Big Mike's Trading Blog

Day trading futures, discussing money management and trade management techniques, and more

Trading Psychology and How The Mind Works, Part I

A friend and fellow trader, George, has written some excellent articles on How The Mind Works in relation to Trading Psychology.  With his permission, I will be sharing his work on this blog over the next few days.

I cannot stress enough the importance of Psychology and Money Management, and George has been a great inspiration for me in this area.  He is the Moderator of the Psychology and Money Management forum and I strongly encourage you to come and join the discussion, you have nothing to lose and everything to gain!

I'm speaking from experience when I say that indicators are not the holy grail, you are -- meaning the holy grail lies within yourself and not on a chart, you just need to find it.  George's teachings will help you find it.

First, some background information on George, in his own words:
I started trading 10 years ago. I've been trading almost everything that anyone can trade. From stocks to turbo warrants. They all have one thing in common, as Jesse Livermore put it "The market has always, been the same and it's always gone be the same; The only thing that changes are the actors, and they lack the memory".

I've blown up at least 5 accounts. Man, that felt good saying it Before I was ashamed of saying it. After all we live in a competitive, goal oriented society. Failure is not getting you any bonus points.

I started to be profitable when I understood that there's more to trading than just a chart, and a lot of trading techniques. When I got tired of blowing up accounts, actually that happened after 2 or 3, I understood that there's another way to approach all of this. I discovered the brain. We all have one, above our shoulders, but we don't really care about how it functions.

I believe that evolution always takes place when we understand that, instead of fighting each other, help one another, and collaborate.

And without further ado, here is his first article:

Default Trading Psychology and How The Mind Works (I)

I'm going to write a series of articles that will treat how the mind works and it's connection to trading.

How does the mind work? We all have one, but how aware of it's functions are we? How come a desired change, only takes place when it's a matter of life and death. How come you always worship all those people that have the proper discipline, in order to succeed with all they put in their minds?  How come you're never nice to yourself, if you were to observe yourself and hear your own thoughts outside of yourself?

Big questions and the answers seems so far away! But it's actually quite easy to figure it out, when you understand how the mind works!

Let's start by dividing the mind into three sections. They are the inner subconscious mind, the subconscious mind and the conscious mind.  We're not going to treat the inner subconscious mind, because it's function is to run your organs automatically.

The conscious mind is divided into four sub sections. They are:
1. The Rational Mind
2. The Analytical Mind
3. Will Power
4. Temporary Memory

The Rational Mind's function is to give you reason. That's where all your reasons lie, in that mind. It's actually pretty simple to understand. Whatever you do in your life, you do it because of a reason. If we are to be lacking reason for the things we do, we end up in mental hospitals. Well, most of us don't get that far, we simply stop doing those things.

The Analytical Mind is the mind that's analyzing things for you. You think that a lot of the things you do in life, are done without thinking. But that's never true. Whenever you tie your shoes, or whenever you open a door. That's your analytical mind, analyzing things for you. Should I open it or not? And so on!

Will Power, is the big, big bad guy. You're probably thinking that's where all your investments should be. Stop blaming yourself. It's not helping you with whatever you want to change, improve or do what's so ever. Simply because it's temporary. How many of you guys have tried to stop smoking, and managed to do it for a couple of days, in order to throw in the towel later. It's not your fault. It's built that way. It's just temporary.

Temporary Memory, is the memory you're using on a daily basis, in order to remember things that's making your life easier. Like, where your address is and stuff like that. That memory is not big and it's not going far back. That's why, If I ask you if you remember what you did when your were three years old, you'll not be able to tell me about it.

That's how the conscious mind works. On a daily basis we spend about 1-5% in the conscious mind. The rest is spent in the subconscious mind.  The conscious mind perceives about 40 bits of information per second. The subconscious mind about 40 million.

In the next article I'll explain how the subconscious mind works.

Take care all you guys out there and may the Trend Gods be with you!


To be continued...

Importance of having multiple time frames/charts

In this video I talk about why I believe it is crucially important to have more than just one time frame up on your chart. There are several types of charts: minute, range, tick, volume, renko --- use them to your advantage! Each has a unique benefit, so combine the right kinds of charts together, and the right time frames (length), to give you a complete picture!

Download HD full-screen MP4 video


Consider creating a Journal of your trades in our forum

My main purpose in starting my blog was to hold myself accountable. I knew that by doing so my trading would improve, because I finally made the huge revelation that I (my brain) was holding back my own profitability for one simple reason. I wasn't being honest with myself. I was constantly making excuses as to why something didn't work.

