Greed is Bad

Remember that infamous speech given by fictional character Gordon Gekko in the Hollywood movie "Wall Street", made back in 1987? The take away from that speech was that "Greed is good".

Well fact is, greed will get you killed. It's always been that way. Now it's difficult to objectively determine whether one is, in fact greedy from one moment to the next but in the world of trading, it's that voice in your head that convinces you to drastically increase your risk in hopes of making bigger profits. This can work for a period of time but inevitably, once you take some losses, panic sets in and in most cases, risk is yet increased with the absolute belief that brighter days are around the corner and you must now make up what you recently lost... and there we go down the rabbit hole.

I read a trading book that once spoke of a man who turned $10,000 into $1.1 million in two months. Every time he won a trade he would increase his risk. Each time he lost a trade, he also increased the risk. He was trading in a trending market where he was winning 75% of his trades. What do you think happened when the trend was over and price action slowed? Well, he started taking large losses and after each loss, what do you think he did? Well he made bigger bets thinking his previous performance would be mirrored the second time around. Well in about 1 month, he was back to $10,000 and became enraged, blaming the very system he used that previously grew his account exponentially.

Markets trend and then they slow. It has always been that way. When you win or lose, move on to the next trade with a level head and keep that ego at bay. In the long run, you can make a lot of money and become wealthy. But it takes time. Brick by brick you will build that castle but don't try and take shortcuts in trading. You will be left with nothing, with a confused look on your face.

Money management/risk management is probably the most important aspect of trading. Realizing and calculating how many times you win compared to how many times you lose and at what amounts, allows a trader to understand how much he or she should risk on each trade, and then when to gently increase those bets, while keeping risk the same. That way, win or lose, in the long term you understand you should be okay. Also, this allows you to understand the big picture. Medium growth is so much more sustainable than fast growth.

Remember Why You're A Trader

Greetings y'all. It's been awhile since my last post. My apologies as I was recharging with my amazing wife over in Europe. Brings me to sharing this very important point. Every trader needs to remind themselves why they trade. Why they deal with the stresses of becoming financially independent via the most challenging industry in the world. It takes a lot of work, it sucks at times, and takes an extremely long time to experience sustained success. Now the good part... Once things turn around, reward yourself. Pay yourself and the people around you a little. Do some things that allow you to appreciate the fruits of your labour. Yes it's a business but always remember at the end of the day, it's about increasing the quality of life, not sitting in front of computer screens 365 days a year. Take a break sometimes so you can enjoy your successes along the way. You'll be glad you did. Cheers.

Giving Back Is Necessary

Isn't it amazing how many "winners" there are in the world of investing? All these people around you making gobs of money. It sort of makes you feel a bit insecure doesn't it? Well the truth is only about 10 percent of investors/traders make money long term and probably only an average of 5% actually make a large return annually. So why does everyone seem to be raking in the mullah so easily, time and time again? Well, what we have here is a culture of people/businesses who generally only advertise and share their profitable investments. They conceal their failures and embellish their successes. A great big bunch of people who do their best to look smart and successful instead of feeling shame or ridiculed.... and don't even get me started on the advertising from companies promising they have the holy grail on how to make you rich in record time. The vast majority of people/businesses are simply using ineffective methods that generally end up losing large amounts of money long term.

The truth is, if we all simply viewed the financial markets with the right eyes, we can start to accept the flow of it all and understand a few liberating truths about money, and much more importantly, good ol' mother nature.

Have you heard these before?...

When you give, you get back.
No one wins forever.
When you give you receive.
Two steps forward, one step backward.
What's yours today, will be someone else's tomorrow.

I could go on and on but the point is, there are "two sides to every coin"... the "ying and the yang". Alright I'll stop now. We know instinctively that there is a give and take with everything, polar opposites. This means every time you win, someone loses and when you lose, someone wins. You're not going to win all the time and you're not going to lose all of the time. If I told you that for every trade you make, without even knowing whether or not you will win or lose, you will average a profit of $200, I'm sure you would take every trade you could without hesitation. This is because you have complete confidence of the long term results. Even if you took five losses in a row, most would stick on the same path knowing that winners are right around the corner. That is actually the closest a person can get to executing the perfect trade method... taking trades with little to no emotion, doing the same thing over and over again.

Yesterday I had a losing day. Like I said, it's apart of  the business of trading. It's the cost of doing business. It's what needs to happen, to give back parts of the profits you made previously, in order to make additional profit in the days or weeks to come. Markets are generally choppy, with spurts of quick, fast-paced price moves. Generally speaking, I have more losing days in a month than I do winning days. On occasion, I have made more money in one day, than I have after trading for half a month. Markets are completely irrational and erratic and yet there is a flow to them, kind of like white water rafting. Long term success means getting in the same flow of the market. When she says buy, you buy, and when she says sell, you sell. In relationship terms, you're going to be her "soul mate", or submissive spouse, depending on your view. In the end though, it pays off to be a good follower and it's how many traders eventually become rich.

These are the views of a trend follower. What I am and what I hope more will become. I've known some traders to be successful getting in and out of their trades, each day, and generally making money about 60-70 percent of the time. These people are in the minority and I question their long term results. Trend following, as I've personally found, is the truest and purest way to survive and prosper in any market condition, long term.

Next time you take a loss, simply say to yourself.... "NEXT!"

Be Happy With What You Make

Too often traders are too concerned with what they are missing out on; what they're leaving on the table. Even when they are ahead of the game and winning, they over concern themselves with what they are not getting. First of all, always stop and congratulate yourself when you make a profit trading. That is one of the hardest things to do for the average person. Second, realize and understand it could always be worse and at least you didn't lose any money.

