Getting Organized…

Getting Organized – Are you a serious trader?

 

Trading is a business.  Well at least it is for a professional.  But not all people who trade the markets treat it as a business.  Do you want to know if you’re a serious trader?  Well here’s a simple litmus test.  Can you tell me the entry date, price, size, total profit and loss, exit date and the reason behind why you made your last five trades?  If the answer is no then you have a lot of room for improvement in getting organized.

 

I have coached hundreds of students over the past few years and one constant remains.  The students I work with who keep good records do better on average than those who don’t.  Record keeping can include many different areas.  Those range from tracking your equity curve month to month, writing out your trading rules, and keeping a trading plan for each and every trade you enter.   

 

Discipline is absolutely required if you expect to do well in the markets.  Intelligence, education, common sense and a good approach help too.  But you must be disciplined.  In fact, if you’ll stay disciplined and out last the initial learning curve, you’re destined to succeed. 

 

Let’s define discipline the following way: it is disciplined trading if you’re not trading emotionally, not over leveraging or trading against your trading system.  The first step is to create a trading plan, write it down and follow it.  The old adage of plan your trade and trade your plan fits perfectly here.  So what information do you need to keep?  And where do you keep these records?

 

Let’s deal with where first.  I prefer to keep my records on my computer in a spreadsheet.  It is easy to enter and keep organized.  You can keep them in a notebook as well but if you do I’d recommend that you get a notebook that you set aside and only use for this purpose. 

 

Some traders like to keep their records in the trading software they use or their brokerage account.  You can make that work but one quick comment:  being able to go back and look at your trade fills and executions is not the same as keeping a trading journal and writing out a trading plan for each trade.  There are very real differences.  First, it takes time to track down the old trades and figure out when and where you made the trade.  Second, even when you do find them you may not remember the details of the trade and why you made it.  Lastly, it just screams of laziness. 

 

Once you decide where to keep the records the following information will be needed.  Now this is a model and you can keep other information as well.  But these are the basic components of each trade log.

 

1. Trade Number 
2. Entry Date 
3. Long or Short
4. Ticker
5. Size
6. Entry Price (including commissions)
7. Total Cost Basis (the price multiplied by the size of the trade adding in commissions).
8. Stop loss/Risk management plan
9. Trade target.  What is your goal in profit, pattern or underlying security price?  How are you going to manage the trade as it moves?
10. Pattern of the stock.  Basic technical characteristics.  This is kept for your own benefit so that when looking back in review you’ll remember some of the things you were looking at.
11. Reasoning behind the trade.  Why did you enter the trade?
12. Exit Date
13. Exit Price
14. Total Gain or Loss
15. Final Analysis.  Did you execute the trade based on your trading rules?  Did you learn anything from this trade?

 

Now you can retool this list to fit your personality and trading system.  For example, if you’re an options spread trader you may want to include columns including maximum risk, margin requirements and such.  But the basic framework above will work for most traders.

 

The most important thing to remember is that you’re putting in this work for your own benefit.  Learning from our mistakes is vital.  To be able to assess where we are making mistakes we need to log down our decisions. 

 

When you enter the trade you’ll need to do some initial record keeping as you have seen above.  But two of the most important things to write out are where you’re going to exit on profits or losses.  This doesn’t have to be a specific decimal point but you better have a pretty good idea of what you expect to happen in the position.  Stops and targets are two very important parts of the trading plan so we’ll discuss them in depth.

 

A stop loss is an order that you place with your broker that tells the broker when to exit your position.  Stop losses can be set on any instrument and traders traditionally use them to mitigate risk.  They are really important in a trading system.  Some traders tend to set a mental stop, write one down on paper or in their trading log.  This can work, but for most (especially those who won’t be watching the market) you’ll need to learn to place a stop on your trade through your broker.

 

Placing a stop loss is one way to mitigate risk as it gets you out before more losses occur.  It’s not the only way.  You also can control your risk through your position size, strategy selection and using vehicles like options and futures creatively to create hedges.  If you’re new, you’ll want to focus on stops and position size. 

 

If you decide not to set a stop you still need to write down in your trading log where you will exit the trade if it goes against you.  In my experience, the types of trades that hurt accounts are when a trader refuses to sell it on a loss.  The best advice I’ve ever been given in trading is to cut your losses short and let your profits run.  Good trading requires that you sell losing trades.  You can’t just hold them and hope for the best.  Hope is a wonderful thing.  It is not a trading plan.