It was absolutely crucial my trading improve, so I decided to leap forward right to the edge -- and start my blog and start putting everything out there for public consumption and public accountability.

Almost immediately, I found the blog to drastically improve all of my weakest areas of trading -- the mental side of things that were previously holding me back.

The community was very receptive to my blog, so I started the forum. The main purpose of the forum was to give back to others, and give them the tools and the avenue to make similar revelations in their own trading.

So, why start a journal here in the forum?

- Opportunity to be honest with yourself
- Reflect upon what worked, and what didn't
- Improve your trading, take it to the next level

What not to be afraid of:

- People questioning you
- Someone thinking your dumb, or your trades are dumb
- Your charts won't make sense to others
- The instrument you trade isn't popular in the forum

The journal is to help the person posting it (that would be you). Sure, viewers and outsiders looking in can benefit, but the best way they could REALLY benefit would be to start their own journal. You can't be a successful trader by simply copying what others are doing.

I hope to see more of you creating your own journals here on the site and updating them on a regular basis. Your journal can be as detailed or summarized as you wish, it is up to you. I suggest you briefly describe your entries, then post charts showing the days activity. You can go further if you wish by posting Profit and Loss reports. It is entirely up to you.

You can access the forum here:

Hope to see you there!


NinjaTrader 7 delayed, again, and again...

This was expected.

Now it looks like it will be 2010 before NT7 is out of beta.

From Ray (CEO of NT), original here:

Dear NinjaTrader Users and Partners:

I want to start this note by first thanking you for being so passionate about your use of NinjaTrader. NinjaTrader has grown substantially in the last 5 years and a large part of our growth has come from the fervent grass roots support we get from you our valued clients and partners. The passion you have shown is shared by the entire NinjaTrader team and has driven us to continually improve and expand NinjaTrader’s functionality from an innovative order entry application I created in 2003 to the complete end-to-end trading platform you see today.

With past major releases, we have done a reasonable job with setting schedules, communicating information and meeting delivery dates but specific to NinjaTrader 7 (NT7) we have not executed at a level neither you nor I would expect and that is why I am writing today. It is accurate to say that we significantly underestimated the engineering effort behind NT7 while simultaneously failing to communicate any information to you.

I know many of you are upset with our lack of communication relative to the progress and details of NT7. One main reason for this is we did not want to provide a list of prospective features and enhancements to later pull these items due to either technical issues or time to market considerations. We have learned from this experience and realize going forward we must and will do a better job at keeping you informed. The rest of this note will focus on the current status of NT7.

NinjaTrader 7 is our most ambitious project to date and regrettably the beta version will not be released at the end of this month as we previously stated. We had a plan that may have allowed us to get there but in the end I made a decision that it should not be released since the product is just not ready. I realize this will be an unpopular decision for some but it will ultimately result in a better product once released.

Going forward we are going to take a new approach in communicating our NT7 development progress to the user community. Along with this note you will also see a link to “NT7 Features and Development Status” that outlines what we have been working on with NT7. We are targeting a beta release by the end of September followed by a several month beta phase which historically ranged between two to three months.

We are still extremely excited about this release and are working day and night to get it finished and into your hands. I respectfully ask for your ongoing patience as we continue work and my pledge to you is that I will provide frequent updates at the link below until released.

Raymond Deux
President & CEO

Murrey Math in more detail

I wrote an article on the forum yesterday giving a lot more specifics about Murrey Math.  I hope you will check it out and discuss it with us:

The forum has attachments for the indicators and powerpoints, but I wanted to briefly touch on some of what I said in the forum here in the blog.

I know many of you had not heard of Murrey Math Lines (MML) prior to reading my blog or this forum. I must also admit I only recently discovered it, so we will all learn together!

From my blog you probably know I am not a fan of pivot points or fibonacci numbers, simply because I think there are too many of them and they end up covering your entire chart. You can find a reason to trade/not trade every few ticks it seems. I know that many traders are extremely successful using these methods, and that goes to my next point.

Successful trading is all about confidence. If you have confidence in pivot points and fib retracements, then you can make them work. If you have confidence in Murrey Math Lines, you can make them work. I believe this is mostly true of any system. It's when your confidence starts to falter, for instance due to holes in the method, that trouble arises.

