What trading advice would you give yourself?
If you could go back in time, and give trading wisdom to a younger, newbie trader version of yourself; what would you say?
We asked 150 traders to give us their top 3 day trading pearls of wisdom and it became a 90 minute stock trading mastermind meeting.
The following is an excerpt from a stock trading mastermind meeting we held in NYC in 2010. You can download the full 70 page e-book below.
Since I’m the one who got this started and asked everybody to do this, I thought I’d start out. If I could go back in time, what would I say to myself?
It was a few years ago. Let’s get the mastermind meeting started.
If I could go back in a DeLorean and talk to myself in my long hair back then, the first thing I’d tell myself is to focus first on building scenarios around trade expectations.
When I first started trading, a lot of it was, “When do I get in? Where do I get in?” A lot of people just traded off of one-minute charts. That enabled you to do quite a bit of scalping back then.
You never really looked for any bigger positions. It was really more capturing a quick profit and go to the next trade. Anything more than that was pretty much a mistake because you were just paid to get in and out and go to the next one.
This is right out of Reminiscences of a Stock Operator. Anybody who’s made any kind of bigger profits will tell you that the bigger moves are where the bigger money is. We’ll talk in a couple seconds about knowing what type of trader you are, but no matter what type you are, you have to know the scenario that it needs to look like before you get into the trade.
That leads to my next point, which I didn’t know when I first started day trading. It certainly wasn’t one of my focuses. If I focus on my trading expectations, that’s going to tell me how long I’m going to be in the trade before I get in the trade, not after I put the trade on and then hope something happens.
If I go over everything that we cover as Keystone traders and I say to myself, “The expectation right now is pretty high for follow–through,” before I get in the trade, or “The expectation is very low,” then I have that choice. Do I get into this trade if there’s not a lot available, or do I sit on the side and wait for it to become more available?
It has to be known, “What is the market giving me before I get in the trade?” Most traders don’t do that. They do the opposite. They have the sequence backward. They look for a spot to get in, and then they hope the entire stock market is on their side.
We teach order flow, which is very exciting. I know Mario points this out quite a bit. When the market actually does pick a direction during the day, our traders are very disciplined. Most traders stay on the right side of the market.
This backs up the point Erik made earlier. We’re ready. We just need a trend that lasts for more than 45 seconds. That’s really all we’re looking for right now.
It’s knowing what to expect before I put the trade on, and then what naturally comes from that is how long I actually expect to be in the position.
If I’m looking to book profits first, is it a momentum move and I’m not going to expect follow-through? Am I getting out just into the next wave, or am I going to use that next wave to add on that pause?
That would obviously mean that we have a bit of a bigger trend going on, an order flow as we call it. This is probably something that Erik does as well as anybody I’ve seen. He builds a core position, and then he’s constantly trading around that position.
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The two things I would tell myself if I could go back are obviously to know how to build a scenario based on a trade expectation and then based on that scenario, I’ll know whether I’m going to be scalping it, in for a shorter move and basically just taking whatever is available, or if I’ll go and build a bigger position if that’s available.
The next one is actually really important to know from the very beginning, it is understanding the significance of the price action difference between order flow and momentum. Sometimes we can lose focus on which one we’re actually trading.
If you’re focusing too much on Level 2 or individual candlesticks or just price fluctuations, then you should only be in the trade for a short period of time. That’s pretty much what our Premier guys are doing.
When you know that, you have to understand that order flow takes time to develop. The longer-type trades, you have to let develop. You can’t expect to make bigger money if every time it goes up or down a nickel; you’re jumping out of your seat.
Momentum is immediate. That requires quicker decisions. Neither one of them is the “right” way to trade. Obviously, a big thing we talk about is trading your personality. We have to ultimately figure out what your personality is.
There are two very different trade-management scenarios. If you know what the trade management is for that scenario before you put the trade on, trading actually will become stress free at that point. Then, as we talk about all the time, you’ll know what it’s supposed to look like.
If you know what it’s supposed to look like, you should know if it’s working as you expected or not. That will make getting out of a position very easy.
Building scenarios and then knowing if you’re trading momentum or order flow are two of the biggest things that I’d talk to myself about.
The very last thing is understanding the difference between a reversal in order flow and a reversal in momentum. Order flow takes a long time to reverse, it doesn’t reverse in one quick move, but momentum can.
If I’m trading longer term, my trades will be a lot longer and probably with a lot less share size because I want to build a position. If I know I’m only going to be in for a reversal move, it’s probably more shares for smaller moves.
Really developing that scenario and understanding if I’m trading a quicker trade and why, or a longer-term trade and why, are the two things I wish I would have known back in the day and I’m glad I know now.