Tag: STUDY

Back on with Benzinga, I mentioned mental stops quite a bit in my segment. But mental stops are a topic that deserves a little more explanation than I gave on the show. We all know what stop orders are. If you don’t then stop reading now and read this. We call them hard stops. I’ve always used them in my trading. Always. Then some years ago, Raghee Horner said something about stops that really resonated with me.

“If your stops are not set, your broker will never know about them.”

While that statement did resonate with me, I didn’t really understand why she said it until recently. I believe the reason now is high frequency trading (HFT). Undoubtedly, there is HFT in the forex markets now too. If the broker-dealers can see your orders, you better believe the algos, black boxes, dark pools and other sinister machines see them too.  Sound trading plans, which dutifully included hard stops, have been chopped to death in these markets. And I’m not the only one who thinks so. Pro veteran trader Peter Brandt wrote about this some years ago and the change he made to mental stops in order to remain competitive. However, despite these pros’ thoughts, I still used hard stops in my trading. Using bracket orders (limit orders in which both or either the stop loss and target limit are set too),  stops were placed as soon as I entered a position and adjusted to break even once the trade was in the money.

This sounds like a sound and prudent strategy. However, it was not yielding the results that they once were. So, very recently, I made the move to mental stops as well. It wasn’t until the Benziga show appearance that I reflected on how this trading strategy is working for me and what it might mean for newer traders.

Using mental stops mandates a disciplined approach in your trading. That is why novice traders cannot use them. As a novice, one is training to be disciplined in developing a trading plan and system. Once that hurdle is crossed, the newbie is then training to properly execute that plan and manage the emotions and ego that comes with trading in the markets. The practice of determining risk and sticking to exits is learned very practically using stop and limit orders.

Until your trading psychology is tight, I do not think you can successfully employ mental stops. Again, if you are a novice trader or a trader struggling with your mental capital, use the hard stops. Using mental stops does not mean we are no longer using stops in our trading. On the contrary. If you use a mental stop, you already know the level at which your trading plan is wrong. It’s just not being telegraphed to the market. Rather, we want the market to move as it should without the temptation to run orders that the HFT ilk is fond of doing. Mark the stop loss level on your charts and develop a rule for when you will manually come out of the trade. Will you get out on a break of the level? On the close? After a couple hours? A couple days? You will need to make that determination way before you think about using a mental stop in your trade. Mental stops can only be utilized within a well-defined trading plan. Fail to plan and you ultimately have plans to blow up your account. Be smart.

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A fellow trader asked:

what do u mean by style long term short term swing trade scalping ? 🙂

For me, trading style ultimately refers to preferred timeframes. Swing traders look at bigger timeframes, typically no less than a 4hour timeframe. A day trader will look at minute timeframes, typically no more than 60 minutes. Of course, the details vary from trader to trader.

A swing trader is comfortable holding a trade overnight and doesn’t want or need to be active in the markets every single day. A swing trader is looking to capture much larger profits on a given position. A day trader couldn’t conceive that. A scalper is very satisfied with smaller profit targets and only wants to be in a position for a few minutes/hours.

Position sizing becomes interesting when you start to look at the 2 distinct styles. Swing traders will typically scale into (and out of) a position to take advantage of the best price the market is giving. Because we are in a position for several days, swing traders take advantage of a market action that provides multiple optimal price points. Scalpers tend to trade their entire position size because they expect to exit the position relatively quickly. So in order to get their desired reward, they are willing to put on their entire position. It seems risky to a swing trader but holding a position for several days seems very risky to a day trader. It’s all about style.

A scalper and swing trader could employ the same trading strategy (Fibs, pivots, support & resistance) but their styles will have very different outcomes. Figure out and trade your style. Most traders pick one. Some traders can trade both ways. Know what works for your personality and lifestyle. Then the hard part: trade thyself.

I made my debut appearance on Benzinga’s #PreMarket Prep Show last week and had a lot of fun. As a first time guest, I get to talk more about my background and tips for new traders which is always fun. Check it out!

