Narrow Your Focus

"If you chase two rabbits, you will not catch either one."

- Russian Proverb


I'm currently reading a book called "The One Thing" by Gary Keller. It's a very practical book explaining what makes some people so extraordinarily successful in something and why others aren't. The One Thing is all about focusing one's attention and efforts solely on the one most important thing you or your business can do in order to be more successful. The people who succeed are the ones who can narrow their focus so much so that they only concern themselves with getting better in one particular area. Alternatively, the people who multitask, having their minds wandering everywhere, struggle to make any real progress.

How does this relate to trading? Well a Trader should focus his/her energy on the things that make them money. Once you find the answers you need and make adjustments and create good habits, then move on to another area which will increase the amount of success.

For instance, if you get better results trading daily rather than weekly or monthly, focus your energies on becoming a better day trader. If you try trading futures, currencies, and stocks and you get better results with currencies, well focus your energy there. If you get best results with the EUR/USD or the USD/CAD, focus there and get better. If after trading the 1,2,3,4,5,15,30 minute charts and you find your best results are with the 5-min charts, specialize there. Keep doing this until you end up with your best performing industry/product, time frame, enter/exit strategy, indicators, sensitivity settings, money management approach, etc. Once you keep narrowing your focus down to the lowest level possible (backed by favourable back testing results), stay there and keep doing the same thing over and over and over again. This is the "secret" to success, in any industry, in any relationship, in any diet, in any sport, in any goal really. Focus on what is most important to your success and master it, make it a habit, and then move on.

If you get a chance, pick up the book as it's a great read. Have a great weekend!

Warren Buffet is Wrong

It was he who first said.... "Rule No. 1: Never lose money; rule No. 2: Don't forget rule No. 1". 

Warren Buffet has taken losses, just like the rest of us. The idea that one has to never lose in order to win in the world of investing has to die a horrible death. Of course Mr. Buffet knows losses are apart of the game, especially when years ago he took a $900 million loss on the US dollar when he shorted it, thinking the dollar was doomed, only to see it surge soon after it bottomed. Or recently when Berkshire Hathaway lost $11 billion in the recent stock market sell off a few months back. 

No matter who the investor is, they have all taken losses, a lot of them. The goal though is to make more money than you lose. It's just that simple. Can you lose money overall if you win 90% of the time? You sure can if you're constantly over leveraged. Can you become incredibly rich being right only 40% of the time? You bet. The goal for every trader/investor is to simply work out a strategy and system that is favourable in the long term and effectively produces profits that when added all up, out weigh the sum of the losses. 

The reason Warren Buffet is so rich, is because he doesn't let the fear of loss stop him for going for the win. I think what he meant with this quotation was "play to win". He's taken losses but his winners vastly out shine his losers. That's how you and I need to be. Act on a winning system consistently despite your fear of loss. Being a trend follower, the losses will come... and when they do remember, they are the precursors to large financial gains. 

The 10% Rule

If you have a thriving trading account and you're making profit, congratulations on getting to that point. If you're trying to make a living as a trader, you should sit down and figure out a fair percentage of income to draw from the profits, all while retaining enough of that profit to reinvest and compound the value of your account. Just like every business, it's important to be profitable but it's also important to understand how much income one should draw from his/her account. Not only will this allow you to enjoy the fruits of your labour, but this will create a great habit of paying yourself first and slowly growing your net worth. We humans are very bad at taking action today, for a better tomorrow. We tend to think about the here and now much too often. So it's very important that you get in the habit of simply taking out at least 10% from your profits, every month for yourself. Open a bank account and name it "Financial Freedom" and every month, put 10% of your profits in there. Even if you only profit $100, take $10 out and deposit it in your Financial Freedom account. Over time, the deposits will grow and so will the balance. Don't wait for the magic day when you have "enough" money to start to save or withdraw profit. Do the same thing for $100, that you would with $1,000,000. This is the secret to building wealth and what many traders fail to understand, even when very profitable on paper. Pay yourself for your hard work and success and allow your savings account to grow along side your investment account. Patience is needed but this approach curbs the thoughtlessness we often have with money. Over time as the account grows, you'll be amazed at how phenomenal this concept truly is.

Grow More

I digress a bit in this post as I think I've outlined some really great trading principles that if followed, will help you and me become much better traders/investors. This post is about becoming bigger in a holistic way because if you only focus on one thing in life with your head down, that very thing you eventually accomplish may not bring you the happiness or aliveness you think it will.

