Linda Bradford Raschke Linda Raj key to
highly talented traders and let me
that's just gonna drive me nuts tonight
I'm gonna just click off Skype I
apologize for this I should have done
that before okay
and so from current slide okay so let me
just let me just start with Jankowski x'
quote here and the reason I pick him is
because he is a retail trader maybe not
now but he started off as a retail
trader he didn't work with any crop
firms or you know no one really taught
him he taught himself through webinars
or seminars and books and the hard you
know the college of hard knocks so I
take his his words pretty seriously and
he says that in his experience he has to
say that there was a very little
critical difference between net winning
traders and net losing traders in most
areas and when he really looked he said
the one thing that stood out the one
thing that separated out the net winner
from the net loser all things being
equal was that the net winner had a
trading plan in addition to his or her
other skills
the net winner knew he or she was up
against the market and her competitors
but she was also up against herself as
well and I added those italics because
part of the trading plan is not just
about trade setups there's a whole host
of things that that go into a trading
plan and one of them is the kissa plan
or what I like to think of more so than
you know trying to grind ourselves into
discipline more of being consistent and
that's kind of more the psychological or
the mental side of the game and so we'll
talk a lot about that tonight and I'll
show you some ways in which you can
enhance both plan for your mental side
and also enhance it through your trading
plan Linda Radke says she calls it a
business plan she says your business
plan is your blueprint for success short
and sweet
succinct but think about that for a
second she's not saying that your trade
setups or a blueprint for success she's
not saying that your you know your your
performance is necessarily a blueprint
for success what she's saying is that
your plan your trading plan or what she
calls your business plan is your
blueprint for success so she puts an
awful lot of emphasis on on the trading
plan and in my experience both my own
personal experience and also working
with a large number of traders over the
years I think both of these quotes are
very true there's a lot of veracity in
both okay so what do you think let's try
to do a little bit of interactivity here
tonight we won't probably get to do as
much as I normally like to do but we'll
well I'll try to do a little bit from
time to time what do you think makes a
trading plan so important don't you give
us give me your and I'll I'll read them
off so that everybody gets a chance to
say what they well how others have
responded what do you think makes it
so important it's a way to control the
trader mm-hmm
don't know that we can ever control it
but control the trader but it kind of
begins to define what we can control and
what we might not be able to control I
think that's a good point John that's
great
dieter says hi dieter he says it makes
it's important because it helps you
develop consistent see and I think
that's right on there's a there's a
statement that kind of does you my age
right right out of the sixties
right on good and here a bunch of people
are just typing in there now I can't see
it quick identifies the rules that work
for one style yep helps you control
losses helps you control emotions that
one again I don't know if we can ever
really control emotions we might get a
chance to talk about that Steve maybe
not but it it may not give you a way to
control emotions but it can help you
react to your emotions how's that
keep your risk under control develop a
consistent rule set we need to have a
path to follow follow hi Erica how are
you
yep create consistency focus on edges
it's written down and then it's
submitted into the subconscious process
area you're gonna become a psychologist
I can tell it's a guide to follow and
indefinite goals to follow yeah it
brings order and discipline yep all of
these things develops discipline gives a
framework great great all right
this is nice very nice that you all are
given some really good answers and it's
also a kind of nice to get that
interaction I love the interaction it's
hard too hard to do all that over the
internet sometimes but this is nice if
Steve says it's a road map of where we
want to go yeah exactly exactly so
here's a couple of things that I think
are useful to know a trading plan begins
to tell us or talk to us about things we
want to be doing after
we find that edge in other words after
we have a trade setup or two that we
know has good probability in the market
and we've got that edge to make to be
able to make money it tells us how to
use that which is really important right
it also this I think is one of the I'm
gonna I'll highlight two things that are
most important and this is one of them
maybe I can get the highlighter out yeah
it structures an inherently unstructured
environment what do we mean by that well
what I mean by that is that the market
itself we have an open and a closed we
have a bid and an ask and you've got an
account size and within those parameters
you can trade not trade trade is much up
to your account margin that they'll
allow you your brokerage will allow you
or trade as little you can buy or you
can sell you can do pretty much anything
and if you think about it there is
virtually well there's probably other
unstructured environments that that we
can think about but very few when it
comes to you know an environment within
which we're trying to make a career
right as a trader as a professional
trader every other place we go to the
office in the morning we have to be
there at 9:00 o'clock somebody maybe we
have a lot of influence over this but
still we have to get it approved or we
get other folks telling us the kinds of
projects we have to work on the kinds of
objectives the kind of money we would
make and so on and so forth everything
is pretty structured right not so in
trading we need structure for ourselves
we're human beings and we can't we don't
operate all that well when we are not
well we don't have at least a little bit
of structure we'll be talking more about
structure
tonight throughout the evening but a
trading plan helps us structure an
inherently unstructured environment a
few a few folks mention that it helps
with the trading plan helps us identify
goals goal and
and goals we'll talk about goals tonight
and goals help us to develop motivation
for ourselves to reach further and
further and achieve more and more it
also gives us guidance for what to do
when the unexpected occurs training
plans should always have ways for you to
get out of a trade and also when
emergencies arise water talked about
contingency or emergency plans tonight
for when you know the internet goes down
on you or when Globex goes down on you
we'll talk about that you've got to have
a contingency back-up it also provides a
practical framework for trading within
the context of your personal
characteristics a few of you mentioned
that tonight that it helps to fit your
personality into this and there's no you
know there's no personality trait that
it can be identified as a traitor's
personality traders you know I've met
I'll probably by this point Lots
certainly lots and lots of trader
hundreds of traders over the years and
everybody has a different personality
and you know Bret's team Barger and Lowe
I forget his first name out of MIT
worked with a group of traders out of
Linda Rockies group and and tried to
identify personality traits of traders
they were unable to do that so but
nevertheless there are certain things
that you like or won't like about
trading in it and it helps to know what
those are because you can put your
trading you can match it a little bit
more with your own personal
characteristics and that can be
important it also streamlines the
decision-making process and helps us
develop consistency several of you
mentioned consistency and let me just
highlight the two things that I think
are most important on this list the
structuring the inherently structured
unstructured environment and
streamlining the decision-making process
you don't want to be thinking too much
when you're when you're trading you want
to have a lot of it because it can begin
it can get really overwhelming if you're
trying to figure out is this good is
this a good set up is this what I want
where should I put my stuff stop and all
of that it really does become difficult
to manage you want to have in your
trading plan as much of this nailed down
beforehand so that you're just kind of
like a tennis player or you know the
soccer player the World Cup is on now a
good soccer player they're just going
through the motions that they've
practiced over and over and over again
that's what a trading plan helps you do
they're not out there on the soccer
field or the tennis court thinking about
how they want to hit the strike the ball
or kick the ball all that's done for
them that's what your trading plan will
do for you too okay so it's pretty
important when we think about you know a
trading plan what we're trying to do
here is develop consistency by following
a planned routine that that determines
what we're going to trade when we're
gonna trade what we're going to trade
and how we're gonna trade when we do get
to trade what we're going to trade and
then applying your specific personal
guidelines to those it's creating a
roadmap for your trading in three
primary areas okay Andrew low thanks
Gary see Gary type that in appreciate
that he was the fellow with Brett Steen
Barger who did the research and if you
look up either Andrew Lowe or Brett
Stein Barger or maybe Steam Barger and
Lowe on in Google you'll find you'll
find that article it's up on the web
someplace but back to this the what
we're doing here in the trading plan is
creating the wrote a road map and there
are three critical or primary areas it's
our method we define that our stret our
method and our strategies money and risk
management really really key we're going
to go deep into that tonight
and I think you'll get something out of
that the the money management side of
things so we'll talk about leverage and
how to use leverage and position sizing
and how to grow your account all of
those things that need to go into a
trading plan and then personal
psychology and we'll go into that in
some depth to tonight okay
so it's if here's a useful way to think
about developing a training plan we've
heard from Jankowski that it's the one
thing that separates the winners from
the losers we've heard from Linda rocky
that it's your blueprint for success
we've identified a number of things that
it that that it helps us do it and now
let's think about as we as we kind of in
our own heads here sum up all of that we
can say to ourselves gee this really is
pretty important so how would we
approach this what's the best way to
approach this well think about it this
way if you were going to approach an
investor and say to you know mr. and
mrs. investor you know mr. and mrs. got
a lot of bucks could would you fund my
my trading how would you go about doing
it how would you present to them that
you're a worthy candidate for you know
for their funds for putting their money
with you maybe even better is this if a
trader approaches you and you're the
investor what would you want to see to
be able to feel comfortable giving your
hard-earned shekels over to that trader
who approaches you okay you know if you
think about it in this way kind of
adding together all the things that
we've said and what Linda and Jason have
said about this and then thinking about
this for yourself you really are your
own best client you want to do the best
job that you can in putting together a
trading plan for yourself
okay so there's a bunch of key elements
here and I like to think of the personal
side and the business side of the
trading plan and on the personal side
we've got things like a mission and it's
not you know it's not it's really an
important thing and we'll talk about why
a mission is important to don't don't
let your eyes glaze over and say oh god
what see is he gonna talk about some
crazy stuff here it I'll make it
practical for you and I'll make it
hopefully I shouldn't say I'll make it I
will hopefully help you understand why
these things are important we'll talk
about on the personal side identifying
your strengths which are really
important most people look and say well
I've got a lot of weaknesses and those
are problems well you've got a lot of
strengths too and those are important to
know because we want to put those into
practice we also want to know where
we're falling short limitations and then
what to do about them and from that we
can begin to develop some guidelines
about discipline and really in
particular consistency it's also
important to have a mental map of the
market a conceptual map of the market
we'll talk about that before we talk
about how to you know develop trade
plans or trade setups rather because
it's if you a lot of you folks here have
been here and you've been in in a course
or two of mine and you know I stress
market structure that's what this is all
about is is is understanding as best you
you can the structure of the market
routines specifying your routines jeez
they're so important and I'll talk more
about those tonight rewarding yourself
when you for a job well done that's
important too and you're in a plan for
your own professional development those
are some of the things we're going to
talk about tonight on the personal side
on the business side we've got what
markets are we going to trade what
methods are we going to use the
strategies the actual trade setups that
we're going to use you need to also we
want to talk about this well we'll talk
about this a little bit but you need to
have a sufficient amount of capital
you've got overhead costs that you need
to detail goals some folks talk
about trading plan helps us identify
goals I'll talk about goals I'll talk
about specific way to structure your
