Reading history can be enlightening…especially when it’s your own.
When I first started trading, I reacted to pullbacks in an uptrend just like everybody else did: “Here we go! Price will crash from here! Time to sell everything!” At which point the price would pivot and move higher, thumbing its collective nose at me while I struggled to figure out what had just happened. I had to learn from these situations after the fact and understand that the “anchor trend” was still intact, and I had been “shaken out” like all the other chum in the market.
I had to study my actions and learn to “fade” that temporary fear. After a while, I was able to stow my concerns and look to pullbacks as an opportunity to enter long.
And then the crash of 2008 happened. Reading one of my entries from October 2008, it now sounds like a horror novel. Journal entries like “I’m not sure if this market will ever recover” are funny to read now, but it was the real deal at the time and certainly reason for concern. After seeing crash after crash occur that year and into 2009, I had to learn to study my fear and reactions after the fact, and learn to decode them as a signal for opportunity.
Ultimately, what you learn to do over time is to detect your reaction as a human being to a normal situation that would create a fearful response, and try to learn to create a different response to it than the “fight or flight” response that we’re all programmed with. And the only way that you can create this feedback loop is to create some form of journal. I create a strategy journal for every different trading strategy to track the numbers, but I also maintain a written journal to record my perceptions to a certain situation, and it’s my job as a trader to decode that “normal” response and see if opportunity is on the other side.
You must learn to think differently than the rest of the crowd if you want to do this for a living. Journaling your thoughts is the first step towards accomplishing this.
In your corner…Doc Severson
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Recently, Dave was interviewed on the changes happening with the dollar and monetary system, especially with the new BRICS currency being released in August. If you are looking to better understand the impact and what the future may hold for you as an investor and/or personally, give it a listen!
Something that I see on an ongoing basis is retail traders diving full-on into a new strategy, immediately failing, and then hopping onto ANOTHER new strategy and repeating the experience. Instead of having ten years of experience in trading, most retail traders get one year of experience ten times, and it’s not additive.
It’s frustrating for the trader since they never seem to get anywhere. Sound familiar? It should, I went through this exact pattern myself. I knew dozens of different options strategies, could employ about a hundred different technical indicators, and knew how to scan through thousands of stocks. I knew a little about a lot of things. Trouble is, I wasn’t making any money.
And then I did something which was to become the tipping point for me - I stopped trading everything. I closed every open position and hit the big red “reset” button.
I resolved to do NOTHING until I could define ONE chart and ONE strategy that I would master. Just one. If I could not get one strategy to work on one chart, then multiplying the complexity would not help.
And it worked. In no time I had settled on the SPX chart and the iron condor; this combination seemed to give me the best chance for success, and it wasn’t but six months later that I turned in my two-week notice. Once you really get behind something and go deep, I found that I had no choice but to burn my bridges and go solo.
So if you have already found your “one thing,” then how do you go about “earning the right” to ramp up your capital?
Something that I advise new members of the Daily Target 100 trading room is to start out with a simulated trading environment. Learn the MECHANICS of the trade; how to enter, how to defend, and how to exit. If you can’t get this to work in a sim environment, then wasting live money won’t help. Commit to perfect mechanics before you move on to live capital.
And when you go live, consider just trading one contract. Even if you have a larger account, and ESPECIALLY if you have a larger account. Create a business plan for yourself and identify performance metrics that you must meet before you increase position size.
Earn the right. Be methodical. Find your one thing and specialize in it. That’s the only way that I know of that actually works.
In your corner…Doc Severson
For a FREE 2 Week Trial of Doc's Daily Income Service, click here.