When I finally started making some good money, I got excited, very excited. I literally jumped for joy on certain days when it seemed as if the future was looking very bright. I was so happy I finally found an approach that stood the test of time and was going to change my life. Soon after I hit my first two financial milestones,  I was left thinking...  what's next? Although hitting financial goals was great, each time, it didn't have the same excitement it did when I first made my first breakthrough. Now I'm not saying making money isn't great, but there are also other areas of your life you should focus your attention on as well. What good is all the money when you're sick, stressed, and fat? Health, education, entertainment, friends and family are all equally as important as finance. Find the time to be present and enjoy life, read a book, take a walk, play a sport, take your partner out on a date, increase the amount of greens you eat and reduce the sugar, dairy, and wheat in your diet. You'll ensure that you will be in tip top shape, happy, connected, and well educated for the world of tomorrow, all while slowly becoming financially independent.

Shut Out The Noise

Tonight I was watching TV while my wife was sleeping on the sofa and when I got up to get something to nibble on, the business news came on which flashed many breaking stories and business reports. While admittedly I stopped what I was doing to listen to what was being said, I soon realized it was mostly noise and wouldn't benefit me or my business in any way. Don't get me wrong, it may have a place for certain people in industry, but for me, a trend following trader, it would add noise and confusion to my life and that's not allowed. Lets be honest, all the news does is report on things that have already happened and/or consists of speculation on future trends, and are usually wrong. I quickly picked up the remote, and changed the channel.

As a technician and follower of the market, it's your duty to unemotionally take buy/sell signals, without bias. This is how you separate yourself from the average trader who typically falls apart taking long or short positions on oil, or the dollar, or the Dow Jones Industrial Average, simply because of the "fundamentals". Your job is to listen to the market itself, the price action, react swiftly, and monitor its progress. My advice is to not listen, read, or watch any piece of business news, hoping to gain insight on future investment decisions. Your charts are all the data you need in order to make good, valid decisions. At least then you will be basing them on actual market movement, happening at that moment in time, rather than projecting your preconceived beliefs on the market.

Be like the fly fisher who travels out into nature, where he/she can be alone, with their own thoughts, and simply listen and follow what nature itself is telling them. Be calm, relaxed, and breathe. Focus only on what you see and avoid the noise from others. That's your best chance for success in this business. Go catch those fish.

Keep It Simple, Stupid

Raise your hand if you've ever been "stupid" in your trading... come on, raise it. We all have made stupid mistakes, a lot of them. It comes with the territory. It's a tough game and between our emotions, lack of experience, and/or lack of a good strategy, it's hard to garner sustained success. Well I'm here to help and today, I give you a very powerful concept to absorb and own from now on. Simplify simplify simplify. The more simple your approach in the markets, the more success you will experience.  The most successful traders in the world (professionals, market makers, floor traders, super traders) are the most simple, focused people when it comes to making investment decisions.

My mentor, who traded his own account for 40 years, traded almost exactly the same way, day in and day out, for 35 of those years, up until his death. The first time I ever spoke to him, he asked me what I liked to trade and what time frame I use. I responded, "I like to trade currencies, the majors mostly, and I trade the 15 minute charts, the 30 minute charts, the hourly, and sometimes, the 4 hour charts." He abruptly and politely told me I was off track and I needed to be more focused. What he wanted me to do was choose only one market to trade and use only one time frame. This took me back a bit because every image I've held on to for years is one of traders being dynamic, with multiple computer screens in front of them, screaming and yelling at people, trying to ride any market they think that is trending. When he told me that all he trades is the S&P 500 E-mini futures market on a 2 minute chart, using a 30 minute chart for reference, every day, looking for the same occurrence over and over, I was shocked! What he had learned over the years was that having a great system and approach is good but it also should be applied and catered to a specific market and time frame. If you keep these variables the same over time, after a while, you get in rhythm with that specific market and the way it moves and certain details become clearer. You begin to understand more and get in the minds of the other players.

For example, if you were to trade the S&P 500 E-mini market long enough, you'd notice at the exact moment the market opens (9:30am EST), volume surges and the price tends to jump around a lot and/or move very swiftly in one direction. During lunch time, around 12:00pm-1:00pm EST, the market tends to ease up a bit and move slower. From 2pm -4 pm EST(market close), price action tends to flow in one direction or the other and trend a bit better. Now this is very important information. I used to be stubborn and think that information like this didn't matter but it does. It so very does! Specific information about how each market moves throughout a day is some of the most vital information one can have. There are many professionals who are very successful and only trade from 2pm-4pm EST each day, every day, and make a lot of money doing so, doing the same thing over and over.