So, let's get back on topic and discuss Murrey Math Lines!

First, it's a good idea to memorize what each MML represents.

This graphic illustrates the following:
8/8: Hardest line to rise above (overbought)
7/8: Fast reverse line (weak)
6/8: Pivot reverse line
5/8: Upper trading range
4/8: Major reversal line
3/8: Lower trading range
2/8: Pivot reverse line
1/8: Fast reverse line (weak)
0/8: Hardest line to fall below (oversold)

Price is between 3/8 and 5/8 MML's about 43% of the time.

Here is another graphic illustrating the buy/sell options:

As you start observing the interaction between price and MML's, you'll start to notice some patterns. Take a look at these:


What this is showing us is that many times, if price is above the 5/8 line and falling, it will generally stop and consolidate around 5/8 first before heading lower. The same is true in the opposite direction: if price is below the 3/8 line and rising, it will generally stop and consolidate around the 3/8 line before heading higher.

On top of that, if price is between the 5/8 line and 6/8 line and heading higher, the tendency is to bounce off/reverse off the 6/8 line and retest 5/8 before heading higher. The same is true for shorts, if price is between the 3/8 line and 2/8 line and heading lower, it tends to bounce off the 2/8 line and retest 3/8 before heading lower.

Why does price do this? Remember, price is between the 3/8 and 5/8 line about 43% of the time. So before it jumps outside of its comfort zone, it needs to be sure (hence the retest).

Now let's take a quick look at what happens when price moves above 8/8 or below 0/8. This does not occur too often, but when it does it's important to know what to expect.

The above illustration tells us the following: If price moves above 8/8, 75% of the time the price will reverse off the +1/8 line and retest 8/8 before moving higher to +2/8. Similarly, if price falls below 0/8, 75% of the time the price will reverse off the -1/8 line and retest 0/8 before moving lower to -2/8.

Now, if price moves beyond the +1/8 or -1/8 lines, then 95% of the time it will reverse when it hits +2/8 or -2/8. Remember, the market was already in overbought (8/8) or oversold (0/8) mode, so once we push that to the extreme (+2/8 or -2/8) it is extremely unlikely (95% chance) to reverse.

Check out this illustration to see it demonstrated:


I hope this has been a helpful exercise in better understanding Murrey Math Lines!


Blogger having some problems

Just a short note, if you've had trouble reaching my blog, it's because Blogger has been having a lot of problems with custom domain redirects.

The best thing to do is update your bookmarks to point directly to the blog's custom address of as opposed to the older (and temporarily not working)


Brief illustration of Murrey Math

It's been a while since I made a video, so I wanted to take a moment and change that. The forum has kept me busy lately!

This short video just shows some ZN 09-09 (10 year note) price action against Murrey Math Lines.  I'm now a subscriber with EOT (End of Trend) trading and have found their version of the MML is quite nice, although I've already asked Richard to make a couple of "enhancements".  Hope he will :)

You can find more about Murrey Math on the forum.

Download HD full-screen MP4 video


Trading the bigger picture: Scalper Edition

First, know that I'm a scalper. I just want somewhere between many ticks and a few points on each trade. With one contract, something like $50-100 per trade is fine. Then I throw more contracts at a winning strategy to hit my daily goals.

For a very long time, I struggled with looking at the bigger picture. Others were telling me I needed to look at 500 minute charts, 30 minute charts, whatever. Sure I could see huge trend over the course of days, but it was in the past and I couldn't find a way to apply what these charts were showing me. After all, I just need 1 point on my trade, not 10 or 20.

I spent all my energy and resources trying to develop the perfect chart. Just one chart, a small time frame (because I am a scalper). In the end, what happened could be explained very easily: Mixed signals/indicators didn't agree with each other.

That is because in order to try and account for every market condition (ie: pull backs, reversals, fake outs, chop, etc), there is no way to make all of this jive on one signal chart. So you end up with some really fast moving indicators, to try and get you in quick at the beginning of a move, and you have slow indicators that tell you if it was a fake out, etc.

It never worked for me.

Well, after a lot of time and lost money, I finally came around to understanding the advantages of looking at the bigger picture. I use three charts: small, medium, big. Let's take the ES as an example, since that is what most people here trade.

Big chart
Size: 10946 volume.
Purpose: Big picture trend.

