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The difference between most losing traders and a super successful trader is NOT in the system they are using. It’s in the position sizing and their psychology.

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As has been noted by many notable experienced traders over the years, successful investing means doing some things that may make you uncomfortable. You need the courage to do the things that others find difficult or impossible to do.

Trader Results

Kerry,

I’d worked with financial advisors to manage my money over the last 15 years, and realized after 15 years of paying management fees on an annual basis, that I was about break even… When the market corrected for me over 40% on a $1M + portfolio, I knew it was time for me to learn to trade my own money. My financial advisor ignored 6 months of downward movement before I finally squealed and started to look hard at my statements. His response was ‘the market will recover’. I was 100% invested in Mr. Market. This was my catalyst for realizing that financial independence isn’t financial independence if you are relying on others to handle the money necessary for financial independence. I was still dependent on my financial advisor to perform, and communicate what was happening, how we were doing, if I could spend my money. That said, I paper traded for 3 months after reading Trading for a Living, and did ok, having some wins and losses. When I started trading real money in November of last year, the initial losses and inexperience helped me understand why so few people learn to trade for themselves – the emotional swings were brutal. We began working together in March of this year when I realized I had to develop a system that works for my schedule as a full time consultant, father of two small children, etc.

Here is my equity curve since I began trading with you in March. Having a system to trade doesn’t make me an overnight better trader as much as it exposes my flaws so I can focus on them and become a better trader. Having no system meant I had no areas of resistance or support to based my decisions, I was doing well, and then doing poorly, but I could understand why? In following your simple trend trading system, I’ve realized that when I do something really dumb, I can immediately figure out why it was dumb (poor money management, impulsive trade with no plan, ignoring the basic rules (buying a full position at the 1 ATR instead of the -1, etc.). This means I don’t have to make the same mistake again, and if I do, I get to go back to the same short series of 3 questions?

1) Did you have an entry plan? (price action, position size, technical agreement

2) Did you have an exit plan? (price action, position size, technical agreement)

3) How will you explain this trade to your wife? (my accountability partner). I am trading a $250,000 account, and I write myself a check every Friday for my work week performance. My wife asks me how I did, and telling her I wrote a check is not something I like to explain… I’ve found this for me is the ultimate accountability and keeps me out of risky trades when I realize I may go from receiving a check to writing a check, I net out my account every Friday back to $250,000 through receiving funds, or contributing funds.

Thanks for all your help… I’m pretty sure I’d be in a different position this year without your help and coaching. As of this last week I’m up 17.22% since we started working together in March and I’ve only traded the WPT positions and a few select stocks in the financial services industry where I have some experience. I’ve learned that for me my biggest losses were in order: short trades, trades without a plan (impulsive), and trades where I transitioned from a specific trade plan to hope as my primary strategy…

I have a long way to go, surviving numerous jumps from my ground floor office window after making really bad trade decisions, but overall I’m starting to believe that this is something that can be learned if you are willing to master one system completely before you find another shiny object – the mind wants to move to something else to avoid seeing how hard it is to simply follow your very simple trading rules. That’s the discipline for me, execute this flawlessly – and in doing so exorcise all my personal trading demons.

Regards,
Todd B.

Q/A - Any suggestions on following the WPT system?

Kerry,

I am having trouble mimicking the results of the WPT system. I am profitable for the year but nowhere near the how the system performed. Any suggestions would be appreciated.

I realize part of my partial result I was not able to take every trade.

Thanks!

This is a very good question and there is no great answer.

Rarely will anyone duplicate any system results precisely. Remember that the reason for me posting the system and tracking a public portfolio is to help show how to trade a system and follow it in a discipline way. I prefer to teach how to trade not be followed blindly. Regardless of the system duplicating results is nearly impossible. However it is there to show the potential of a system and results could be obtainable within a margin of error. I do not have enough data to suggest what that margin of error is, but I have seen results from others that were within 5% - 10% on both sides.

One client has reported much better results and this was due to the fact he caught trades I missed although his largest drawdown is also larger than the Discretionary Portfolio. This particular client has a much deeper risk appetite than I. I have seen other results that are within a small margin of error. How close one mimics the portfolio is determined how exact one trades the portfolio.