Remember, this is a competition. You are competing against other people out there to earn profit. The only way it gets easier is to simplify the game. If you wanted to beat people at a game of one on one basketball, practicing on the same court and at the same time of day, day after day, how successful do you think you might be after awhile when different people stop by and challenge you to a game? How confident do you think you would feel that you could beat the other person before you even start each game? I'm sure over time you would feel extremely confident and with good reason. You'd understand the playing surface and how slippery it may be in certain areas, which side of the court receives the most direct sun light and how much, how tight or loose the basketball rims are, which way the ball may veer when the wind picks up, or even which areas of the court that have bumps or holes. Point is, you'd have an advantage. All those little things give you an edge. In the game of money, the super successful use every edge and advantage they can because sometimes, those are the things that differentiate the winner from the one who loses.

Take it from me, trade one market, use the same time frame(s), over and over, and you'll not only become much more successful, you'll be more relaxed doing so and that is just as important. It's also very liberating to know you can be more successful using one laptop screen, over the guy somewhere else in the world, in front of 8 screens, salivating at all the "opportunity" in front of him but only manages to lose in this game we call trading. Stay focused on the big picture while doing the same thing over and over, using the same frame of reference. It's not sexy, it's not as fun, but it's smart and it makes money. You do like money right?

Patience is a Virtue

One aspect of trading that is so often overlooked, but probably lies at the heart of most poor decisions ... is.... you guessed it..... patience. Lets be honest, the sole reason we trade and got involved in trading is to make money, a lot of it. And a lot of it can be made, don't get me wrong. The richest individuals in the world are investors and they got to be rich by harnessing the power of time. Whether they are conscious of it or not, the power of time and using money effectively with the power of mathematics helped them to amass a great deal of wealth. In the world of trading, having patience can drastically improve the performance of your account. There are countless examples of traders who lost almost all of their capital simply because they didn't master the art of waiting and risked too much or traded too often in hopes of out thinking the market. The ones who do make money, are the ones who understand a market will run, then walk. I want you to look at the graphic I prepared below. Click on it so it enlarges and absorb what's happening.

Now I initially called it "The Flight Path of the Trend Follower" but quickly corrected myself by adding the word "Good" to the title. I'm illustrating how closely a trader's progress looks just like market movement. Your progress is not going to be a straight line. Actually, your progress will probably seem stagnant more times than not. 60-80% of the time, your account will look lifeless, losing what you win over and over. That's okay. If you have patience and understand that, instead of out thinking the market, you follow it, understanding when she starts running again, you'll be there. Along the way to riches, you will experience good sized "setbacks" but they're not setbacks. It's just trapped energy spooling up to be released down the road.

Being a good trend follower means understanding markets take a while to work themselves out and make substantial moves, one way or the other. Trend followers trade as usual, expecting only what the market is willing to give. Buyers and sellers often "fight" so much that sideways choppy action can last what seems forever until one side wins and the people who stuck around long enough reap the reward. The good trend follower understands this thoroughly and it's what keeps him/her from betting too much or taking odd trades that go outside their system. They make trades listening to what the market and their system ARE telling them, rather than listening to what they feel the market SHOULD do. Big difference. As an ex Elliottician I still struggle with letting go of all the patterns I learned, hopelessly trying to forecast the future. Why? Well after years of study and lack luster results at best, I quickly realized that in real time, markets cannot fit in a box and that market will move and swing the way it wants. Also, if you ever become married to one or two possible outcomes, you tend to hold on to those beliefs even when the market is telling you it's not going that way. Trend following is all about finding out when the trend has changed, and simply taking action, moving your stops, and letting the market move while you get out of the way. She says to lose $800, you give $800... She gives you $500, you take back $500.

When using a good trend following approach, drawdowns will occur whether you are trading a weekly chart, or a minute chart. They cannot be avoided. Sure you can do your best and avoid certain phases, but for the most part, it's easiest to follow along and be there when price makes the big moves. Embrace the draw downs. They aren't so bad. They are simply a precursor for the main event. If you can master the art of patience while trading, after every drawdown period you will continue to add additional profit, and that's a beautiful thing. Just make sure you trade small and account for those drawdowns, otherwise you'll not only be late to the party, you won't make it at all.