The big chart shows me today's overall trend. The entire day fits on one screen. I don't care about yesterday or day before. Many people do, but not me. The big chart shows me major trend direction and strong S/R levels. You literally don't need a single indicator on it, although I use a couple just because I'm a visual person.

Medium chart
Size: 4181 volume.
Purpose: Identify reversals.

The medium chart is almost good enough to trade off of. It shows me a more up-close and personal look at the market -- more detail. This chart has just a few indicators on it that help me visualize when a reversal has formed or failed.

Small chart
Size: 2584 volume, or 3/4 range. (subjective)
Purpose: Timing your entry.

The small chart is what I use to decide the exact moment and price to enter a trade. That's it. I really don't use it to time an exit, because I'm a scalper.

Now lets put everything together.

1. Identify the big trend. You can use a variety of indicators to help you visualize this. I'm really liking EOT's Allas Average, but you can use a big MACD too. I only trade in the direction of trend, never counter-trend. Sure, you can miss a lot of trades with this. Who cares? Are you trading to trade, or are you trading to make money?

2. Wait for a failure of whatever the opposite of trend is. If big picture trend says long, then wait for a short to form and then fail. Look at the medium chart to determine the extent of the failure (tiny failure, big failure) and you'll be able to determine if this is a good time to start looking for entry.

3. Turn to your small entry chart. Look for the best time to get in. I never like to catch the tops or bottoms of trades, so this is usually on the first bar that closes in the right direction for me.

Simple as that. Trading became a lot easier once I started using this method over the "one chart does all" method. I think everyone should find what works for them, and use it. If you are still looking for that, then consider this approach and adapt it to your own style.

I've said many times before that one of the most important aspects of trading is having confidence. I believe that confidence is best established by coming up with your own strategy and rules instead of copying someone else. So study what works for others, and adapt it, don't just copy it.

If you've read this entire post and are sitting here saying that it isn't easy to see the big picture trend, then the only thing that is going to really help is experience. In the beginning, I couldn't "see" it either. I do have to admit, using the EOT Allas Avg makes things easier to see. Most indicators are just lagging price, but if you are a visual person (like me) then there are some that can provide something of benefit. Keep toying with them on historical charts until you can confidently say you have something that properly identifies big trend. Don't trade the big chart, unless you can stomach huge stops (I can't).

Big picture

Medium picture (1 of 2)
Medium picture (2 of 2)

Hope this helps!


Forum back up

Hey guys, the forum is now back up.  Sorry for the trouble!

The blog will now return to regularly scheduled programming, including trading related posts!


Forum temporarily down

The forum was so incredibly popular that we immediately exceeded our CPU limits and script allowances.

I tried to plead with the host but they have "severely restricted" access to the forum as of a few minutes ago. (it is down for me, blank page).

I already started securing a new dedicated box, but it will take me more time to migrate everyone over.

So I ask for your patience. The forum is NOT dead and it WILL be back as quickly as I can make it... it just exceeded my expectations with regards to resources, and I didn't select a proper host the first time around.

UPDATE: Was able to send a mass email letting all registered members know that we'll be back soon.

This graph shows how we were blowing through their limits. I knew it almost immediately but it took me a couple days to negotiate with a new host over money.  Below you can see we're allow 12,000 script executions per 24 hour rolling average.  We were using over 43,000 an HOUR (43,000 * 24 = 1 million a day, when allowed 12,000).


Forum is now online

It's brand new so expect some bugs and not a lot of content... but, I really like the possibilities and the blog readers have responded very well to it, so I'm making the link available to everyone now.

We are a small community of traders with one goal: making money.

This forum was put in place to help fellow traders reach that goal by openly sharing techniques, strategies, and trading plans. Sure we have indicators and files to download, but those are far less important if your goal is making money.

You'll need to register in order to view the content of the threads and start contributing to our community. It's free and simple.

Our forum is not designed to compete with the big boys like Elite Trader. That isn't what we're trying to do. I've learned more from blog readers in our chat box in a week than I learned over at Elite Trader in a year.

So if you are ready to share your ideas and learn from others, I welcome you into our small community.


Site enhancements, forum coming

The response to my blog has been overwhelming.  In less than 60 days it has grown into a nice community receiving nearly 1,000 hits a day.

I know alot of you have requested the ability to more easily share ideas, pictures, chart templates, Ninja files, etc.  So, I wanted to let you know that I am going to setup a forum on the site.  The forum will allow us to organize our thoughts and files, it should help quite a bit.