goals and how to achieve them
okay and on what kind of schedule you're
gonna achieve this talked about risk
control money management we already
talked about a little bit leverage
position sizing draw downs all of that's
really important we're gonna talk about
emergency plan and not just because it's
the last item on the list here it
doesn't mean it's the least important
record-keeping and reporting very
crucial I'm gonna spend some time
talking about how you build into your
trading plan your own personal
statistics tonight so that you begin to
get a good handle on your trading and
your trades okay now that's a lot of
stuff okay right all of those all of
those items there it's an awful lot of
stuff is you know I've got I sensual and
I should ask this question now a
workbook let it come up on the screen
here for a sec professional trading plan
workbook and you know here are all of
the parts of that workbook and there are
you know 17 of them right and they just
go into detail and detail you don't have
to follow this tonight but it's a good
workbook and it'll help you with your in
creating and crafting your own trading
plan but that's 17 or 18 of those things
so as Stephen Covey somebody I admire
always says begin with the end in mind
and if you look on your workbook on the
well the last pages for notes but the
second to last page which is page 26
sorry I lied to you I thought it was 16
pages it was and then I realized it and
I got it grew a bit 20 26 pages so on
that page is
an executive summary you can't have
20-some odd pages of material sitting on
your trading desk you'll go crazy trying
to make heads or tails out of it right
but you can and I encourage you to boil
key elements of it down into a one-page
document here that would have in this
case and you can change this around any
way you like this is just a suggested
suggested summary your philosophy of
trading your personal discipline or
consistency your trade setups and then
your risk and and your risk reward those
are the things that should be on your
excuse me on your trading desk and then
you can you have the rest in a
three-ring binder and if you need to
consult those that section then you go
to that section okay
so that's sort of the we boil this all
down into one one one page but let's
start with the beginning here and we'll
talk a little bit about your personal
mission as a trader and developing that
you need to understand why you're
trading you know trading you want to
clarify why you trade you want to
determine what kind of trader you want
to be and what you want to accomplish in
your trading trading isn't easy I think
everybody in this room knows it and you
really really have to want it and even
then the odds are against us right but
knowing who we are as a trader and what
we're all about in our trading puts us
in the best position to be successful
when and in your workbook there are a
series of questions that will take you
through the development of your own
mission statement if you will okay why
do I trade
the first question it's a simple yet
powerful question what makes trading so
important to me why am I willing to put
up with losses and other kinds of you
know difficulties the many difficulties
the many adversities in trading what
what why why what why am I willing to do
that what what is it that I value about
trading why is it so valuable to me and
why do I choose trading over other
business and endeavors like why not real
estate right why not
starting you know your own import-export
business why
what makes trading so special that's an
important question very powerful one
because if you have a good sense of what
your mission is and you really want this
thing called trading to be a successful
trader then you're gonna you're gonna be
able to to deal with the adversities
that come up all the time alright when
we look at mission here when we look at
our mission it gives us an awful lot for
a little bit of of effort you know it
gives us direction not just overall
direction but as we're going to talk
about in a few moments direction
everyday okay it it helps also to give
us discipline to follow our trading plan
to follow our rule sets that we're going
to define for ourselves if we have a
strong mission if that's really what we
want and we you know clarify that as
best we can and it's gonna be different
from for everyone everybody's a unique
individual everybody has different
experiences come from different walks of
life and it doesn't matter I mean you
know one walk of life or one genetic
makeup or background and one level of
intelligence over and over none of that
matters in trading ever anyone can can
can can succeed in trading if they're
willing to put the effort in and and do
the work that's required
and having a good sense of your mission
as a trader is part of putting that work
in it gives you that meaning that you
know it's all it helps us define why
we're trading it helps us clarify that
so all the hard work that you do to
become a successful trader becomes
meaningful when you've got a mission all
right when we've got a mission it helps
us keep our intensity level up we may
not want to feel like working through
our charts tonight because we're tired
you got beaten up in the market today
and we're it's been a losing day and we
feel you know our tails between our legs
but if our mission is to become the best
trader that we can be that's going to
help us deal with some of the hard
knocks that we've got and maintain our
intensity and say okay I may feel like
going out for a beer and licking my
wounds but I got work to do and I'm
gonna do that work and it keeps that
intensity up it also helps us reduce the
stress because we've got a reason for
doing what we do and it's an important
reason all right so the components of
the of a mission statement we talked a
little bit about this why do I trade
what type of a trader do I want to be
and in your workbook I've given you some
questions that you can think about
answering what is it that you enjoy most
what you know if you were told that you
can only trade for a few more months
what attitude would you want to come in
with every day to your trading screen
right who do you think is a great trader
who do who in your mind is is is the
sort of the ideal trader or who promotes
excellence we looked at two folks that a
lot of traders often refer to Linda
rocky and Jason Jankowski and they're
both pretty well known folks and there's
a lot of other ones out there too but
what characteristics that do they have
that you'd like to possess
do you want to be a swing trader a day
trader or a longer-term trader or some
combination what would you like to be
known as the type of trader what you
know how would you like to be known what
as a trader what what characteristics
would you like people to say you can
think about yourself retiring in some
number of years from now and all your
trading friends are sitting around the
the retirement dinner table and they're
about to give you testimonials what what
would you want them to say about you
doing that kind of those kinds of
exercises begin to identify for you the
kinds of things that you would see as
you are idealized self in terms of an
idealized trader and that becomes part
of your mission what type of trader do
you want to be and then of course what
do you want to accomplish in your
trading so here's an example of here's
an example of a mission statement of a
trader that I worked with I got
permission from him to use this and he
went through this process and this is
what he said he said this is how he
boiled it all down he said I'm a trader
because I've got a burning desire for
independence and financial freedom a
real burning desire for that see it's
not about making money by the way it's
not about you know making a ten thousand
dollars a day or whatever whatever that
you know a lot of people think about
it's not about that at all it's about
things like independence and financial
freedom that's what he valued in trading
that's what he believed it could give
him and he said that he truly loves
studying and trading the markets and he
did a lot of research as well he says
his mission is to become a top day
trading day and swing trader and possess
superlative tapereading and trade
management skills
that's his mission to possess
superlative tapereading and trade
management skills it's not about making
thousand dollars a day it's about
developing himself that's his mission
okay if you talk to any top athlete any
professional athlete and say they'll
they will all have a mission almost
guarantee it they will almost all have a
mission and they've all worked to write
this down and none of it is about
winning the World Series or winning well
it's all about you know I want to be
superlative in my in the position that I
play I want to be you know a major
league ballplayer those are that's my
mission I want to be the best one of the
top you know three shortstops or one of
the top ten in in tennis that's what
they're looking for okay and so he goes
on to say I acquire these skills for
sustained dedicated effort on the
development of my trading knowledge
skills and abilities always working for
himself mission is always related back
to you with these skills I can trade any
market anywhere and earn a healthy
livelihood now that's his mission yours
is going to be different but if you put
the effort into it this is pretty
motivating and this is you know we've
talked about this gives meaning to all
the stuff that we have to go through all
the oh yeah passionate Jose says and
Erica says it reveals a mission reveals
myself to myself and that's exactly
right that's what a mission you know
working on your mission is all about is
revealing yourself to yourself your best
self to yourself and then that's
motivating right you'll put up if you've
got a mission statement that you read
that really resonates with you you're
gonna put up with whatever you have to
do to make that mission happen that's
the idea behind this okay but we also
want to make it practical you're gonna
build a trading career over time but you
build it day by day and so every day
think about it like this every day is a
mini career
and therefore every day deserves a mini
mission if you think about it that way
right you you can't get the most out of
your ability over a career if you don't
get the most out of your ability today
that's what we're talking about num no
we talked about a mission putting you up
on that high level high values and high
ideals now we're talking about bringing
it into practice not just as a concept
and not just as something that happens
at the end of your career at a
retirement dinner but how are we gonna
do that
every single day because if you want to
be one of the top traders in the world
or a top trader just just on its own you
know you've got to do it pretty much
every day and that's why this is this
can be so motivating and helpful okay
so what's today's mission what do you
want to get out of today let's give you
some examples of these and these are
just some examples the best thing to do
is to figure out your own mission every
single day all right take every trade
that meets my plan that could be a
mission for a day and you know it's a
good idea by the way when you're
thinking about daily missions just have
one maybe two that's enough
you don't need to have a whole list of
things just work on one thing right I
get it
I get from one of the traders I work
with he's kind of embraced this and you
know he's just wrapped his arms around
this mission idea and every day or every
couple of days I get an email from him
and I'll see on the top you know the
subject line and the email mission
accomplished right that's motivation
he's really he's really juiced and
really jazzed about doing this all right
so you know set stops on every trade
increase my position size by you know
200 shares or so concentrate and focus
that could be the mission today just
concentrate and focus
it can be just having fun doing a little
you know having a little fun today
trading not get it not letting it get so
serious more seriously let losses go
look to the next trade that's my mission
today if I have a loss I'm gonna let it
go I'm gonna look to the next trade keep
a positive attitude see how much I can
learn today right for those of us would
cut our winning trade short we're gonna
press a winning trade today that's my
mission to press one winning trade today
okay and so on it goes on I'm gonna I'm
gonna keep going here on this because I
know I've got an awful lot of stuff to
cover and I don't wanna so these are
some examples and whatever is most
meaningful to you is what your mission
is for the day okay any question on on
on the on mission here
carpe diem bill says hey Bill how are
you carpe diem seize the day exactly
that's what we're talking about to be
able to seize the day we need to know
how to seize that we need to know what
we're all about as a traitor and how to
make that happen each day and that's why
we want a mission and that's why it's so
important all right good John thanks I'm
glad you've never thought about that
before John says good good material
never thought about this yeah a lot of
people don't think about this sort of
stuff and and you know that's part of
the reason why I like doing these things
is that I like to bring this to two
traders and to two folks because you
don't you know trading is a bit of a
lonely business and we'll talk a little
bit about that tonight too and so you
know we not having a lot of interaction
and a lot of exposure to other folks and
other other traders we might not think
about these things and so it's one of
the ways to get some exposure all right
we talked a little bit about mission
that's kind of the overarching thing and
what we're all about well goals are
important too and there's really two
types that goals of course are different
those are these are things that
we're really going to try to work for
their specific we've got business goals
and we have performance goals and both
are important in our trading plan what
kind of trait in terms of business goals
were you know what kind of trading
