We always here and I certainly talk about finding consistency. What is consistency? What does it mean to you?
One must define it, to know it. It is why I routinely encourage traders to identify what they are trading for.
What exactly do I mean when I say this? We all know we are trading to make money or that is what the purpose is supposed to be.
Let me ask the question this way.
I have a job that requires one to come in and go thru a process of questions and at the end of the day lay a report on my desk.
The report is due every day at 9pm NY time. There will be days it takes longer to run the process than others. You may work 1 hour a day or may work 6 hours a day. At the end of the process there is a report that is required to be given to me. I will not pay you by the hour; I will pay you a salary at the end of the year, quarter, month, week or end of day. This is your preference how to be paid.
I need to know two things. How often do you want to be paid and how much?
The work is a series of questions that I will need you to answer and deliver a written report to me at 9pm each and every night, Sunday – Thursday. I will not need reports on Friday or Saturday.
How much do you want to earn to do this work? Can you determine a fee that this will be worth your effort and time to accomplish? If you find a way to do this work in 1 hour or 6 hours makes no difference to me. I am taking offers please let me know.
Once I know this number I will in turn let you know how much it will take to go into this business. I forgot to mention this is not an employment contract. This is a business venture you must invest in. The amount you want to earn doing this process will be determined by how much you are willing to invest in your new business. First you must determine how much earnings you want to make that will make it worth your while to partake in this business venture.
The investment will not be given to me, you will keep it in any account you prefer and close that account at anytime you choose. You have sole discretion over your investment and can change your mind at any time. Failure to execute the report properly will affect the outcome of your investment.
If one does not know what they are looking for to perform this job, than we will have a hard time determining what sources and tools we need to accomplish our request.
The other issue is realistic expectations. If one has expectations to go into business looking to invest $10,000 to make $100,000, well those offers are only on late night TV, called infomercials.
For me personally, I like to trade fairly conservative. I prefer to try and hit a lot of singles and doubles and not go after too many home runs. The times I went after the home run, it ran me home crying.
My personal style is fairly boring and routine. Most of the trades are never that exciting. Most are never catching bottoms or shorting tops. I do like to trade a few counter trend setups from time to time. Majority of my trading is looking to make 2 - 5% each month as consistently as I can. This means I am looking to have very little drawdown’s and try and grind out small profits with a small basket of markets. If I am trading a $200,000 account I want to make about a $4,000 - $10,000 per month. If I can find opportunities that will present this to me and do it consistently, I have a chance to make 20 – 50% a year. I realize I will not make $1,000 - $2000 each and every week. There will be weeks I lose money and weeks I make $5,000. I attempt to work a process that will give me the opportunity for $1,000 - $2,000 per week. I also realize I give up trying to catch every single market move. I know I only need to catch moves that have the opportunity to achieve my monthly income. If I can accomplish this over time and minimize my losses, I will show a good return on my account.
Most Traders focus too much on the next great thing, the one strategy that will ultimately become their printing press for money and solve all problems. Unfortunately that thinking will drive us to lose money in more ways than we can imagine. It is important to recognize what you are trading for and then discovers the tools and discipline necessary to achieve those goals. Too many traders are chasing moves and not focused on their process and goals.
Once I focus on what I am to do, I become less focused on what the market will or will not do. I focus on what conditions I have and if I have opportunities that meet my criteria. If have no opportunities that meet my criteria, my discipline is the only thing to keep me from making mistakes that I will regret. The market will flash its lights in front of me and tempt me to make trades I have no desire to make.
For example, recently SNDA was a nice setup that fit my criteria. The stock gapped up and never looked back. I did not get in the trade, why? My criteria (trade plan) calls for me not to chase if I do not get the trigger based on my criteria. The trade worked out well only without me profiting from my analysis. If I am going to throw out my trade plans I might as well not make them and trade on my gut. The problem with this is my gut has always had BIG losing trades. My discipline is the only thing that will allow me to follow the plan. I have my instructions and I am to follow. Not following the plan and I am discounting the plan is worthwhile and lack faith it will lead me to where I want to go. The plan will not always be perfect and I will miss opportunities, but will the plan allow me to achieve my goals ver. time? I can always trash the plan and build a new one; I can revamp my plans so that it will help achieve my goals in a better way. I must have something to follow that gives me high probabilities to achieve my desired outcome. If I cannot achieve my goals may be I am just too un-realistic or the plan has no merit what so ever. One will not know if the plan has merit unless it is fully back tested or better yet tested in the real world of trading.