But, what I really want is to build a community with a purpose.  I've learned a lot from the users of my blog, and I hope that you've learned from me as well as from each other.  In that spirit, I want to advance this cooperation to the next level.

My thoughts are to create the ability for us to work as a group on a community project where our goal is mutually beneficial.  Whether it be developing indicators or mechanical and automated systems, I think the community has the talent and ideas to pull this off.

Our forum is not going to compete with the Ninja forums or Forex Factory or Traders Lab.  Our forum will have a very different objective.

More to come -- but in the mean time, please leave your comments or contact me with your specific ideas on how to take this to the next level.


Defensive Trading

Remember, the #1 goal of each trade is to not lose money. By protecting yourself from loses, the winners will come.

Defensive Trading is all about this type of planning and discipline. Just like when you are out driving your car you have to be on the defensive, the same is true of trading. For instance, when you are the first in line at an intersection and the light turns from red to green, you should always look to make sure the other cars have stopped. If you do this every time then your chances of pulling out and being hit by another driver are reduced.

You can apply similar principles to trading. When you take a position, you should know your exits. It's like knowing your blind spots. If something bad starts to happen, you'll know how to get out. You need to make those decisions in split-second timing, just like with driving, because any delay could cause a major accident or with trading, major losses.

Here is a short list of defensive trading techniques:
  • Always know ahead of time at what point you'll exit a trade.
As you take a position you should already know what your exit signal will be, whether it be based on a lower close, or based on a dip in volume, a moving average cross, whatever works for you. The point is to plan ahead, and then trust that decision and follow it instinctively in real-time.

  • Don't jump from trade to trade trying to find the trend.
How many times have you changed lanes on the freeway while in traffic, only to find that your new lane stops and the lane you just came from is now the one moving. The same is true of trading, you need to step back and look at a bigger picture to follow the trend, think of it as viewing the highway from a helicopter instead of from your vehicle.

  • Trust your gut.
That brain of yours was given to you for a reason. If you get a bad feeling while in a trade, then get out. How many times have you entered a trade, got a sick feeling about it, and then started hoping it would turn around as it moves further and further against you. Ok, now how many times have you got that sick feeling and then it turned around and you made money? That's what I thought. Defensive Trading is about minimizing exposure and risk. If you have a bad feeling, then get out!

  • Look for high probability trades.
When you are stuck in traffic and need to get home soon, you think about your route and your options and weigh them. Trading should be treated the same way. You don't just start randomly taking streets you aren't familar with in the hopes one of them will lead to your driveway. No, you look for streets that you know work. Same with trading -- look for setups that you know work.


Poll results: Which NinjaTrader license?

Here are the results from the last poll:

It looks like the majority of people own a lifetime license of NinjaTrader. From there the rest of you are leechers using the free edition or getting it free from your broker! Behind that are the month-to-month subscribers.


The allure of automated trading

I think everyone can agree that day trading can easily be described as a dream job. Naturally, this is only the case if you are making money, but nonetheless trading gives you unparalleled freedom and control over your own destiny.

Having owned several businesses, I can also say that trading is even more liberating than being self-employed. If your small business requires interaction with customers (and whose don't?) or if you hired some employees to help with the work, then you've now got that "burden" which does not exist when you are trading.

So, why is it that many traders want to take this incredibly desirable job and put it on auto-pilot? Yes, I am referring to automated strategies. I believe that most people looking to automated strategies for success are doing it for all the wrong reasons.

Here are two items everyone lists for reasons to automate their trading:
  • Can't watch every setup, miss some setups because I was afraid to pull the trigger
  • Program my strategy to follow my own rules precisely, because I can't be trusted to it discretionary
Sound familar?

First, why do you care about missing some setups? How greedy are you? Or maybe more accurately, you missed good setups because you didn't pull the trigger and now you require more setups or maybe more excuses to trade. You need to be honest with yourself. Do you want to make $500 a day? $1000 a day? Fine, no problem. Those are my goals as well and they are completely realistic and can be accomplished with only a very small number of trades each day, usually just 2 or 3, for a couple points each. Don't be afraid to trade more contracts once you have a proven system. Usually people are only afraid to trade higher numbers of contracts because they have a pattern of losing. If you can't make money with 2 contracts then you aren't going to make it with 10.