For example if you were to miss the two largest winning trades, the results will have a very different look. This month if one did not take the re-entry on SQM, you make $2,500 less in the portfolio. If you scratch SNDA and do not hold it, one makes $5,500 less. If you attempt to only trade one of the picks, you may pick the one that lost money and not trade those that made the money. My suggestion is take the model portfolio and learn how to build and develop your own system that you are the most comfortable with so you are NOT trying to mimic someone else. I would much rather see you develop yourself into the type of trader you desire to be with a system that works for you. Some traders find that the WPT approach works for them and they produce results very similar. Make sure you are not expecting the same results but trading in a very different approach.

Not long ago I worked with a client that had a very similar question and thought he was following the WPT system. After analyzing his account, he realized he was doing everything but following the system. He made trades that were never made, did not honor the discretionary stops and was not honoring the system stops. This allowed much larger losses than system ever encountered. In the end he found he was only haphazardly trading the list of stocks showing up on the WPT buy list and not trading a system at all. He was also position sizing in the trades incorrectly. He has since corrected many of these issues and since has found better results. He continues to admit he has some discipline issues and allowing losses to be much worse than necessary. I am recapping his story with his permission, he only asked for his name to be withheld.

Trading is NOT a get rich quick scheme. To be a Professional Trader takes time and education like any other profession. I have said many times, that no other profession in the world can we wake up one day and say “I want to be a Professional Trader” and within 10 minutes we can be in business trading.

I would suggest we arrange some phone consultations or an on-site visit may be worthwhile. We can conduct an account analysis and indentify what may be the road block to your success.

Thanks!

Kerry

Trade Results

Kerry,

First I have to say a BIG thank you! Last year I lost over $40,000 dollars gambling in the markets. I say gambling as I had no trade procedure to follow. I realized this after contacting you to help me with my trading losses. Prior to our first few calls I thought I had a trading system. Your work help me indentify I was not following my own rules and allowing the market to spin me in circles. This was in the fall of last year and I closed my brokerage account as you may recall. I simulated trading after we had worked together refining my trading process and began trading live again first of this year. Attached is my equity curve. I struggled early in the year but since have learned to keep all my losses minimal and avoiding the disastrous losses.

I am far from recouping my $40,000 loss, but I feel I have more control over my trading than ever. I started this year with a $50,000 account and risking 1% on my trades and I am up $7,000 for the year. My win ratio is 62% and most importantly my maximum drawdown is $1460. My return this year is equivalent to 24% on an annual basis. This is by far the best I have ever done, plus I feel more relaxed and calm when I have trades on. I set a goal to try an average $1,000 per month this year. If I can accomplish this I will increase my risk by ½%.

I trade fewer stocks that I scan from a custom built list that you help me indentify. There are weeks that I have very little to trade and sometimes nothing at all. This has been difficult to learn and to remain on the side lines during these times. You can see it reflected in my equity curve.

Bottom line is I am hitting my goal and I am positive with a nice return on a small account while I feel 2000% more relaxed.

Thanks again for all the help and I look forward to our working together in the reminder of the year.

Regards,

Robert

Robert,

Thanks for the comments and allowing me to post to the blog. It has been a pleasure working with you and I look forward to your growth and success as a trader. As a Traders coach, one can only suggest possible improvements. The trader implements them and see’s them thru to success. You deserve the credit more than I for achieving your new found success. I wish you the best in achieving your goals and if I can ever assist in any way, please let me know.

All the best,

Kerry

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In discussing a situation with a fellow client I thought I would make a post as a Quote Today.

The Un-willingness to accept a Small Loss when a Trade is NOT working

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The Fear of Missing a Move is the two main causes of Trader’s Mortality!

Stay discipline to your trading process, if you do not have a process, you are making trades on hope, fear, and greed. Make sure your process indentifies setups you prefer to trade and then indentify that your setup has a winning probability. If you do not have this process indentified, than you trading system is in-complete. Once you have a system in place, it is only your willingness to follow that system that will protect you from the two emotions mentioned above.

Thanks!

Kerry