business are we looking to run now
there's lots of different types here's a
few examples maybe my trading business
is just trading for me or maybe it's for
me and and my family maybe I'm gonna be
managing other people's money
opium other people's money maybe that's
what kind of the kind of business I'm
looking to develop and what we're
talking about here is what kind of
disneys are you trying to develop in
your trading over the next three to five
years maybe a part of your training
business is to be developing research
Larry Conners is does that all you know
does that all the time always developing
research and building trading models
that's you know so you might be one of
you might want to become member of the
oh boy I'm blanking on the name sort of
a market technicians association all
right maybe you want to have a little
tea like I do you have a little bit of
teaching maybe you want to write a book
about this what kind of business are you
looking to develop okay that's the
business goals and those are pretty
straightforward I think you don't need
to spend a lot of time on that but
performance goals what are you striving
to achieve
it's about your personal development as
a trader it's about now we're coming
back a little bit to the mission trying
to make your performance goals or your
goals related to your personal
development tie back in a little bit to
your mission so we're gonna make them
less about money and less about
statistics and numbers and more about
our performance and all goals whether
their business goals or they are
performance goals should be SMART goals
and I'll talk about what SMART goals are
it's an acronym Smar T SMART goals are
specific we don't want to have fuzzy
goals
they're measurable we know when we've
achieved them or we know when we are
making progress towards them smart goals
you can take action on them and even
though they might be a little out of
your reach or even far out of your reach
they are attainable they are potentially
attainable so they're actionable and
they are attainable they have to be
obviously relevant to our art rating and
they need to be time frame we need to
give ourselves a little bit of schedule
on them
okay so specific measurable actionable
and attainable relevant and time frames
all goals can be framed in this smart
goal fashion and again we we when we're
talking about performance goals we want
to make the goals less about the money
and more about your personal program in
acquiring K s and s K s and s what do I
mean by K s and A's knowledge skills and
abilities okay
that's what / that's how we want to
relate our performance goals to
increasing our knowledge about the
markets about trading about money
management about whatever topic were
interested in increasing our skills our
mental skills our trade identification
skills our risk management skills and
increasing our abilities which is a
combination of both knowledge and skills
okay and our ability to act when we need
to act and hold the trigger on a trade
or cut a trade when it's not working for
us and such so one of the ways I think
to best do this is to show you some
smart goals on a performance related
basis and in your training plan you want
to have these goals specified out you
want to specify them out in terms of
short-term and when I think about
short-term I'm thinking between now and
the next three months
medium term er it you know mid term kind
of goals maybe between three and six
months and then longer term can be 12
months and or you can have much long you
know three to five years if you want but
in terms of a trading plan it's not a
bad idea to use those short mid term and
longer term as three six and 12 months
type goals so here's an example of a
performance goal each night I will
identify where I expect to trade either
a long trade or a short trade where I
expect that to set up during the next
day's morning session each day I'm going
to record it and whether I'm going to
record whether I was correct or was not
correct and what I'm aiming to do is for
a percent correct of at least 65% by the
end of six months so this is a
performance goal every night this trader
is going to sit down and say okay I
think we're gonna be able to take a long
trade off of support down here in the
tomorrow morning or I think there's
gonna be a I'm gonna look for a short
against this moving average tomorrow in
the morning session and so he jots that
down or she jot that down and then they
decide whether it was then they look and
at the end of the day or the end of the
morning they can say did that happen or
not and they can check off that so it's
measurable right it's quite specific
he's gonna identify where the he expects
the trade to set up the next morning
that's pretty specific okay he's going
to measure it by recording whether he
was correct or not
it certainly is actionable he can do it
or she can do it every night and it's
attainable potentially right and they
have a time frame for it the end of six
months and it certainly is relevant
because if they can hit percentage
correct of at least 65% think about this
for a second this is not anywhere even
closely out of the realm of
possibilities this is not a remote thing
everybody can do
if you had two-thirds of the week where
you could identify where a trade was
gonna set up and you were you were
getting that's three out of five days of
a trading week if you can hit that
sixty-five percent that's a that's a
worthwhile goal right think about that
if you could hit sixty five percent that
means that you can identify on average
three out of the out of the five days of
the week where a trade is going to set
up with confidence okay that's the kind
of performance related goal you want to
be putting into your trading plan and
working on okay let's take a look at
another one this trader says as a way to
reduce my tendency to cut winner winning
trade short a hold each profitable trade
longer so by that by the end of three
months I'm gonna increase my average
money won by 15 percent okay and the
average dollar win rate is the total
money one divided by the total number of
trades I'll show you that statistic at
the end but he's using statistics to
help him reduce his tendency to cut
winning trade short so this is specific
it's measurable certainly actionable and
attainable clearly relevant and it's
time framed that's a smart goal okay
everybody understand that I'm sorry
Jerry says I'm fading in and out okay
I'll try to be a little closer to the
mic let's take a look at one more this
trader says over trading is a problem
for her and so over the next thirty days
I will verify each trade I'd like to
take against my trading plan and record
the verification so she's gonna do a
veracity check she's gonna say well this
looks this trade this price action looks
attractive but then she's gonna say okay
I got to check my trading plan
does this work again with my trading
plan okay
so within a one month period I will
reduce the trades that I take outside of
the scope of my trading plan to no more
than 10% of all trades okay
specific measurable certainly actionable
and attainable quite relevant to an over
traitor and nicely time framed with
goals with a nice goal or a nice
objective I said I should say so
this is a smart goal and this is the way
to do goals makes sense to everybody
anybody have any questions on this all
right if you have to have a numbers goal
and we are doing this for numbers right
we are doing this for money make it net
points or pips one don't focus on the
money make it weekly not daily and try
not to focus on it too much focus on the
other stuff that we just went through
you know it what we the three goals that
we just talked about the three SMART
goals first of all having money our
number goals really aren't SMART goals
you know they're not I suppose they're
you can say I'm gonna make you know so
many points a week and that is a SMART
goal if you do it that way but it
doesn't really talk to our performance
it's not something that we can control
or strive for necessarily and when I say
that I'm saying that you know we can
have two or three days in the market
where it just is really narrow arranged
and if we're saying to ourselves okay I
want to make you know $2,000 a day and
it just isn't there in the in the range
of the of the of the day we can't make
our goal but so what how useful is that
that's not really useful but if it's you
know I want to reduce my over trading
and then so I'm gonna check to make sure
that every trade is as part of my
trading plan that's something we're in
control of and that we can act on okay
so if you do have to have numbers goals
make them in points or pips not money
make them a larger time frame than daily
and and you know note them but don't
don't get you know too focused on them
okay let's get back let's now deep get
dig it dig in now to some of the basic
things of a trading plan the markets
timeframes and themes what markets are
you gonna trade it's actually a pretty
important question and you know part of
its gonna be based on familiarity but
you all be aught to be considering a few
things like what's the average range in
that market the more volatility we get
in a market usually the better though
you know of course the risk is gonna be
higher but we want especially for day
traders or swing traders we want that
good volatility we don't want extreme of
course but we want good volatility if
you want to be trading trends then you
probably want to be thinking about the
currency markets say rather than pork
bellies maybe not that pork bellies
don't trend but certainly the currencies
do trend more so if your method is gonna
be more trend trading then you want to
pick a market that's gonna be you know
congenial to that and the currencies are
are you know and and probably the the
indices of the ones that trend the most
so just some things to consider there
what time frames you're going to trade
are you going to be a day trader versus
a swing trader or a longer term investor
and of course it depends a bit on how
much time you've got to devote to this
and it also depends on your ability to
concentrate for periods of time if
you're going to be a day trader it's
it's not an easy game to play even swing
trading is much easier than day trading
and investing I suppose is easiest of
all but you know you have to think about
the kind of
you want to put in to all of this and
and your own personal characteristics
can you really sit in front of a screen
all day long or half of the day and
whatever you do try to stay out of the
noise you know the if you especially if
you're gonna do day trading
they just keep in mind too that the
higher the volatility the lower the time
frame you can use but you know on day
trading you don't want to be down into
the 1-minute charts I don't think and
certainly not into the five and ten tick
type charts yeah you want to be more on
the five and fifteen minute time frames
unless it gets really volatile then you
can go down smaller think about the
markets and timeframes and the way you
approach this in terms of themes that
you'll trade one theme might be day
trading the financial futures the SPS or
the Nasdaq or the Dow or the Russell on
the 5 or 15-minute chart so that that's
going to be you know short term trading
short term trade setups that come not
quite scalping but closer to scalping
certainly than swing trading right
you're going to be looking for maybe
four or five six points on a trade
rather than you know larger larger
amounts another theme might be swing
trading the US equities on a daily or a
hundred and twenty minute chart there
you might be looking at breakout type
trades and continuation patterns in your
trading like bull and bear Flags things
like that we talked a little bit about
trend trading you know on the currencies
you might want to be looking at the
higher time frames that would be it
could be a theme or you know specific
trade setups like Springs and up thrusts
on the commodity futures off of daily
charts that can be a theme for you each
theme then would have a separate program
or a plan within your overall plan so if
you were doing all of these then you'd
have four separate
for these or four separate programs
within your overall trading plan each
would have its own trade setups each
would have its own you know best to have
its own account each would have its own
records and so on and so forth a
philosophy your trading philosophy is
also really important and I'm not
talking about an academic theory and in
any way shape or form them I'm talking
about you know if you look at businesses
the better businesses they all have some
philosophy of success for that business
and in the best businesses or the
strongest strongest business businesses
that philosophy is reflected and
everything that they do my wife works
for one of the largest corporations on
the planet and it's a big conglomerate
you'd know the name if I told you and
they they're worldwide and they have a
philosophy of their own bit you know
they're their own philosophy of success
and it's called ace AC e achieving
competitive excellence and they're very
serious about it everybody in the in the
company is knows this they're trained in
this and so you know if you're in the
tax department and you're talking to a
line person you know someone on the on
the manufacturing line you you can
understand one another through this
achieving competitive excellence they
all know how to generate excellence in
their work and traders can do this to
you know what's your business philosophy
for trading a way to think about this is
to say to yourself what overarching
principles are gonna be in every one of
my trades okay and here's an example
it's probably best to do it this way
than to try to define how to go about
doing it but
this is from a person actually a couple
of people like I combined a couple of
their philosophies and and so so this is
a combination of a couple of folks so
their philosophy of trading success in a
combined manner is based on preservation
of their trading capital predefined
setups with high odds executed
consistently careful trade management to
