Meet Jack

I want to introduce you to my friend, Jack.

I’ve known Jack for quite some time. We met several years ago, when we were both very new to trading. We had the same style of trading for the first year or so, but as time passed, our methods changed, and we went our separate ways.

A few weeks ago, we got together and talked about our trading strategies. He has been trading decently well, and made a healthy $50k in 2014. Nothing amazing, but nothing to be ashamed of. He was proficient in just about every style of trading: buying and swinging beat down charts, shorting parabolics intraday and overextended daily charts, trading options, playing earnings, and doing some long term investing, such as buying a basket of small caps each year hoping one pays off big. He wouldn't say he is extremely well-versed in any of these styles, but he understands them well enough to make a little money with each.

He explained to me that each weekend, he has a list of tickers in EACH style of trading that he reviews, and makes a trade plan for each one on the list. So, 4 or 5 beat down daily charts, 4 or 5 parabolic daily charts to short, and so on. He said he works for 8-10 hours per weekend making these watchlists, and even then he doesn't feel prepared. There are so many to watch and keep track of, he said, that his mind can't keep up, and he feels exhausted each day because his brain has to switch gears constantly between the strategies. But he puts up with the exhaustion because he knows that in the end, he will still make money. Maybe not $1M a year, but enough to pay the bills.

He then went on to explain his trading strategy within each skill set. He said that he usually has 4 or 5 setups every day for each category, such as parabolic charts to short. He can always identify which one is the best opportunity, and sometimes he thinks to himself, ‘Maybe I should only focus on that one play.’ But instead, he plays each of those 4 or 5 setups with the same size, and devotes equal mental energy to each, afraid of missing a play. He admits that at the end of the day he almost always feels mentally drained, because he invariably has 4 or 5 charts up at the same time, and keeping track of each position is very stressful, especially when not all of them are in the green. But he puts up with the exhaustion because he knows that in the end, he will still make money. Maybe not $10k a day, but enough to pay the bills.

He then went on to explain his intraday trading strategy. He said that when there are parabolic daily charts that he knows he wants to short, he will scalp them for every single move they've got. Why not milk it for everything it's got, right? At the end of each day that those setups occur, he said he usually has between 50-200 tickets with his broker. He is mentally exhausted, his eyes are strained, and he has a headache from staring at every tick the entire day. It's very stressful to be scalping a stock all day! But he puts up with the exhaustion because he knows that in the end, he will still make money. Maybe not $10k a day, but enough to pay the bills

Every day Jack is burned out and doesn't have enough energy to do anything except lay down on the couch and eat some greasy potato chips. But he doesn't care!!! He makes a decent salary each year, remember!? He has to live up to what his name destined him to be: the Jack of All Trades, Master of NONE.

After respectfully listening to his story, I told him my style of trading.

Every night before the next day in the markets, I spend anywhere from 15 minutes to 3 hours scanning and researching tickers. But I don't give a pig’s snout about trying to scan and research the next stock to be a big earnings winner. I don't care about trying to nail the bounce on some bottoming chart. Why not? Because I am not comfortable with that trading style, and I have found my niche. Sure, I could probably become proficient in any of those styles of trading if I put in the effort. But would I love and enjoy it as much as I do my current trading style? Definitely not. I focus on my niche setups only. And once I narrow them down from my scans (as I wrote about HERE), I evaluate which I have the most conviction with. There aren't trades like VGGL every day. But when there are, I size the hell in. By focusing on one style of trading and really learning everything about it, I can build the conviction I need to feel comfortable holding a larger-than-normal position for me (and make MORE than just “enough to pay the bills”).

(I'm not saying trying to nail the bounce of a bottoming daily chart is a bad style of trading and you can't make that your niche. I'm saying that its not for me. Would I be able to constantly push myself to the next level and make $1M a year trading those setups? For me personally, the answer is no.)