If you want to make $100,000 out $10,000 you are likely better off to go to Las Vegas and have a good time and you just may hit the jackpot.
The WPT Portfolio follows a method to grind out 2 -5 % on average a month. Thus far we are close to achieving this. It is yet to be seen if we will achieve it the rest of the year, we shall see.
It is not the most exciting way to make money and it is not as fun as having those big 20+% moves in a day or two. I rode my share of roller coasters and I prefer a more calming ride as drifting down a slow moving river knowing I will reach my destination if I stay on course.
Don’t get me wrong, there are plenty of ways to trade the markets. There are some methods that will provide exhilarating moments. You just have to know when to place the bets and the conditions are prevalent to make those types of trades. You must be willing to place a bet that will win big or lose it all bet. A few weeks ago a client wanted to work out a trade in the financials and make a $2,000 bet. We structured the trade in a leverage market and he anted up. The trade worked out very well; however, it appeared he may lose it all at one point. His $2,000 bet was only worth about $400 dollars only after a few days. He called asking should he bail and salvage his $400. I asked him why and he proceeded to tell me it looked like he was all wrong and he might as well take the trade off the table. I asked him if he was not serious about wanting to risk $2000, which was the original plan. He was going to risk $2,000 dollars and willing to lose it all to see if he was right. There was nothing different currently than in the original plan; everything was the same except he now thought it was not going to work. The original plan was to lose $2,000 or the oversold condition in the market would be relieved followed by an explosive move to the upside. The play was to risk the full $2,000 and look for a 15+% rally in the markets within one month’s time frame. This was a bet on the financials and was a lottery ticket play. The trade netted $6254. The client was about to take a $1600 loss because he thought it was not going to work. He began to second guess his decision and pull his bet off the table. When the trade appeared to go sour he was no longer willing to embrace the full risk.
The guy called asked how I knew not to get out of the trade. My answer, I did not have a clue. For all I knew the market was going to keep running down and he was going to lose his remaining $400 dollars. I told him if he was willing to risk $1600 why not the other $400 and let the original plan play out. Let’s continue watching the game and see who wins. It is easy to risk other people’s money!
What occurred was when he put the trade on he thought he was making the trade at the right time. Therefore he thought he was willing to lose $2,000 because he was convinced he was right and would never see his $2,000 dwindle down to $400. The client had a good plan and he understood the plan. The issue is he really did not think the market would go down any lower. He was only willing to experience the loss because he believed he would not ever have to accept that loss. Once he realized he could lose his $2,000 he decided he did not want to play this game.
$2,000 is not a huge bet in the markets but it is decent size bet depending on one’s account. This was a small bet compared to the account the client has to trade. He hates to lose more than $1,000 at any one time. I have seen this on numerous occasions. He will lose $500 and not blink an eye. If he loses over $1,000 he is mortified. A $1,000 dollar lose is less than ½% of his account, yet it is the fact it is more than $1,000. When he thought this trade was going to lose him more than $1,000 he was ready to bail. Matter of fact, he told me latter that had he not called he would have bailed as soon as he got his losses under $1,000. Was this in the trade plan? Not at all… The plan called for holding some options for one month and see if the move he expected would occur. In order to play he wanted to pay $2,000. Once the trade went sour the first few days and exceeds the pain threshold, all bets were off and the trade plan was ignored.
Remember nothing had changed. The market conditions were the same, very oversold. The size of bet was the same; he did not overtrade and average down. As a matter of fact the trade was looking even better, but he was sitting on a $1,600 loss. His trade had 3 – 1/2 weeks left, he was only three days into the trade. It was a very well thought out simple plan. Nothing complicated technically or fundamentally, just a speculative bet that within 4 weeks we would see a significant rally. The trade turned out well for the client in less time than projected.
The 10% of doubt he had in the trade and looking at a $1600 loss in reality was enough to say I don’t want to play and never wanted to make this trade. He wanted to close the trade out so he did not have to accept a $2,000 loss. The market had convinced him he was about to have to do something he really did not want to embrace.
Most of us are willing to embrace any risk if we know the outcome. If we knew the outcome it would not be a risk. As Mark Douglas talks about in his book “Trading in the Zone” one must embrace the real risk. This is another part of the Trade Plan, truly know and accept the risk you are taking, if you do, managing of the trade becomes easier.
I have experienced and seen many times Trades performing really well for months only to change the size of their risk and begin to trader vastly different. Make sure you grow your size incrementally and you are placing bets with risk you can truly embrace. Most importantly, never place a bet that is not based on some viable trade plan. Even if it is only a speculative trade plan.