 

Targets are set to have some picture of where we want to get out of the trades on profits.  Now, you won’t want to run away from successful trades.  Letting your profits run and develop is a very smart thing to do.  It will be important that through your education you learn the signals to watch for as to when to get out.  Setting an initial target is just a starting point that can and will be adjusted as the trade develops. 

 

And finally, remember that keeping records and organization will help you become a better trader.  It’s a sign of professionalism and keeps us focused on the task at hand.  And that’s the bottom line.

Get Busy…

Get busy!

 

As I’ve been working with traders over the year’s one of the major obstacles to success is the one that lies in all of us:  Procrastination (and yes with a capital P).  We all have it.  It’s actually part of being human.  What I’m going to discuss is how to overcome it through something so simple that anyone can do it.  It’s called accountability.  And you are the one that’s going to hold yourself to it.

 

The very first thing you need to do is answer the following question: What type of trader do you want to become?  No, I’m not asking whether or not you play bullish or bearish strategies, what kinds of options plays you prefer or even if you are going to be a swing or position trader.  The question could be simplified down to the following: Do you want to be a winner in the markets or another one of the lemmings? 

 

Winning traders work for their success.  They keep good records and they develop a system that makes sense and works for them.  Lemmings follow the crowd and end up like the rest.  Their winning and losing is determined by the market and not their own actions.  Don’t become a lemming.  Be a winner.

 

You see, it’s important that you understand the next sentence.  Winning trading doesn’t happen without work.  Anything in life worth doing needs to be done well.  Including your trading business.  You need to think of it that way.  Trading is a business.  A business where making money is and should be the bottom line. 

 

This doesn’t mean that you have to trade all day long and have it take over your life.  In my experience, winning trading can be accomplished through a short time each day.  Think of it like your workout routine.  To stay in shape you don’t need to be at the gym from sun up to sundown.  You simply need to workout and do it on a regular basis.  It’s the same with trading.   

 

Don’t get me wrong, I love the markets.  I have a blast with them.  I love the give and take between bulls and bears.  I could watch traders argue over direction for hours.  It’s a lot of fun. But the fun should be a bonus.  Fun is something extra that can’t get in the way of our primary focus:  Money.  As Michael Douglas said is the movie Wall Street “greed is good.”  To make money in the market you need to keep your focus.

 

I’ve been saying for as long as people will listen that trading is mostly common sense.  Always trade ideas and strategies that make sense to you.  But even before success and failure can be discussed through charting, fundamentals and trading systems many traders fail to take their very first step correctly. 

 

The first step to success is to commit to a regular schedule and keep it.  If you don’t already have one, go out and buy an appointment book.  It can be very small and basic as long as it’s something where you write down anything that you have scheduled.  You have to make an appointment with your trading.

 

My suggestion is this: set aside 30 minutes to 1 hour a day that you schedule in the time to trade.  It is much easier to do this if you schedule this at the same time each day.  Many new traders try to do everything at night.  After the kids have gone to bed and the house is quiet.  It can be a great time if you can make it work, but in my experience it doesn’t work as planned.  Family dinner, your favorite TV show, simply being tired from a long day…..these are just a few of the things that can and will get in your way. 

 

I’ve found that morning is the best time to schedule your trading.  There are many reasons.  In the US, either before or as the stock markets are opening, the Asian markets have closed for the night, the European markets are getting ready to close.  The collective trading community has the ability to react to anything that has transpired.  Also, government reports on the economy are almost all released in the morning before 10:00 AM.  Simply put, there’s a lot more action in the stock market and a lot more news to consider in the morning.

 

Whatever time of day you decide on, you need to commit to this schedule.  It can’t be something you break.  Lemmings break appointments, make excuses and have good intentions.  Winners just go out and work hard for their success.  Remember, you are not a lemming.  You are a winner.

 

During that time each day you need to focus.  Don’t waste time watching trading shows on TV or casually flipping through a newspapers finance section.  Get the news that’s important, do any upkeep on the trades your in and place your new trades.  Studying, playing with your software, even research should not be done at this time.  Stay focused and run your business.

 

If you can commit to and keep a regular appointment with your trading you have taken the first step towards success in the markets.  Experience, education and brains are all important to becoming the master trader.  But to get there you need to start with a professional’s attitude.

 

When I was a kid my dad made me work.  He was trying to teach me the lesson all fathers should.  That good work ethic is an essential component to accomplishment.  He was constantly saying…”I don’t expect you to work fast, just stay busy.”  That advice has been embedded in my mind and that’s what I advise to all traders.  Stay unemotional, be professional, businesslike, consistent and most of all just stay busy.