predetermine profit targets with sound
risk reward parameters and doing this is
going to give me superior returns as a
result of good trade selection and good
trade management and they strive to make
each and every trade reflect this
philosophy okay if it's almost like a
checklist you could use if year if every
one of your trades reflected something
like this and again everybody's unique
everybody's an individual so you're
gonna have a little bit of a different
philosophy depending on your own
personal take on the markets and trading
and that's okay but having a philosophy
is almost like a little mental checklist
you can use and say does this fit with
my trading philosophy and you can
imagine that if every one of your trades
fit matched the criteria in your
philosophy how good you would do okay
and this is part and parcel of what a
trading plan is designed to help you do
all right we're gonna get more and more
specific as we go along here we kind of
go we're going from the larger broader
brush down to the specifics and we'll
eventually get to some real detailed
stuff but let's now talk a little bit
about mental map of the market as most
of you oh I'm sorry there's a question
here what what is pips pips are the tick
or the unit of movement the price unit
in most of the currency contracts that
are traded on the Forex they call them
pips they're equivalent to a point or a
tick
in a stock or a commodity or a futures
contract if you have any other questions
just go ahead and and ask them so if you
have worked with at all with me you know
that I'm a big proponent of defining the
structure of the market and this is
important you should have a real clear
understanding of your of how the market
acts and how it behaves so you wanted to
find the structure of the market and and
in your workbook how do you define a
trend you know what what components are
there in how you define a trend and you
can get real sophisticated with it but
these are basic questions that are
important you need to be able to
recognize this when it's happening how
do you define a trading range what
principles of price behavior are
important to your trading if you're a
trend trader you're looking for momentum
if you're a trading range counter trend
trader you're looking for loss of
momentum you need to understand how that
comes into play in your mental map of a
market in the structure of the market
you need to be able to identify and see
it when it's occurring and you need to
you know you you might want you might
want to embellish this or I shouldn't
say embellish but add to it augmented
your definition of a trend or a trading
range or other important principles of
price behavior with price and volume
behaviors with indicators if you use
them intermarket can considerations and
and other other things as well that
might be helpful what you want to do is
create that mental map of the market so
you know on a conceptual level what's
happening or what could potentially
happen in the market and then you want
to fit your trades within that structure
okay and it's good to draw schematics
about this and I'll show you one in a
moment and also a chart library
so this is part of the training plan
constructing a mental map of the market
alright let's take an example let's just
look at up trends and look at we're just
gonna look at this in a basic way okay
how do we define an uptrend well
typically they start with a breakout
from a trading range right and we then
get to see higher highs and higher lows
and they typically end in a climax it's
a pretty basic way of defining an
uptrend I mean we can say we can add to
it by saying that you know we're gonna
see the price range the ranges in price
expand the volume is gonna expand as
it's moving up and when it you know
reacts as it always does the the spreads
or the ranges are gonna narrow and so on
and so forth but for this basic purpose
here this is this is pretty good draw a
schematic map of what it looks like to
have a uptrend and here we break from a
trading range and we rally you can see
the highs are higher the lows are higher
the highs are higher the lows are still
higher and so on okay we then want to
fit our trades into our mental map of a
market alright so in this schematic I've
got a B C D and E here are five
different kinds of trades that are
possible and all of them are pretty good
trades too in an uptrend a test of the
breakout write a simple bull flag at B
and Elliott Wave ABC type correction
that we see all the time when we break
up above a resistance level that was
formed along here and and we come back
and test it again
at D then resistance becomes support we
see that stair stepping and even a
retracement to a moving average if we're
using here this is a 21 period moving
average drawn in conceptually so see how
you can take a conceptual map of just
saying to yourself okay I want to be a
trend trader or I want to trade trends
what does a trend how am I going to
define it this is just a very simple
basic way of defining it and then how do
I fit my trades within the that
conceptual map so I know where they are
when they occur I know when they are
occurring and I have that you know
fitting fitting our trades into a
framework is a very useful thing for us
to do so any questions on this mental
map and is this useful for folks not
getting if yes is here okay good very
useful good good good all right good
excellent okay good good yeah so so you
know we've started off very broad but
really important stuff and we're slowly
getting down to the more detailed stuff
all right so now let's look at trade
setups there you know once you have a
sense of the market structure and where
your trades can occur now you want to
define your trade setups and by the way
just go back here for a second I show
you know I showed you a conceptual map
of what it looks like when the market is
trending on an uptrend well you want to
do that on a downtrend you want to do
trading range you want to do you know
other things as well highlight those can
and you can get detailed as you like but
you want to have all facets of the
markets that you know that you're
trading unless you're only trading up up
trends then that would be sufficient and
and there's your trading plan for that
so to speak but
[Music]
you wanna I'm just trying to make the
point that if there's this in the
conceptual map that's one facet of it
and you need to expand on that for
yourself okay so now now we're getting
down more to specifics trade setups they
are the mechanics of your trades you
want to define these as precisely as you
can why because it cuts down on the
thinking involved during trading
remember in the very beginning of
tonight we said why is the trading plan
so important and one of the reasons the
training plan is so important is that it
gives us guidance because if we didn't
have that we're in this unstructured
environment and we're trying to make
heads or tails out of it and it can get
really overwhelming we don't want to be
thinking too much when we're trading so
we want to have our trade setups just be
automated automatic rather and the way
to do that is just make them as precise
as we can okay
all right when we define our trade
setups we're really helping ourselves
you keep our keep ourselves from making
poor decision-making on the fly in the
heat of the moment when it's easy to do
it helps us you know it helps keep us
from making impulsive trades right we
saw that person who was overtraining
that goal that they had that they were
gonna check against their trading plan
that's one of the ways that you can
utilize the trading plan to kind of rein
in our impulsive motives here and also
indecisiveness okay the same thing as
well so basically what's happening here
is that our trade setups when they're
really defined well they're promoting
consistency and the more consistent we
can be the more profitable we can be and
both fewer poor decisions impulsive
trades and indecisiveness that we wind
up engaging in the more we can cut down
our mistakes and our errors and losses
that result from those errors and
mistakes and that also adds to our
profitability right and also adds to our
consistency so when we're setting up a
trade we want to format them in a
specific way and here's a suggested
fairly simple way of doing it to lay out
your market and timeframe the background
conditions or the market structure or
context that you're looking for to take
this trade how you're going to enter
what sort of position size and
protection and profit target and trade
management you have and again have a
schematic draw it out by hand and have a
chart library for each set up know you
know get really good at them and here's
an example I'll just show you I'll go
through this one in a little detail just
to show you how to do this and it's not
perfect you may find things that you
would could improve on and that would be
fine but the here's an idea for you
here's it's called the first hire hi its
traded on the five-minute SMP futures
contract we've seen a downtrend
in the past I'll draw that I guess over
here and it's ended in some climactic
action we have a selling climax and that
selling climax has been tested so it's
come back down and we've had a bit of a
test over here okay and the market then
rallies up and it creates a new swing
high and that swing high is higher than
the previous high that's why it's called
the first higher high alright and this
rally shows buying with large increased
ranges and increased volume and the
closes are all near the highs ok and
then the market starts to react and it
does so on lighter volume and narrower
ranges that's the setup right there ok
that's the setup that's what we're
looking for the entry is on a key
reversal bar key reversal meaning that
it this bar is dipped underneath all the
previous bars in the reaction and it
then comes back up and closes on its
high and closes preferably above the
higher closes on its high and preferably
above the high of the last bar but
that's the key reversal that's the
trigger to enter the position is going
to have an even number of contracts and
that'll become apparent in a moment
protection 3 points from entry or 5
points of its volatile so whatever the
entry is 3 points below risk is never
more than 1% of current account equity
so that means that if the stop is not
able to be made at less than 3% then we
cancel the trade ok our target is the
approximate length of the last rally or
the next hourly resistance so the last
hourly rally I'm sorry the last swing
length here would be put on to this and
would look something like this okay so
that's the target objective up here
the trade management is to scale out
half of the position at the previous
swing high that's the reason for even
number of contracts bringing the stop to
break-even and then closing the
remainder of the position at either
getting stopped at breakeven or at the
profit target on the equal length swing
and if there's a sudden sign of weakness
and you exit out of the trade and if
there's no profit after a certain number
of bars here it says three there's a
time stop and you exit out at that
that's a basic trade setup okay
everybody understand that you want this
for every trade that you make okay good
good
any questions on that good it's clear
and I'm here I see I like this format
great Thanks appreciate it
yeah this is simple butts and
straightforward but it works pretty well
all right let me just give a couple of
tips here seven of them on your trade
setups you want to make your entries and
your exits automatic remember we don't
want to be thinking much about what
we're doing you know about about you
know where we're entering where they
need to be specified and they need to be
basically mechanical okay you only need
a handful of setups you don't need you
know 50 trade setups you could do really
well with maybe a cup you could do
really well with just one you know I
know several traders who just trade one
or two little patterns in the espys
during the day and they do very well
other swing traders just do one kind of
basic spring or an up thrust and that's
all they do and they do really well with
that you don't need a lot so start small
if you haven't done this before
just start with one and learn it and get
good at it okay tie your set up into
your mental map of the market just like
we did earlier with the with the trends
there were four or five six different
trades there that you you know tied in
nicely with how a uptrend works by the
way we define it okay
have go-to trades have trades that
you're really confident in that you can
go you know if you're in a slump that's
the time to look for those for me it's
the spring you know if I've had a losing
day the day before and that happens or
if I've had you know one or two traits
go south on me in the morning and I see
a spring then I get really excited
because I know that that's that's my
bread and butter trade yeah and I want
you know so you want to have those okay
if you're trading multiple themes just
like if you're trading lots of different
setups you know develop consistency
first with one before adding additional
themes remember we talked about you know
trading the SPS or swing trading the
equities or just doing Springs and up
thrusts on futures not that you have to
do those themes you can rearrange them
or have different themes but if you're
gonna do multiple themes that have
multiple trading programs within your
plan focus on one get that going good
then add another one okay pay attention
to risk and reward really important okay
we didn't have that in this trade plan
in that but you know could be added very
very nicely and also pay attention to
leverage we're going to talk about both
risk reward and money management and
leverage is part of money management
really so it's really pay attention to
money management but leverage is the key
thing in money management I think all
right and we're gonna talk about those
next okay
let's talk a little bit about risk and
reward well we're talking about risk
we're we're talking about trying to
protect our account on every trade and
we're also talking about protecting
