To succeed in trading, you must have an "edge." An edge can come in many forms or be multiple components of a strategy. In fact, my edge comes from multiple aspects of my strategies. First, I sell options which puts the odds in my favor just by the trades I choose. Second, I have very specific entry rules that help me to time my entries and sell at levels that boost my odds even further of winning. Third, I have solid defensive strategies that keep me profitable in the rare times I am wrong or during massive moves like a bear market.
But the biggest part of my edge is used as part of my entry rules and it is my proprietary Fractal Energy Indicator. One thing I have found over the years is that the more indicators and signal metrics you put on a chart, the more you lose. It's not hard to understand because too many indicators conflict with each other and lead to overanalysis or bad timing of trades. I know, I used to work with 8 indicators on a chart!
About 12 years ago, I was working with some other professional traders and our goal was simple - to find a way to know when a chart was about to trend or not. We looked at a lot of common indicators and tested them, but none of them worked consistently. Then we came upon the Choppiness Index indicator and it was close to what we were looking for. We tested it and then got the code and made very specific changes to it to creating an unique new indicator that was able to show when a chart was "charged up" and ready to trend or "exhausted" and done trending. I then took the indicator, made further code adjustments and started looking at how it worked across different timeframes - hence the name Fractal Energy. I was able to essentially see trends before they started or when they were exhausted looking at the different time frames, the Fractals. This worked well and helped me to time my entries much better.
After a couple of years of working with it, I had a good system going when I noticed a correlation between the energies and Bollinger Bands. I noticed that I got my absolute best entry opportunies when the prices were at or near the bottom Bollinger Band and the energy on the 1 year daily chart was exhausted. I started to track my trades using this setup and some other criteria I used to set my trade levels and found that I was able to win over 90% of the time. It was amazing - with just one indicator and the help of the Bollinger Bands, I was able to boost my win rate to skyhigh levels. And it was so much easier to manage.
Nowadays, I've taken that concept and several setup types I've identified using the energies and created the 5 different strategies I use and teach to students all over the world. And one of the biggest lessons I teach them is the one I learned so many years ago - the lesson of simplicity and focus in giving you an edge. I trade the way I do because it wins the most. It's not sexy or flashy. In fact, much of the time is downright boring. But that is another secret of professional traders, their strategies and systems are setup to consistently win and profit and are almost robotic and boring. Forget what you see in the movies - focus on how you can simplify and put the odds in your favor as much as possible. That's the real secret to make a living in the markets.
If you want to learn more about the Fractal Energies and how I use them, I invite you to click here and try a FREE 2 Week Trial of 12 Minute Trading. Here's to your success!
Great traders know that the biggest challenge and obstacle to trading success is not the markets or their strategy or any outside force. No, the biggest challenge is between their ears.
Simply put, emotions and emotional decisions destroy trading profits. And that is why the best traders spend a lot of time working on their mindset and understand how to separate emotions from logic.
It is a process traders have to go through and it never really ends - you just get better at controlling your emotions and impulses. And it comes in most handy during corrections and bear markets.
I sell options. I don't buy anything. Not stocks, options, or any other security. I sell options because I get paid up front to take on risk and I can control how I create my wealth and income. Over the years, I have learned a lot about how to control and manage emotions. Here are 3 secrets I've learned that help the most.
Have a Clear Set of Rules
No matter what trading strategy you have, you should have a clear set of rules for entry, defense, and profit taking/exit. Rules help keep emotions in check because they give you a plan to follow. Your job is to simply execute. For example, if your rules state that you don't defend a trade until a specific level is hit, and a stock moves against you in a big way, but does not hit the level, you don't execute defense. Emotionally, it may feel horrible and may cause you to want to act on impulse to do something, but your rules will stop you from doing so. Your job is to follow them. And many times, you will find you win the trade. If you want to learn more on how to develop a clear set of rules and strategy, grab a copy of The 5 Key Elements of a Winning Trading Strategy Here
Don't Fall in Love with Any One Trade
A trade is just a trade. If will either win or lose. Don't fall in love with it or get attached to it. If you have rules and follow them, this will help you. Inevitably trades will go against you and you will have losers. Don't think you have to make back your loss on the same stock or underlying you lost the money on. I've seen this so many times where people "feel" like they have to keep playing a stock the've been losing on to make back their money. It's like they have to beat the stock to put it in its place and show they are better. That's crazy. Your goal should be to find and trade the best setup per your rules and strategy. Never get emotionally involved with a trade.
Your P&L Means Nothing (If You Sell Options)
This one may not apply to you, but it does to me. Because I sell out of the money options, my P&L will fluctuate wildly with swings in the market. One day, I can be up 6-figures per my P&L and the next day down 6-figures depending on what is happening. What matters is price. Is the price approaching or at the levels I've sold? If not, then I am fine. I just need to let time work for me. I also know that if a trade does go against me, I have defensive rules that I follow. If I managed my trading by the way my P&L moves, it would be a nightmare. Instead, I look at the amount of cash I have in my account relative to what my starting amount was. That tells me if I am losing or not. And I can manage around that cash keeping myself profitable. If you sell options, don't use your P&L as your main guage of success.