Don't concern yourself with missing trades because really there are plenty of trades out there. Focus on being consistently profitable with two to three trades a day. Usually these trades can be had before lunch time, so you don't need to be glued in front of your computer the entire day, just 3 hours of it. If that is too much trouble then I think you are in the wrong profession, but please stay and keep trading so I can be on the other end of your trades.

Second, automation has the appeal of being able to follow strict rules you set forth in your strategy. Most people go down this road because they couldn't be trusted to follow their own rules in live trading. Sure, their rules work fantastic when they look at a historical chart. But when they sat down at their desk and started to trade, all those rules vanished into thin air. At least they've come far enough down the road to realize the problem is looking them squarely in the mirror, and they stopped blaming it on the market.

Automated strategies are great at following rules. But they introduce a whole set of new problems which are nearly impossible to overcome. We know that 90% of traders lose money, and 10% take all 90% of the losers money. Now when you automate those odds are even more against you. Take it from someone who spent over a year, 8-12 hours a day, working on incredibly complex strategies.

Instead of focusing all of your energy on automating, why not focus on correcting the reasons you can't follow your own rules? I think it is fair to say most people who develop automated strategies already have a very strict idea in mind, a strict set of rules and principles to follow. They just can't follow them. So that is the real problem here, and that problem is far simpler to solve than making an automated strategy work.

Do automated strategies exist that make money? Of course. In fact, each year more and more of the market is traded with automated strategies. But should that really surprise you? Each year, are there more people in this world or less? Each year, are more individuals trading the markets or less? So just because more automation exists in the market doesn't mean that overall these strategies are making money. They fall into the same 90% losers, 10% winners as the rest of the market.

My advice is simple. Seek out other ways to tackle what you perceive as obstacles in your trading, whether they are emotional, lack of time, or greed.

What's your opinion? Let me know.


NinjaTrader 7 to include a Monte Carlo Simulator

According to Dierk Droth, the VP of Engineering for NinjaTrader, the upcoming NT7 beta will include a Monte Carlo simulator.

Monte Carlo sims are a way to produce random data to simulate different types of market scenarios and events, so that your strategy can be tested in a way that will preclude it from being curve fitted to historical data.

Although I am not currently pursuing automated strategies, I do still believe backtesting is a way to improve your trading. I use backtesting to find better values for indicator settings, or to just prove in a general concept if my theory works or not.

Additional details on the Monte Carlo simulator, as well as other NinjaTrader 7 features, are expected to be released within two to three weeks (by the end of June 2009).

Additional info on Monte Carlo Simulation:


Death to Mike Trend

BREAKING NEWS:  In our second blog story for the day, the indicator commonly called "Mike Trend" has been put out to pasture.

Mike Trend

It is important to realize when something just isn't working, no matter how much time or how committed you are to it.  If it isn't better than what is already out there, or if it just flat out isn't good, then let it go (to indicator heaven).

For about a month I spent hours each day working on Mike Trend.  The goal was to create an indicator that was smooth yet fast, showing long term trends and short term reversals, all-in-one.

In the end, it just wasn't any better than the other more common tools already out there.  For instance, a good T3 moving average can identify reversals easily and is quite smooth.  And a good bid/ask volume indicator can show you upward and downward pressure of the market to identify long term trends, or you can just watch price itself on a big chart and spot the trend.

What should be learned from this is that you have to be careful in getting caught up with something that just doesn't work.

"Mike Trend" you will be missed, but not forgotten.


How to make money day trading

With the addition of the chat box on the blog I have had the pleasure of having some great conversations with my blog readers.  I found that many of them are still having some trouble making money, so I wanted to take some time to write this blog post which I believe will help most people in that position.

I've defined a few key areas that I believe are crucial in order to be successful at trading.  I have no doubt left out some important items, but this list is a good start and it is my belief you should take it to heart if you are having trouble with your trading.  You cannot truly become successful until you look within and conquer these important items.


Trading must be respected.  You must be focused. Disciplined.  You can't have constant interruptions and distractions around your workplace if you expect to be a good trader.  Many traders say it is like war, you are literally doing battle for life or death in the trading world.  How can you expect to win if your phone is constantly ringing, or if your kids are playing in your office, your dogs barking, or if you are replying to emails, etc.  I don't think those things would go over well in a real battlefield.

Your trading environment needs to be calm, private, and comfortable.  Turn your cell phone off, close your email, and explain to your family that you cannot be interrupted.  Make yourself comfortable, relax.  Move a coffee pot directly into your office, buy a nice office chair.  You need to be "in the zone".