profits as a trade matures and we always
want to specify what how we're gonna
protect our trade on every every trade
before taking the trade so in general
how are you going to protect your
positions there's numerous ways to
protect a position stops certainly is a
very common and and tried-and-true
method you know they can have a they can
be a fixed amount like three points in
the espys or they can be based on a
chart location you can have time stops
you can trail those stops you can
protect with options you can protect
with position size you know cutting down
your position size is a way to manage
risk okay that's what we're talking
about here how do we protect positions
and manage risk so some folks you know
Larry Connors being a good example when
he swing trades does not use stops does
not use stops period he finds and his
trading that stops detract and and
create deterioration in his trading plan
so how does he manage that well
sometimes he'll protect a position with
options and sometimes he'll he'll do it
with position size depending on what
he's trading and the and the model that
he's trading but um you know you can
protect it in a number of different ways
you need to do the research on this for
yourself and you need to think it
through and understand how to protect
your positions and what you're gonna do
a good rule of thumb here is to always
have a maximum risk on any single trade
and make that as a percent of your
account size your equity now here's an
example these are kind of what I go by
you know from 1 to 1% really I don't
like to risk any more than one and a
half percent on a trade some people will
say you could even you know I mean IBD
talks about risking seven or eight
percent investor's business daily on
their swing trades or their position
trades
that's a little rich for my blood and
I'm more of a day trader anyway on the
sps and so you know one two percent
three percent that's not you need to
determine what your risk tolerance is
but you need to have a maximum risk on
any single trade and in that as in the
trades example that we just talked about
if the risk was beyond one percent then
it the trade isn't taken you let that
trade go you pass on it you also want to
have a maximum risk for all open
positions okay
somewhere between maybe ten and fifteen
twenty percent of your account again tie
it to equity a good idea there are
things there are other kinds of risk
that don't get talked about much sector
risk is important you know if you were
trading say the oil stocks recently and
the oil producers and you were you know
long five or six of those stocks
you've got sector risk because that
whole sector when it started to come
down especially as British Petroleum has
had its problems in the Gulf it took
down all those stocks started to come
down before that but it really
accelerated with with BP so you want to
be aware of sector risk okay also you
want to be aware of correlation risk
lots of times markets will move in
tandem or they'll move in verse to one
another and you need to be aware of that
when that's a current you know all
stocks tend to move together when there
is a trend in place but I'm talking
about things like bonds and the SPS or
Gold's gold and you know the US stock
market they or oil in the stock market
sometimes gets correlated so you need to
be aware of that you don't want to be
trading
vehicles that are correlated together
you know for example if you go in and
you say okay I'm gonna buy if your swing
trading excuse me if your swing trading
and your swing trading some of the ETFs
and you say to yourself okay I'm gonna
buy IWM and SP why spy and the qqq's
well that's the Russell the NASDAQ and
the S&P 500 they're highly correlated
and so you would have correlation risk
you're not taking one position but by
trading IWM and QQQ and spy you're
trading you're tripling your position
size so you need to be aware of that as
well okay yeah and Gary's Gary indicated
some highly correlated markets gold in
the Aussie dollar absolutely and oil in
the and the Canadian dollar yep
absolutely absolutely
well the other side of risk is also
reward and we like to think about risk
reward that's really important and you
can use this as a trade filter to filter
out trades that don't have a great risk
to reward ratio all right so what we
mean by risk to reward ratio in case you
don't know and it's okay if you don't
we're gonna risk X amount for the
potential reward of Y amount okay so for
example the risk is three points or
maybe that's $300 per hundred shares of
stock that we're trading but the reward
by our target is six points six hundred
dollars per hundred shares okay so the
risk reward here is 3 to 6 or 1 to 2 so
I'm risking $1 to make - that's pretty
good that's pretty good okay having that
risk/reward requires an exit strategy we
haven't you know entry strategies we
have exit strategies we've got stop
location strategies all of these need to
be specified in the trading plan and so
you know you can and you can have a
number of different exit strategies you
can have a fixed objective well I'm
gonna take it off after six points or it
could be to the next swing high or low
as I showed you in that trade example on
the first higher high I'm gonna take
half of the trade off at the firt at the
last swing high okay could be a time
period you know three days I'm taking
this off no matter what could be on a
range expansion bar what I'm talking
about is a big range expansion for the
day if I see that I want out or just on
the close or the open on the first
profitable closed or open or trail a
stop until taken out or some other form
of exit the key thing though is to have
an exit strategy too many times I see
traders don't have an exit strategy if
they don't have an exit strategy they
have no clue as to what risk/reward is
on that trade and if they have no clue
about risk/reward on that trade then
they're not making a sound trade in my
judgment okay all right let's go now
deeper into money man I should ask any
questions about risk reward before we
move forward
if you do just type them in and I'll be
happy to address them I want to move now
into more specific stuff on money
management you really want to track your
daily profit and loss every day know
exactly where you stand with your
account okay
you
money management is a part of money
management is to protect your profits
that have accrued so you want to on a
periodic basis maybe monthly or
quarterly whatever works for you you
want to take profits out of your account
you don't want to leave it in too you
know it just gets too easy to become
completely complacent well I've doubled
my account size so no no big deal if I
have a loss you don't want to have that
you want to keep your account size lean
so pull your profits out and certainly
if you can avoid it don't add money to
your account and trying to meet margin
calls if you're doing that then you got
a problem you need to come back to your
your trading plan and figure out what's
going wrong there we're gonna talk about
draw downs in a bit but you know you
don't want to be adding money to meet
margin that's for sure you want to close
positions and and figure out what's
going on position sizing is also really
important and part of money management
how are you gonna put eyes your position
are and here's a key question and this
is we're going to talk about this in a
little bit but are different market
conditions or trade situations going to
require different sizing and I think
they do and I'll will talk about when
that occurs when we're talking about
position sizing we're talking about
protecting our account and also at the
same time we're talking about growing
our account we're gonna talk about a how
to grow your account in a methodical
systematic way but when we're talking
about position sizing part of that is
we're talking about leverage and money
management is about understanding how to
use leverage and you want to use it
prudently you know the the the the
people who I see
who have blown-out accounts nine times
out of ten it's about leverage they're
using it improperly and your trading
plan you want to specify how you're
gonna use leverage so for example we'll
talk about the SPS which is the market I
know best but you can easily translate
this to any market you trade if it's the
currencies or stocks or whatever but in
the SPS
you know a $25,000 account trading one
contract per 25,000 that would be pretty
conservative okay I'd be a nice
conservative way to protect your funds
and and it wouldn't wouldn't be a bad
you know would be it would be a
conservative level of leverage use of
leverage a moderately aggressive would
be one contract per ten thousand dollars
in your account very very aggressive in
my in my judgment I'm giving you my
opinions you might have different
opinions here about this but I would say
one contract for a five thousand would
be a very aggressive use of leverage and
certainly if you're trading I know that
the brokerage you know they're only
looking for five or six hundred dollars
whatever the amount is these days for
four day trading and so I know people
with you know will be trading three-four
contracts with you know less than ten
thousand dollars or you know you don't
want to get into that it's just not the
right way to trade that's that's how you
blow up your account pretty easily you
know if you think about it this way I
said moderately aggressive one contract
per 10,000 so one contract for ten
thousand and three point stops three
losing trades in a row is less than a
five percent drawdown okay that's the
way you want to be thinking about this
in again in my judgment in the S&P is at
one point is worth fifty dollars per
contract so a three point stop is a
hundred and fifty dollars and if you
take three losing trades in a row your
down for 50 well that's less than 5% in
your in your $10,000 account it's not
insignificant but you can easily make
that back if you're down you know $500
in a $5,000 account that's twice the
amount right and if you're trading
multiple contracts with three points
tops and you get three losing trades in
a row you're gonna wipe yourself out so
that's the idea in terms of leverage
when we're trading over overnight and
we're holding positions overnight you
might want to I say you might want to
it's up to you you've got to consider
this but you know markets can move
overnight on on news that's not
anticipated or can't be anticipated and
so you might want to reduce your
position size for example and it's just
an example by 50% again
position size helps manage risk right
it's it's the use of leverage in a
prudent way okay any questions on this
John says he wouldn't be I mentioned you
know you might exit a trade when we were
talking about exits when range expansion
occurs and John says well how would you
measure range expansion well there's a
number of different ways to do it but
you can say that if the you know ranges
is significantly larger than the last
week or two then that's you know and the
range is the difference between the high
and the low of a price bar so and you
can make it be your own rules if it's
you know twice as large as the average
range in the last three weeks that could
be significant if it's some you could
take the average true range over the
last say fifteen bars and then you can
multiply that by two and that would be
if it hits that that level then that
would be a pretty good range expansion
and that might be a way to take a trade
off there okay so the couple of ideas a
couple of ways to use that alright okay
[Music]
so when we're talking about leverage
it's a good idea to use the same
position size for each trade we're going
to talk about how to develop statistics
a little bit later and you know the only
way you can measure your progress is if
you you're consistent so you kind of
want to standardize your trades you can
also think about using units okay your
position sizing in terms of units it's a
little bit different way of thinking
about it but this is using leverage as a
money management tool it's it's you know
it's kind of the professionals edge if
you will in other words you would say
one unit is so many shares or one unit
is so many contracts okay when I put on
a position I put on one unit if it's for
say a short-term trade but if momentum
is rising and I see that the market is
likely to be trending
throughout the day if I'm day trading
and all the signs are pointing for a
trend day which doesn't happen all that
often maybe two or three times a month
or even less then then I want to be I
want to maybe I want to you know the
professional edge is now to step on the
leverage and leverage up when that
momentum is so I might put on two units
I might double up my my position sighs
but that's thinking about it in terms of
units and it's a very well thought-out
way to use leverage um when we have
normal conditions I'm using one unit and
it's that's one unit is equal to safe
you know a thousand shares in trading a
stock when I see the opportunity for a
trend day then I'm gonna put on 2,000
shares of stock okay so I was using
leverage as a money management tool and
as what's known in the industry as the
professionals edge we also want to use
leverage to increase our position size
over time once we have a handful of good
trades that are working well for us
we just want to scale up right we want
to do the same this is what what trading
is all about finding what works doing it
over and over and over again and then
scaling up in other words increasing our
leverage adding contracts if we're
trading the espy's adding shares if
we're trading the equities okay now do
this as a function of both your account
size and your performance okay and even
if you base it on performance and
performance measures are met you still
don't want to increase your leverage to
the point where you're gonna have more
risk with the new position size then
your account can handle and you might
say to yourself okay I want to increase
leverage over time but I'm never gonna
increase it if my risk is equal to two
and a half percent
in this instance of total account equity
or you can keep it simple more than one