I focus on 1 or 2 main plays a day for scalping or "swinging" intraday, and 1 or 2 plays in my swing account that do not need to be monitored constantly. The swings don't take up very much mental energy; I just check the 15-minute charts a few times a day to make sure they aren't doing anything crazy. Of the 1 or 2 stocks I am day-trading, I typically let them play out for at least 10-15 minutes into the open. Could I make money scalping those first few minutes? Sure, probably, but it's not worth my mental energy. I don't want to catch every single minuscule move on a stock just to make a quick buck. I want to take a chunk out of the stock, not just a .02 scalp on FB or TWTR. I don't need to milk every single move a stock makes. I only need to take the ones that I have strong conviction in, and can size the hell in. And I can still make more than Jack makes trying to scalp the same stock all day.

Just about every day, I get to walk away from my computer with plenty of mental energy, satisfied with my trading, and not stressing about how I missed a big move in a stock. This is a big problem that I noticed when I was struggling trading, and with a lot of newer traders. People constantly complain about how they missed a big move in a stock, or covered too early/sold too soon. This is unhealthy for your mindset and makes you feel bad about yourself, which then makes it much harder to feel confident in your next trade or next trading day. At first I just tricked my brain into enjoying missing moves on a stock. Always feel confident in every move you make. If it keeps tanking, just think of all the stupid chasers who are long and losing their ass. Think of something that can get your mind off of the negativity you feel about yourself for missing. Sometimes if I am waiting for the next pop on a stock to get short, but instead it just takes another leg down without me, I literally get up that moment and walk out of the room. Then I’ll take some deep breaths, gaze out of the window, and clear my mind. Then when I sit back down at my computer, I feel centered and not upset for missing a play.

Jack ended every day drained, so he had no energy left to motivate himself to push to the next level in trading. He was stuck in the mud, complacent, which is a very bad thing in trading regardless of whether or not you’re profitable. I want to conserve my energy, trade less stocks, and always have enough energy to do whatever I want the rest of the day. I always have more to learn, and have the energy to push myself to the next level in trading. I'm not a slave to my computer and the stocks I trade. I own them, they do not own me.

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I was inspired to write this story because of the problem I used to have and the problem I see many others going through right now. In my opinion, you will never make it in trading if you don't have a niche. And you will never make it if you are obsessed with trying to be in every single move of every single stock, every single day. This causes a ridiculous amount of unnecessary stress internally. It's of the utmost importance to have control over your emotions and mental energy before you can expect yourself to be a consistent trader. I don't touch setups I don't have extreme conviction and confidence in. They are a complete and utter waste of my time, money, and mental energy. I leave those setups to the vultures.

   But, what does "make it" mean to me? Jack has never made it. Sure he makes $50k a year, but the money doesn't matter. I want to have no limit to how far I can go, no matter what I do. I always want enough energy to keep pushing and get myself to the next step on the endless staircase of life. Have I made it? No. I still have a long way to go and a near-infinite amount of knowledge left to absorb. But I can feel confident and successful each and every day, and not worry about missing the next big piker convention in town.

No matter how many chart patterns you've studied, books you’ve read, or styles of trading you are proficient in, the first thing one must master is the emotions.

Other food for thought:

Whenever I have a GREAT day/week/month or rather when I feel that I have had a great day/week/month, I look back at my trades and find all the places where I can improve. Yes I did well, but I always tell myself I can do better, because I can! There is no limit to how well a trade can go or how much you can make, so there will always be a way to critique yourself. The point here is, humble yourself before the market does it for you. Every time I feel on top of the world and my trading is going extremely well, I start to get cautious. Although I will still be aggressive and push size, I will not let the ego-boost get to my head and cause me to be irrationally stubborn and let a trade go far against me and break my rules for no reason. Many times, traders will have a huge win, then the next trade they have a sloppy entry and play more size than normal for the sole reason that they nailed the last trade, so they can risk their profits. It is a big mistake to think like this.

Thanks

Nikkos (IU: Nikkorico)

P.S.

Future Blog Post Ideas

-My thoughts on fundamental vs. technical trading

-How I pushed myself to the next level (playing larger size and feeling comfortable)

If you have suggestions/ideas you would like me to talk about in future blog posts, let me know in the comment section below! I can’t guarantee I will write a blog on all of them but I will certainly try to.