T2W Trading Community

If you can’t tell me your best up, then you shouldn’t be trading with cash in the markets. In order to measure anything, you need a measuring tool. As a trader, you should first set out to learn the most effective patterns and trading method. From here, you need to be able to assess what is a high probability setup and everything else. With my methods, the highest probability set up is called the perfect storm. If I see back to back perfect storm set ups fail, then it tells me this market is just not tradeable. We’ll either call it a day or trim our risk with much lighter size with the intention to call it quits on any further stop losses. It’s not our fault. The market just isn’t in the mood and we can’t fight it. Having the ability to realize this and the discipline to stop trading is the markings of a solid trader.

The only way to recover is by having a foundation to fall back on. Losing traders never took the time to build the foundation so they are constantly on borrowed time.

Building the Foundation
You might ask, what about the medium probability and the slightly high probability set up just before the low probability set up? That’s like being exposed to pink, yellow, purple and green when setting out to identify what black and white is. Anything less than the highest probability set up simply doesn’t matter. This is called tight filtering. This is what new traders need to do from day one. Filter only the best set ups. This is how you slowly build the foundation that you will need so that you don’t blow out your account. This foundation is what you fall back on any time you face a disaster or a slump. You start with the tightest filters first and based on market conditions, you may loosen them up to allow for more opportunities. The problem with new traders is they start with loose filters to begin with. When disaster strikes, they have no foundation of knowledge or experience to fall back on, they are in that proverbial minefield. This is where they cover their eyes and nervously walk straight forward…

This foundation is the only safety net that will keep you from plunging into the abyss. Therefore, the first thing a trader needs to do is learn some working methods to make them work, not make money. Failing to do this may result in some lucky wins in the beginning, but the market takes it all back and much more in the end.

Some will blow out their accounts much quicker than others.

Preservation of Confidence Levels
It’s kind of ironic how traders concern themselves with levels all day (support and resistance, profit and loss, margin, etc) but overlook the most significant level that affects their trading success, confidence. Confidence levels fluctuate with each trade. The degree of your gains or losses will naturally determine extent of the effect.

Trading is similar to Texas Hold’em poker in that most set ups are like most poker hands, they need to be thrown away. You should only be playing the best set ups and premium hands while actively throwing away the rest. As in poker and even at the casinos, the more you play (poker hands), the more you will lose. The more you trade, the more stop losses you will take. Every stop loss you take will subconsciously and consciously erode your confidence levels.

Confidence is having full trust in your own abilities. This trust must be earned slowly with steady small victories. These small victories add up. Small low risk trades allow you to be objective once again. With each small winning trade, you make a little money and simultaneously rebuild your confidence. Confidence is the key to this game. The world looks so much nicer through the eyes of confidence.

Don’t cross that subtle line between confidence and over confidence. This is called arrogance. Don’t mistake confidence with arrogance. Arrogance lets your guards down but makes you mentally rigid. Arrogance can RAPIDLY transform itself into desperation with just a series of losing trades and baboom… blow out. It happens very quickly! Afterwards, you will wonder how the hell you lost so much money so quickly after being profitable. It’s called arrogance, not the silent but the loud killer (as in loud screams and fists through the walls when all is said and done, doh).

How did it happen? You started off with profits on some high probability set ups. You managed the trades very well selling into the climax buyers. Your confidence levels were great and you were satisfied with your gains on the day. That’s the last thing you remember before the decapitation. What the hell happened? You fell victim to the silent assassin… boredom.

Boredom: The Silent Assassin
Effective profitable trading is boring. Why? Implementing tight filters for the best setups, by its very own nature will give you less (but the best) opportunities. You will spend the majority of the day in wait. If you are properly pacing, then you also know the first and last hour is where the best volume and action is. Therefore, you will most likely be doing nothing for 2/3rds of the day. Boredom will naturally set in. If you are profitable, the next enemy you will face is boredom. Trust me, this is a MAJOR enemy. Boredom slowly seeps in and takes over your trading.

Boredom can turn confidence into arrogance/over confidence. The trader will just trade a few ‘small’ trades here and there out of boredom. Just to ‘play’ around and keep it interesting. The first few stops don’t bother him too much, but, as these stops start to add it, he starts to notice his profits on the day eroding significantly. His ego kicks in. He wasn’t ‘supposed to lose’, so now he will add some more size just to make up the losses. When his losses start to grow, he adds more and more size on gamble trades. If he’s luck he’ll make back the losses but likely end up with the same profits as earlier when commission costs are taken into consideration. If he’s not lucky, then he will lose a big chunk of the account and set off the timer on the bomb.

Combat boredom by doing something active, other than trading. This is why having a ‘day job’ fits right into trading. The best way to combat boredom is to walk away. Cut the hard-wired connection between you and the markets. Get up and walk away from the computer screens. Take breaks!

End Your Day with a Green Trade or a Small Stop Loss
A trader with control has the ability to get up and leave the screens at any moment. He can call it quits abruptly. Emotionally, it can be tough to do, but your actions are all that matter. Remember that your action is required first, the emotions will adapt and follow. This is why you may feel crappy calling it a early day with a loss, but feel great for doing so the next day.

How may times have you stuck around a boring choppy day looking for just one more trade to bring your balance back to it’s highs and ended up losing all you profits by the end of the day?

You should always try to end your day on a positive note. Try to end your trading day with a small positive trade or a small stop loss. This will keep your confidence levels fresh and ready for the next day. I believe replenishing confidence levels comes from victories regardless of the size. This is an area where quantity matters more than quality. The more string of winners you collect, the stronger your confidence will be. Feed your confidence with small victories.

Good Enough
These are two words you should repeat daily. My scalp was ‘good enough’. My green on the day is ‘good enough’. My profits are ‘good enough’. These two words have an effect of diffusing pressure and loosening the grip. Pressure can easily build throughout the day and this train of thought can take the pressure off.

Bottom line, expect less and be pleasantly rewarded with more.

In a nutshell, to take yourself off ‘borrowed time’ and diffuse the ticking time bomb within, you must:
1) Never trade with desperate money

2) Expect less, get more- don’t set yourself up for failure with unreachable goals

3) Build a proper foundation based on solid methods - SLOWLY

4) Play only the fertile market environments

5) Stop trading for most of the day, stick to the first and last hour initially

6) Combat boredom by taking breaks away from the screens and do other things

7) Replenish confidence levels with small victories

8) Resist the urge to keep trading to make up losses if environment is infertile

9) Impose trading hiatus when you find yourself falling into the abyss

10) Be loose, not tight

As Sun Tzu put it “A skilled fighter puts himself in a position where defeat is impossible, yet never misses the opportunity to defeat the enemy”. As a trader, this is called being in cash. Embrace that beautiful defensive position whenever you are in doubt about a trade, the trading environment or your confidence levels. Take it slow and grind your way to the top. Good trading gang!

Please send any feedback or questions to jay@undergroundtrader.com