contract per $10,000 in account okay so
let's take a look at how to practically
do this here's a sample method it's I'm
not suggesting that this is the way to
do it but it's a sample method of
increasing position size and growing
your account and it's based on your
account size and your performance and
keeping this one contract per 10,000
amount okay alright so what I'm gonna
say here is my performance is based on
earning ten points net per week for at
least eight weeks okay so in my initial
startup here let's assume that we're
just ranked beginners doing this and
we've got nice trade setups that work
well we can execute them well and so on
and so forth and now we've been trading
them for eight weeks with one contract
and as I said before in the SPS it's
fifty dollars a contract so we're making
five hundred dollars per week and at the
end of eight weeks we will have added
four thousand dollars to the account
that we started with and we started with
a twenty-five thousand dollar account
okay so at the end of two months or
eight weeks we've got twenty-nine
thousand in our account because we have
sufficient amount in our account you
know at a at a rate of one contract per
10,000 we can go up to two or two
contracts here and because we have
earned the right through our performance
of earning 10 points a week net over the
last two months we add a contract okay
and we do this for eight weeks now we're
trading two contracts that's our
position size or our unit size and our
amount per point now is doubled to $100
and now we've doubled our amount earned
each week to a thousand and at the end
of 16 weeks or four months this
two-month period we've added another
8,000 to our account and we now have an
account size of 37 and it goes on and on
like that we go for another 8 weeks we
add a third contract that's giving us
150 a point at 10 points a week that's
1,500 that's 12,000 over the course of
that two-month period now we're up to
almost 50,000 and on and on it goes okay
and you can also see that if you're
trading over a 50 week period the kind
of income that you can generate for
yourself off of this by scaling up or by
leveraging up but this is a useful way
to think about how to increase and grow
your account and that's what we're all
about here is is to do this this is
where having this goal the monetary goal
is a good one this is this is when it's
useful okay you still want to do all the
performance goals that we talked about
before and continue to work on your
performance and can keep honing that but
here you are in less than a year
bringing your account up quite nicely on
a scheduled fairly you know reasonable
basis here now you've got five countries
and you can continue to do this and by
the end of you know another you can
shorten this up now you've got enough
experience you can shorten this up to
six weeks or four weeks or however you
want and you can generate quite an
account size by leveraging up like this
okay any questions about this it's more
easy you know certainly easier said than
done
but this is the way to do it or a way I
should say to do it now I'm not trying
to minimize the difficulties that exist
with all of this but all right
and there are draw downs there are no
question about that and we want to have
guidelines for draw downs and money
management is all about how to deal with
draw downs and you really want to have
in your trading plan and in the workbook
there's sections for this you want to
have predefined rules to read that
guides you about how you're gonna
respond to a drawdown so for example if
you have three consecutive trades on a
day that are losers assuming you're a
day trader then you want to stop
training for the day
all right if you've got three
consecutive trades in a month if your
swing trading you'll want to stop swing
trading and take a break and figure out
what is going on is it something that's
bothering you is that the market is just
kind of wacky and it's not you know
conducive to your play or or what is
there some you know outside influence
troubling you what's happening here you
want to figure that out if you're drawn
and these are some examples okay that's
not cast in stone but gee you know if I
were drawing down 12% or more any time
during the month I'd start thinking
about reducing my position size because
something's not quite right okay if I
were draw drawn down more than say
fifteen to seventeen percent during the
month time to stop trading for the month
and figure out what's going on and make
corrective action
don't try to trade through this because
if you do if you're if you're drawing
down like this make sure it's not the
market and if you're continuing to draw
down you really do need to stop and make
corrective action if you you know if it
gets really worse if you're drawn down
by more than say twenty five percent you
really do want to stop for and you might
want to stop for a period of time might
want to have a take a month off or two
or three weeks at least off
and reevaluate and revise your trading
plan consult with somebody you trust
some other trader that you know or or a
mentor that you are working with if
you're working with one and say gee
what's going on here does this you know
this is how I'm gonna change this what
do you think and then when you do come
back into the markets come back in
really slowly if you don't have this
stuff written down as your rules in your
plan and it happens you're much more
likely to trade through okay you you
really the idea here is to take drawdown
seriously and stop trading figure out
what's wrong and then try and trade
through it you don't want to be I'm
sorry take corrective action you don't
want to be trading through it because
something is you know especially getting
down in here fifteen twelve twenty-five
percent
something's pretty seriously wrong okay
well that's draw downs but you also want
to reward yourself for jobs well done so
here's some examples and again they're
just examples you you can fit your own
parameters in here if you're up ten
percent on the week take a day off take
out extra long weekend if you're up
twenty percent for the month take you
know take a mini vacation if you're up
you know some percent that's pretty good
for you for the year
[Music]
take an extra vacation or buy a new
house or buy a Porsche or something you
know to reward yourself I'm being a
little facetious there with the Porsche
in the in the new house but you know do
take time to give yourself a little
reward give yourself a little pat on the
back for a job well done it keeps your
motivation up it you know doing these
little rewards reduces stress and and
you know reduces burnout and let you
know it lets you know it lets yourself
know you've told yourself that you've
achieved something significant you don't
want to neglect it okay make this part
of your plan as well alright let's move
on here
and boy we're gonna go more than two
hours I apologize for that but I want to
make sure everybody gets the full boat
here with with the trading plan I often
hear you know if I were just more
disciplined in trading then I'd be a
better trader I have to have guidelines
for following discipline and and
maintaining discipline and being a
consistent trader I don't usually like
to use the term discipline all that much
it I prefer consistency I think it's a
little more palatable for folks but you
know what specific guidelines do you
need to strive in order to be consistent
and maintain your own discipline and the
way to do that is to identify your
strengths and limitations and then based
on those construct a set of guidelines
that help you interact safely with the
market and help you develop the things
that you need to believe and trade
effectively and just like the goals we
want to make them specific as specific
as possible so in your workbook there
are ways to identify your personal
strengths which are nothing more than
strong points as a trader and you can
identify these as personal assets and
they're you know identify them in on the
technical side of trading on your mental
and emotional side and on other areas
that posit that influence your trading
in a positive way and no we're talking
about a lot of work here just stepping
back a second you know putting together
a really good trading plan probably
takes a couple of weeks to do you know
you would be again is certainly does for
me and I know many traders myself
included will take the last couple of
weeks of the year off not trade during
the Christmas holidays and they focus in
on their trading plans some of them it
takes them a month to do so you want to
be able to identify your strengths and
how they help yourself as a trader and
whether they ever become liabilities so
here's some examples for
a couple of traders again I've kind of
melded these together on the technical
side this group this but think of them
as as one person this person says they
have a sound understanding of technical
analysis from their study and their
strategies are based on research
including hand research and so they know
at a deep level that they've got an edge
so there's confidence there and that's a
strength that they have in their trade
setups on the mental and emotional side
they're motivated and committed to
succeed and practice their trading every
day and they've got the perseverance
probably the most important thing what
most important mental trait you can have
is perseverance to stick with trading
despite all of its difficulties
and then in other the person says they
have the support of their spouse to
become a professional trader decent
amount of trading capital and a good
working environment with no distractions
those are things that are assets that
they can define as assets okay on the
other side of assets are of course
limitations and everybody has
limitations and these are the things
that you need to watch out for otherwise
they can derail your trading and again
it's the technical side the mental
emotional side and other areas that no
negatively influence your trading I'm
sorry that got and must have not that
would that me that's a that's an error
there typo and how do these limitations
hurt as a trader and are they ever
helpful and so again examples here are
useful the method on the technical side
the method isn't perfect it doesn't
capture every turn in the market this
trader wanted to get every turn in the
market and could get frustrated by that
they've not yet mastered their mat
method in all trading environments
especially trading conditions they found
trends more difficult to trade and they
often missed trends on higher time
frames
on the mental emotional side they took
trades a little bit early not wanting to
miss out something that many traders
have they also said that their ego
dominated their training and they want
it to be right and this causes them to
violate trading rules usually as I
recall this particular person didn't
yeah the last one here didn't like
losses and would wait for the stop to be
hit and even move their subs that was
you know part of their wanting to be
right they couldn't take a loss because
that was it meant that they were wrong
and they would often take trades off too
soon cutting their winners short and
they also got bored and when we go a
little bit deeper into it it was really
lonely being a trader and so they go
into chat rooms but they found that that
wasn't very helpful so taking those they
could make a set of guidelines for
themselves to maintain consistency and
discipline and so here's what this
person said they checked the higher time
frame before entering a trade similar to
what we heard before with one person's
goal one person's SMART goal right play
to their strengths and enter only one
the trade triggers they knew that they
had the strength of good trade setups so
don't try to take it early and and get a
little more out of it does that hurt
them many times they misread it didn't
proper fully properly set up so play to
the strengths and take it only once it
triggered set targets and scale out as a
way to deal with the cutting winner
short try to hold the piece to the
target set hard stops don't move them
use more leverage on higher odds trades
because they knew you know they had good
sense of what were their
bread-and-butter trades and less
leverage in trending conditions until
they mastered it interesting right it's
the opposite of what we were talking
about before but for this trader in this
traders performance and for their
discipline and consistency that's what
made sense use less leverage in trading
conditions and trending conditions until
they were able to master avoid chat
rooms and to begin to address some of
the loneliest
to meet with a trading friend
to the close and discuss the trades that
they took and the markets right to help
build a little bit of camaraderie and to
build on the strength that they had with
their spouse being supportive to review
their trading with their spouse right so
these are the ways that you can develop
your guidelines and then make them real
for you
okay and remember think about your
mission and all of this and your overall
goals you can make you can take your if
you know some of the things are more
difficult for you and and simple
statements or rules about discipline
aren't working make them into
performance goals for yourself make them
into SMART goals okay and and then track
your progress with it all right and of
course we find and and and revise them
on an ongoing basis and that's the way
we improve all right now a little bit
more about psychology routines here
really really important you know human
beings are creatures of a habit and
there's a lot we cannot control in
trading but what we can control is
ourselves and our actions and our
behaviors and what we do if you ever
watch I think probably my favorite
person in all of this because I'm a I'm
a big tennis fan and one of the people I
love to watch is Maria Sharapova she was
number one a couple of years ago she's
falling off of that a little bit but
she's still a great player she was a
real she had real routines every time
she after the point was over she'd walk
to the back of the court you know adjust