Spring was hectic. This year I was School Site Council Chair, PTA Secretary, and a GATE parent volunteer. I managed to teach 2 classes at the art college. The big kids eeked out 2 activites each over the course of 3 months. The baby started school for the very first time complete with her first extracurricular activity too. Hubby and I did a high five after the last ballet recital. The school year is officially over! So happy for the kids because it has been a great year. Lots of growth in us this year.

I say all that because it’s no surprise that this hectic schedule has forced me to trade slow. Slow and deliberate. More so than I ever have. And I found that there is a peace in not rushing trades. Trades are now limit orders triggered by my rules. And once set, I am free to watch the market however I choose: at my computer, in a meeting, during the boy’s basketball practice or the girl’s art class.

The high-energy of active day trading has very little appeal anymore. Instead, checking price becomes a check on the chart rather than a check on my trades. That subtly in grammar is also the subtly in psychology that has really helped my trading. The chart is a 3rd person. My trade is very personal and very 1st person. Personal matters tend to be emotional whereas we can all can detach from a 3rd party’s issues because they are not our own. As a trader, markets work when it becomes less about me and more about it.

The timing of my slower trading is not lost on me. The kids are back home full time. The whirlwind of winding up a school year is one I more appreciate now as a teacher and parent than when I was a student. The seasons have changed and, quite naturally, my trading changed with it. Trading is certainly a marathon, not a sprint. If you are in it for the quick thrills you probably can’t stay at it long enough to truly be rewarded. The longer I do this the more I understand that. Now I have entered a season in which I am truly living that out.

TRADE SLOW — my new mantra.

Too many people say “I was too early on that one” to reassure themselves that they were right after all. The bottom line, though, is: if you didn’t make money, you weren’t right. So stop lying to yourself and work on your timing!

Great read over at Richard Todd’s blog on timing. Timing is something I strive to improve upon every time I’m in the market. I realized early in my trading that the entry of a trade is just as important as the exit. I personally feel it is more important. Todd’s post got me thinking about what it is I do to improve the timing in my trading.

1. Use tighter stops. This is a recent change I made about a year ago. I know it is very counterintuitive and even ill-advised. But tight stops don’t allow you to be lazy when entering markets. There can’t be any “Oh I’ll just get in right here.” There must be a reason for every trade and that reason is your price. A trade is triggered because price has reacted a certain way at a specific chart level. It is at that level where we would love to get in at. It is the level that will maximize our profitability. An early entry is too impatient. Impatience is never a good way to trade. A late entry is a missed entry. Missed trades simply don’t pay which can be okay but refer to the above quote.
2. Use limit orders. Trading live in the market can be exhilarating and boring. Both environments have positives and negatives but they have one thing in common. They both affect timing. In a volatile market, some traders get an itchy finger pulling triggers as fast as the market can oscillate. In a slow market, impatience rears as a trader enters a trade just to trade. Using orders allows me to time my entries to a certain extent as I let the market come to me. If the market never comes to me, then it’s time for a new setup and a new trade. With capital preserved, I can go into that next trade with a clear head.
3. Using profit targets. There is aplethora of literature out there about using stops. Far less is dedicated to using limit orders to set profit targets. Many traders will place a stop but never set a profit target. Without a hard profit target set, the trader may be away from the screens when the market finally does move in her direction. Or worse, the trader hesitates, or simply refuses, to take profits off the table. Use hard (tight) stops. And use hard targets.

Todd says timing is everything. I agree, and take it further. Timing is the only thing.

Source: Timing Is Everything (blog.richardtodd.name)

I had the privilege of meeting @DeniseKShull 2 years ago at the StockTwits Meetup during the NYC Trader Expo. I attended her session the next day and was blown away by her assertion to actually use your emotions in your trading. I followed her on Twitter. She started writing her book not too long after that conference. The rest, as they say, is history. If you haven’t read the book, this interview is a beautiful and illuminating preview. Absolutely blown away by the brilliant insights Matt and Denise discuss. LISTEN TO THIS INTERVIEW. Read the book. Get your mind right. Happy trades.

Market Mind Games with Denise Shull @denisekshull and Matt Davio @misstrade, A Radical Psychology of Investing, Trading, & Risk