A friend and mentor of mine recently passed away and I'm reminded of what he taught me... "Don't concern yourself with profits. Focus instead on reducing losses. Successful traders generally go into every trade expecting a loss."  That used to floor me and even now, it sounds a bit silly. But it's true. When I trade now, expecting to lose keeps me honest. On my toes. I know that losses are going to happen and to be prepared. So when wins come around, I always take that experience with a smile and appreciate the fact I didn't lose money.

Today for example, everything started out great. Both the S&P E-mini and Crude Oil were falling off the table. My account kept going higher and higher. Even still, I took time away from the computer, made a snack, watched some TV, and generally glanced at the computer screen every 5-15 minutes to lower my stops and check in on what was happening. Generally speaking, I'm extremely relaxed when I trade because I understand that whatever I make, may be taken away in the near future. I'm level headed to understand that I may lose, I may win, but I must stick to the game plan and take every trade that fits my method. It's through this process that in the long term, results will be favourable. Getting back to today, as price was making me look like a superstar, all of a sudden the market got a bit choppy, then reversed taking my stop out and leaving me with exactly half of what I was up just minutes before. Without any indication that the trend had changed, I proceeded to sell the market again once I saw another red bar appear and close minutes after that. Once again, my stop was hit and the market pretty much shot up like a rocket ship blasting off, leaving me with one win and one loss for the day (like I said before, I don't trade Crude Oil after 2:30pm EST).

Was I sitting there upset that I was wrong once? .. Nope. Did I feel a bit bad that I was only able to keep a fraction of what looked to be a much better result... maybe just a little in the moment. I ended the day with a good profit, even though I was 1 for 2 and that is what matters. I could have just as easily left with a loss for the day, but I didn't. I'm appreciative that I was able to make the little that I did and like always, I will sleep well tonight. Not every day will be big just like every day won't be bad. It is what it is. Take those wins with a smile and leave the shoulda coulda woulda's for the other hopefuls out there. Nobody knows the future.

Another Crude, Trending Day

This could be the return of the larger downward trend from a few months back but we shall see as time progresses. All we do is take each day at a time and follow the signals. As for this past Friday, the only sell signal we took was when we saw the close of the first red bar, as it fell well below the longer term larger red dots. This means the short term matches with the longer term and gives further evidence that we may be right in assuming price will move lower from there. Remember, we never know where exactly price action will go but it is our job to take each valid trade knowing some will work out and some won't. What the market gives us is what she gives. Today, it turns out our account saw more additional gains. We exited around 12:59 pm EST as the American markets closes @ 1:00pm EST due to the 4th of July weekend in the U.S.

Don't Be A Cry Baby

I'm going to touch briefly on the "elephant in the room". Yes people, I understand that it hurts and it's frustrating to lose money, especially when confidence is high. Just as your trade starts to move in the desired direction something unthinkable happens; the darn thing reverses and hits your stop and you're left thinking... "why me?" or "what happened?" or even "this method doesn't work and I've got to change it." It's true that every time you make money at any specific time, another trader is losing money ...and vice versa. Trading is simply a game, it's a competition. You are competing against other people. Like I said, when you win, someone loses. No one wins all the time and no one loses all the time (although it feels like the losses never end at times). The name of the game is making more than you lose. Everyone knows this intellectually but we humans tend to get emotional at times and that's when we typically fail in the game of the financial markets. You need to get it out of your head that you have to win all the time or that losses are bad. It's just apart of the game. Michael Jordan, arguably the greatest basketball player of all time, had a career shooting percentage of 49.7%. Sure we can round up but he barely missed more shots than he made and look what he was able to to accomplish in his career. Babe Ruth finished his career with a batting average of .342. Meaning for every hit he had, he struck out two times. Hell, in baseball, a batter has multiple chances to hit the ball, and if he/she fouls the ball on the third try, they can stay alive and keep fouling the ball until he/she makes a hit and sometimes, that hit wins the entire game. Imagine if these athletes simply gave up because they missed the mark. Imagine how different their lives would have been. In every game in the world, no one wins all the time and we know this. Money tends to complicate things but if you play to simply take more from the market than you give back, you can really change your life.

Stay calm, relax when you lose. Have a method that reduces those losses and lets you know when you're wrong. None of us have a crystal ball and no one can tell the future. Just do your best to minimize your losses and maximize your gains. I'll close with this... I've had many losing weeks and once I had a losing month, but it's not about that. If you're looking to make the same income from month to month in trading, don't be a trader and go to work for someone instead. At the end of the day I've made money and I will continue to do so when looking at my wins and compare them to my losses. The market can take away all of my profits in one month to where I'm taking a slight dip in my capital, and then literally in the first three or four days of the following month, double my entire account. The market moves in phases kind of like seasons. Just keep at it and be patient. When trend following, it's not so much about the number of wins vs losers. It's all about the value of those losses vs the value of the winners over the long term. If you're losses amount to $50,000 and your winners amount to $70,000, things aren't so bad. It's just hard to "feel" good when you're in the thick of things.

Crude Oil Falls Nicely

Today, the trend was almost completely down in Light Crude Oil. Like almost every Wednesday, the "Weekly Petroleum Status Report" was released and although price jumped quite a bit @ 10:30 EST, it eventually resumed the downward trend.

As you can see, when the price popped up @ 10:30, the second highest small red dot was not touched. We stayed in and were able to finish the day with a very good profit. Not every day will be like this but when they happen, it's very welcome. We took profit and exited @ around 14:11. Generally we stop trading Crude Oil @ 14:18 (because of increased/decreased swings of volatility), but today it made sense to exit a bit early due to a new low being made at the end of the day. Generally, price reverses violently when price drops or rises sharply near the end of the trading day (but not always).

Using a great trend following method allows the trader to remain somewhat calm and relaxed in critical moments in order to comfortably sit tight and let the market work itself out.