her strings think a little bit calm her
mind turn around walk up to the service
line bounce the ball a set number of
times flip back the right side of her
hair then the left side of her hair
bounce the ball a couple more times and
then finally go and hit a powerful serve
that was her routine even when she was
losing and you know she won most of the
time but even when she was losing she
did the same routine because it brought
a sense of familiarity and control to
her when you know even when things were
getting out of control so we can do this
in trading too and it's really important
and really useful and there's all
different kinds of ways we can use
routines you can log in all it which you
should do anyway but you log in all
trades at the end of the day you can
write down key market numbers in a
notebook you know I do this every day
the high-low I've got a whole slew of
numbers that I write down for the ESPYs
another one of my routines is to update
my point & figure charts review and
annotate your charts every night that's
a that's a wonderful routine it's a
great way to decompress it's a great way
to learn more about what's going on in
the market and how to read the market
through the charts keeping a journal
we'll talk about the basic elements of
keeping a good trading journal here the
pre-opening review getting up a little
bit earlier in the morning and doing a
set routine before the market opens just
like Maria Sharapova does a set routine
before she serves every serve you do it
in the early in the morning session
before the market opens you have a
routine for that yeah so it can be used
in many many different ways let's just
look and here's a couple of a couple of
examples okay here's a trader I'm
working with now who rates each trade at
the end of the day he logs it in he
keeps notes as he's going through the
day but then at the end of the day the
what he does is he rates his routine is
to rate his each trade he's got a great
scoring system I think this is this is
wonderful good bad and ugly
that's his rating system it doesn't have
to be rocket science or real
sophisticated so a good trade means that
it met all his training plan criteria
and he practiced sound trade management
procedures doesn't have a lick to do of
whether the trade was a winner or a
a good trade for him was that it met his
trade plan and he and he did good trade
management with it okay bad trade it
violated some rule and and the one he's
been working on is cutting a winning
trade short which a lot of traders have
difficulty with an ugly trade a trade
taken outside of the trading plan and
also violating rules so what's the
objective here the objective I mean
there's numerous ones it's a routine to
go through and he'll continue to do this
forever and should continue to do it
forever but his objective right now is
to eliminate all the Uglies all right
and reduce the bad trades here's another
example routine you can do this in the
middle of trading you can have a just
like Maria Sharapova you can have a
routine before you are coming into a
trade so before coming into a trade that
meets the trade plan criteria
I'll check the 30-minute chart for
trending conditions in price and volume
momentum sloping moving average and
increasing or decreasing oscillator
reading the objective here filter trades
with a higher time frame structure so
that he's not taking a trade against a
trend so again it's a routine that's now
made just like Sharapova does before she
serves now it's a here's a routine
before you take a trade so two examples
here a routine for after the trading day
to rate your trades and another example
before taking a trade okay any questions
on that I see a point a question here
gun in late have missed some of
presentation would be when I'd be able
to review the webinar later to say if
the webinar will be of Sharma it will be
available probably not tonight but
certainly within I'd say 24 or 48 hours
it'll be ready for you and we'll send
well Helen saying it week it's gonna be
ready okay I can hear her in the
background so a little bit longer I'm
overstating her she's the she's the
she's responsible for getting that the I
don't even know how to do it
how to put the video up and I guess it
involves our webmaster who is driving us
nuts we're building a new website as we
speak and so some of these problems will
be over soon we hope but anyway Sharma I
hope that helps okay you'll get it
shortly all right so let's one of the
great routines you can do is a trading
journal let's just take a look at the
basics of that you in a trading journal
you want to be thinking about what
happened today and then what's coming up
for tomorrow so on that review of the
day how did the market trade today and
what did I get out of it what did I
learn well so on your performance side
what did I do well and where can I
improve right and you start identifying
the things that you can improve on well
first of all knowing what you did well
and seeing that occur over and over and
over again well that's a strengths isn't
it that's an asset you have and that you
can capitalize on that you want to
capitalize on and then the areas that
you can improve get excited about that
because now you know that you can do
something about it now you can get
better now you can get closer to your
mission right that's why you know I
remember talking to a trader who used to
be a tennis player was a
semi-professional player and he would
say you know the best guys that I played
tennis with and the best women that I
play tennis with would go to the coach
and say at the end of every practice
they go to the coat in every game they'd
say to their coach coach coach
what can I do to improve what can I do
to improve they wanted to be
constructively criticized so that they
knew why they was it you know they did
weren't upset about being told well you
know your footwork needs to be improved
and we you know you need to work on that
or your serve needs to be improved you
need to work on that they weren't upset
about that at all
they in fact they were happy about that
why because now they could get better
now they had something to work on now
they could do a smart goal and
and improve themselves and get closer to
their mission okay so that's one of the
reasons why we use a trading journal and
then for tomorrow
what what are the key observations we've
got and the data points that we have
like support and resistance that are
going to potentially come into play for
tomorrow I want to know those are their
economic numbers or reports that are
coming in what's gonna be my game plan
for tomorrow am I gonna be a buyer or am
I gonna be a seller at what levels those
kinds of things that's kind of the
basics of a trading journal there's
certainly a lot more you can do with it
but we're kind of limited on our time
it's a really good good idea however to
keep a journal and just get a notebook
and use that since we're talking about
notebooks and records and journals we're
gonna go right into keeping good records
and Alex Alexander Alex Alexander
Alexander elder excuse me well I'm for
dr. Alexander for Miss stating your name
here said this at one point I remember
this because I because I kept it down I
thought it was such a great quote he
said show me a traitor who keeps good
records and I will show you a good
traitor and it is true I mean he really
made that point that once a trader
starts to record every one of their
trades and log every trade somehow it
changes their their trading they get
better because they're paying attention
to it and you want to do that too
records are really important we said in
the very beginning that's last on the
list but it certainly is not least you
want to track your account equity daily
we talked about that we want to log all
of our reviews of our trades all right
if you're ranking them good bad and ugly
start logging that and tracking that so
you can reduce those uglies keep charts
so you can go back and look at what it
looks like in a trending environment
what an up thrust can look like what a
spring can look like and so on and so
forth and the journal make all of these
a part of your routine if you're logging
down every night you're writing down the
numbers even if the day wasn't such a
great day just like Maria sheriff
over going to the back of the court
doing that routine is has a calming
effect it will bring some security to
you because you can free your mind now
by doing the certainly rote kind kinds
of stuff you know the mechanical kinds
of things but you know you don't you're
now gonna focus on that rather than
ruminate and and relive all the horrors
of the day okay so it's so it's good in
that regard as well okay personal
metrics this is something no one Keeton
a few traders keep but I encourage you
it in everybody and so this is also part
of your record-keeping and part of your
trade plan trading plan they are really
really high value for the trader and
we'll talk about why in a moment here
you
they're gonna help you define your own
odds for trade setups and your own odds
are the ones that are most important
doesn't matter what everybody else says
you know what the probabilities are it's
your personal probabilities based on
your personal performance for your trade
setups keeping your own metrics by the
way metrics what that means is
statistics your own personal statistics
they're gonna help you track your own
performance and you can use them as a
measure against which you can improve
remember we talked about the person who
was cutting the winner short so they
wanted to increase their average dollars
one by 15% we're gonna talk about what
that meant here in a few moments you can
identify things that would normally
escape our casual notice maybe we're not
so great in the morning but we get good
in the afternoon or vice versa we trade
well in the morning but we tend to give
it back in the afternoon well keeping
stats are gonna help us on that and
they're an objective assessment of our
trade setups we'll talk a little bit
more about this in a minute when we're
keeping personal metrics we don't need
lots and lots of data it's basic stuff
the type of trade based on your trade
plan and your trade setup rather the
profit made the money lost the date and
the time that's it the trade type the
profit will loss the date the time from
that we can we can develop you know
essential metrics here the average
dollars one is nothing more than the
total profit divided by the total number
of winning trades the winning we can
calculate a win rate which is nothing
more than the total number of winning
trades over the total number of traits
all all together that's your reliability
statistic or your percent correct just
like average dollars won we have average
dollars lost total losses divided by the
total number of losing trades so that's
the average amount we lose when we lose
on a trade and then the loss rate is the
total number of losing trades divided by
okay so from those we can now calculate
other metrics well we can calculate a
win rate which is our percent correct or
reliability maybe I misspoke they're a
little bit earlier but this this is the
correct so for example if I have 53
winning trades out of 72 then my win
rate is going to be set seventy three
point six percent it's going to be the
total number of winning trades divided
by the total number of trades or 53
divided by 72 that should be seventy
three point six percent okay so that's
like you know what a lot of folks will
say well the win rate on this trade is
seventy three point six percent okay
it'll also helps you calculate this data
a profit loss ratio and that's nothing
more than the average dollars one
divided by the average dollars lost
we saw what average dollar won and
average dollar loss was from earlier and
we can so we can't a say that the
average dollars one here is 207 and the
average loss is 82 in this example and
so the profit loss ratio is two point
five two meaning that for every dollar
that we are risking on average when we
win we're winning two and a half okay
and then we can calculate what I think
is probably the most important statistic
and that's the expected trade value
which is nothing more than the average
dollar 1 times the win rate minus the
average loss times the loss rate so in
this example
we have the average win was 207 times
the win rate which is seventy three
point six percent less the average loss
of 82 times the loss rate which is the
inverse of the win rate and that's 0.26
for twenty six point four percent so
that's one hundred thirty dollars and
seventy cents so what it says here is
that every time I make a trade
this trade I'm expected to win on
average over a large number of trades a
hundred and one hundred and thirty
dollars and seventy cents okay so let's
see how to use this a little bit now
there are other metrics that you can you
can use I mean there's other statistics
that you can develop but this is useful
I think so at the end of the month here
we can look at our record here and we
can say okay we've made seventy two
trades fifty-three have been winners for
a total profit of ten point it's a ten
thousand nine seventy on the winning
trades we've had nineteen losing trades
and the total losses there were fifteen
fifty eight so our net profit for the
month of May 2010 was nine thousand four
hundred and thirteen dollars and we can
look a little bit at our metrics here we
can say the average one was the average
profit was 207 our win rate or a percent
correct our reliability score on this
was is that seventy three point six
that's pretty good
our average loss was lower than our
average win at eighty two and our loss
rate was lower too so these are pretty
good statistics right and we calculate
the metrics and we say again the win
rate is the percent correct we've got
that up here our profit loss ratio is
two point five two and our expected
trade value is a hundred and thirty
seventy and so if we multiply seventy
two trades by a hundred and thirty
seventy we should come up with 9000
413 dollars that's how this works
okay now this is useful let's say we're
taking and we're comparing two trades
here we've got metrics now on two trades
trade a and trade be all right trade a
fired off signals eighty-seven times and
trade B was much more frequent at a
hundred and ninety four times okay and
so when we look at the metrics here our
average amount one when we won was 333
our win rate not great 55% not bad
either but 55% our average loss
certainly less than our win which is
good that was 167 and change and the
loss rate is the inverse so that's 45
okay so we can come down we can say okay
every time we take this trade we're
expected to win a hundred and a hundred
and six dollars right and then look
let's compare that with trade B here we
have a higher win rate right but we have
and the win rates here but we have a
much lower expected trade value every
time we take this trade we're only
expected to win $43 right what's the
story there
well if we dig into the numbers a little
bit we've got a certainly a trade that
sets up frequently right one hundred and
ninety four versus almost twice as much
or is twice as much as the first trade
and it's got a high winrate so it feels
good when we take this we win most of
the time but when it loses it actually
loses more money than it wins and
therefore it's producing less profit for
us so knowing this let's let's get you
try to get you guys back involved a
little bit because I've been talking
along time here knowing this what do we
want to do here with this with this
trade here what is it that we want to we
want to think about
you
between these two trades
cut the risk down on trade be that's one
possibility right that's a very that's
exactly right we can say okay maybe
maybe we can we need to find a way see
if there's a way to cut our risk down we
maybe won't because we're getting such a
large draw down here or a loss I should
say on a losing trade maybe we want to
make our stops tighter or what have you
okay yeah there's a higher probability
of success with this trade to this trade
but we're not getting rewarded well for
it so if we can't if we can't find a way
to reduce this average loss here you
know another thing to do is to make sure
we're not cutting the winners short
maybe there's a way to see are we are we
reducing the the profit to is a pun is a
question mark
you know if we're risking this can we
get more out of this out of this this
trade or not and that would only come
through a review the statistics would be
telling us to look at that but we'd only
be able to get that from a review that's
not possible and stops are not possible
then excuse me we might want to consider
cutting this trade because we're putting
an awful lot of money at risk frequently
and we're putting a lot of energy into
this trade and we're not getting
rewarded well for it
so this is a way to use metrics I feel
like I'm probably going a little fast
for you all in this but the idea is that
we can look at our trade setups you know
kind of like like baseball players on a
baseball team this is this is Brett's
team Barger's analogy of using metrics
and you can say okay trade a is really
good when this comes when this shows on
this trade shows up it's you know it's
pretty good we could actually add
leverage to it here because we've got a
nice two to one
profit loss ratio in other words for
every dollar we're risking here we're
gaining two right whereas here every
dollar we're risking we're only getting
three quarters so we might want it we
might want to look to see if we can you
know add leverage to this or or you know
put a bigger position size on and maybe
there are other conditions that
untrained
we could filter and improve this because
there's something going on here that's
positive but it doesn't quite make it
for us or maybe we want to as steam
barger would say maybe we want to cut
this player from our team maybe we want
to cut this trade from our from our team
of trades if you will the only way
you're going to know how to do that is
to a trade with the same position size
or unit size and be keep statistics your
own metrics on this that's the only way
you can you can tell how to how your
trades are really working out so when
we're using metrics we can compare trade
type as we just did you can do it long
trades versus short trades you can look
at it maybe you're a better long trade
trader than you are a short trade trader
or vice versa you can look at it in
different markets you know you can say
okay this trade setup works better in
you know pork bellies than it does in
soya beans I'm not sure why that is but
it does and so then you try to figure
out why is that if that really was the
case or different market conditions as
well if you got a nice wide swinging
market a trade may work better than it
does when the swings are not so wide
okay it could be time of day or time of
week or time of month maybe the there
are better trades in the morning that
occur on your style than they do later
in the day or maybe in the middle
of the week versus early in the week you
can only tell you can but you can
certainly compare trades by day of week
or day of month or or type of day and
all of those kinds of things and says
it's 2 a.m. in Dublin ok and take care
we'll we'll see you again soon thanks
for thanks for coming in and we can also
use metrics to improve our trading as
that we said before it's an objective
measure of your performance it helps in
probabilistic thinking when you start
keeping statistics you begin to think
probabilistically about your trading and
that's a real plus because it's hard for
us as human beings in general to be
thinking probabilistically and traders
maybe in particular or are not very good
at it so and this is a probabilistic
game we're playing in a probabilistic
playing field and so we want to be
thinking that way so this using metrics
and keeping statistics helps us do that
it helps us to improve our strengths and
limitations we've talked about a couple
of ways of doing that setting goals and
tracking our progress all all you know
through the use of metrics now just
before we end here I want to say one
last thing about trading plan and that's
emergencies they happen all right
you want to have you know for I know in
my career a few times Globex has gone
down and I've and in a couple of times
that that's happened I've had positions
on and the first time it happened I got
creamed the floor brokers just took the
market the opposite direction and SQUOZE
squeezed everybody and me included and
so I learned quick you know from that
one experience that it's important to
have an emergency plan for when that
occurs but you know you can also be in a
position and the power goes out or your
internet connection goes down or you
know a whole myriad of things can happen
so you want to have the account
and the phone number down in a written
written down in enough spot and you also
have want to have a written plan to
hedge an open position and you need to
know how to do that and you need to have
it set up in advance before you do that
that would include you know what trading
instrument you're going to use to offset
a current position and how many shares
or contracts or options are needed to
offset your position and what account is
going to be used to hedge your current
open position if Globex for example goes
down so you know one espy contract you
can hedge that by five hundred shares of
spy but it requires an equity account so
if you're along the ES and Globex goes
down and you've got say two contracts on
then you really want to be able to go
over into an equity account and short a
thousand shares of spy or ten options
contracts ten puts in in spy you want to
balance that out with a hedge okay if
you're trading the futures markets and
it goes limit against you and you get
locked you know a lot of people think
that there's nothing you can do well you
can go into the options market I mean
that's that's open to you and you can
take if you're long and you're locked
you can you can buy puts or vice versa
you can hedge with options but you need
to think that through in advance and
have it written down okay I'm not
familiar with what to do frankly in the
currency markets because I don't trade
those but I'm sure there's a way to
hedge them you also want to have your
charting software provider their
technical support number and information
your data providers tech support numbers
and Internet service provider tech
support all of those can go wrong on you
and it's important to have you might
even you know if you're depending on
your trading business you might have
backup for all of those
but even then something can go wrong so
you really do want to have this worked
out ahead of time and know exactly what
to do and do stops in a market count for
an emergency in an emergency and Jeff
asks a very good question well so your
long any an S&P futures contract and
you've got to stop three points down
below that and so you think you're
protected well yeah it's like having a
stop in the market and you're holding an
overnight position in stock in stocks if
that stop is going through and you know
your broker a lot of times what'll
happen if Globex goes down your broker
isn't going to be able to access the
market either and if you lock limit on a
futures contract your broker isn't going
to no one's going to be able to access
the the market so a stop will trigger
but it could trigger ten fifteen thirty
points down you know below by the time
it gets filled so you could be slipped
big-time if that occurs so stops don't
help you to be to the point being is
that stops don't really help you in an
emergency situation like this and you
know certainly we don't want to see 911
ever happen again or even think in those
terms but it did happen and you know
it's a Black Swan event and hopefully we
don't get too many of those in the
future but it could happen again and
remember the Nasdaq market was off and
out of commission because everything was
you know it was calamity down in in
Battery Park City and in New York down
in the Wall Street area so you know you
in that case you had to be able to use
options and go off into Chicago to be
able to do to hedge your your positions
but you don't want to just stand there
naked and and you know not knowing what
to do you want to think this through on
the things that you trade frequently you
want to have an emergency plan
all right you know I think we've covered
an awful lot of ground tonight here
come Craig says he didn't get the
workbook in the email I will email that
to you and he's given me anybody else
who didn't get it I emailed it out
earlier if you did not get it you either
let me know now or send me an email and
I will certainly get it to you so we
certainly have covered an awful lot of
ground and I if you go back through this
and you know and there's a lot of
information conveyed and I realize that
and I apologize for the density of it
but I think it's good good information
for you and certainly I hope I've given
you a lot to think about and in making
your plan and remote you know I think
the big theme that I've been trying to
convey here is that you really want to
make your trading setups automatic and
you really want to make your performance
something that you're continuously
working on and remember we talked about
technical mental and other kinds of
things that you can identify as
strengths and weaknesses and your
limitations and your performance and
those are the areas that you want to
focus on and concentrate on and you can
use the goal system that I that I
described to you and routines that I
described to you to actually develop
yourself and make yourself a better
trader so I want to leave you with a
final comment here and that is with a I
love this quote from David glance key
from the theory of Poker this is all
about probability play in poker now I
know we're not playing poker so I
rephrased it and I hope mr. Scalisi
doesn't mind my rephrasing I've
rephrased it for trading but it's you
know the the the essence of what he says
is not violated in any way shape or form
here by by my rephrasing but what it
says is this for any trade made
consistent with your trading plan
where the odds are in your favor know
that you have achieved something
significant regardless whether
you win or lose on the trade conversely
any time you make a trade outside the
scope of your trading plan where the
odds are not in your favor no you have
lost something significant regardless
whether you win or lose on the trade I
think that says an awful lot in a really
nicely concise concise and a nice
concisely stated quote it talks about
how important a trading plan is even
from even from probability playing poker
right from one of the Masters glance key
really is a is a great writer of on the
theory of poker and poker in general but
it brings me back to Jankowski statement
that the one thing that made the
difference is the trading plan between
net winners and net losers and here's
what he's saying you know if you're
playing consistently with your trading
plan you're doing something significant
you're really moving yourself you're
advancing yourself when you're outside
the scope of your trading plan or if you
don't have a trading plan and you're
trying to trade you're you're lost right
you've lost something significant when
you've lost something significant you
are lost so the I want to say thank you
all for coming in tonight and fir for
you know honoring me with with your
willingness to pay good money to to hear
this is the stuff I really do appreciate
it I love talking with with everybody I
see a lot of familiar faces here it's
really really quite nice and I want to
say thank you all and again if you
didn't get the workbook please email me
it's dr. Gary at trading psychology edge
drg ary at trading psychology edge comm
and I will be sure to get that out to
you or send a email to Helen and we will
do that all right
I hope you got something out of this
tonight and I
appreciate you all coming in and we will
see you soon I'm sure or talk with you
soon all right take care everybody and
have a great night
bye-bye now
Wow good comments - thanks everybody for
your great comments that's really nice
appreciate it