Many of us enjoy most the ability to work from home, but it must be treated with respect.  If you can have a few uninterrupted hours then you can make great trades and be done with earning a living before lunch, then have the rest of the afternoon and evening to devote to your family.


The proper tools are essential for making money.  Tools can range from your computer, your software, your internet connection, etc.  You need to probe your tools for weaknesses and if it is a major flaw, correct it.  For instance, don't trade if your Internet connection is unreliable.  You need to correct that.  Don't trade if your computer is too slow and your charts freeze during heavy market volume.

But primarily I am referring to indicators on your chart.  Many traders have way, way too many indicators.  Some trades have none, trading strictly based on price action and momentum.  I strike a balance somewhere in between.  If your chart has too many indicators you will get conflicting signals.  How is this useful?  I suggest starting with a clean chart, and then adding only the absolute essential tools to it.

I use three charts to trade the S&P 500.  A big time frame chart for overall trend, a medium chart, and a short time frame chart for entries.   These can be a 10946 volume, 4181 volume, and 4 range chart respectively.  Each chart has a purpose.  Each chart has unique indicators.  The big chart has one volume indicator that helps me visualize upward or downard pressure.  The medium chart shows support and resistance areas and medium trend reversals.  The small chart is just for entries and shows only small time frame entries and a very quick trend reversal indicator.

Many traders also emphasize the importance of picking the right broker and data feed, not to mention charting and execution platform.  I use Amp Futures, Zen Fire, and NinjaTrader, respectively.


It is interesting how many traders believe they can make 100k a year after six months of looking at charts and reading books.  Why would one think that trading requires less education than say a lawyer or a doctor?  These professionals spend years, many many years, learning their trade.  A successful day trader should expect to spend years as well.

Education is not free.  Most successful traders blow out their account at least once or twice before they went on to make money.  It might help to think of this as tuition, instead of as losing money.  Education is expensive in other ways as well, not just financially but also mentally, emotionally, and time consuming.  You have to devote yourself to it in the same ways a professional athelete would before running a marathon.  They don't just wake up one morning and grab something at McDonald's to eat before they run the marathon.  No, they train for months to condition their bodies, have strict diets, etc.

You need to condition yourself for trading, and to do that you have to educate yourself.  Books, videos, classes, the Internet, and probably most important -- first hand experience.


Education is important, but experience is key.  Why do employers prefer candidates with not only college degrees but also on the job experience?  Simple, experience is the most powerful way to perfect your skills.  Putting what you've learned into practice is not easy.  The experience of actually trading, not just reading about it, is what will really motivate you to learn and be successful.

You can read about support and resistance, or read about taking the emotion out of trading.  But until you experience a trade that stops on a dime because of support or resistance, and then furthermore it stops you out of a trade that you were confident would be a winner, then you really can't fully understand the importance of what you read about (support/resistance and emotions).

With experience comes wisdom, and wisdom is required to properly assess your trading.  I think most successful traders had that "ah-ha!" moment when they realized they were the problem (ie:  look yourself in the mirror, the problem is you not following your own rules).  You cannot have that epiphany if you lack the experience and wisdom to be a proper judge, even of yourself.

Everyone will recommend that new traders sim trade until they are profitable.  But they also realize that 1) they didn't follow this rule themselves, and 2) even if they had, they would not have learned the same lessons until they traded and lost real money.  Sim trading is great, but it is more like being on the outside looking in.  It is not until you've placed cash trades and lost enough money to be "painful" that you will start to change your ways, your rules, yourself.  That is because you are gaining experience by learning from the past.


In order to be successful, you must have a detailed trading plan that you trust, respect, and most importantly -- follow.  You wouldn't decide to build your next home from scratch without blueprints, why would you step into trading without a plan?

First, you need a written plan that goes over rules.  These are when you will, and when you will not trade.  I am not just talking about technical analysis, I am also talking about "I will not trade when I am not 100% focused and in the zone".  The trading plan also needs to describe, in detail, your trading methodology.  Describe your setups.  What actions do you take when you get stopped out?  What actions do you take when a trade is going against you?  What actions when you have met your daily goal?

Second, you need to plan your trades in real-time.  You should not try to predict the market, meaning don't try to pick a low, or pick a high, but rather you need to anticipate or prepare yourself for what is coming.  By preparing for the next trade, you can anticipate what your setup will look like when it forms, what your actions will be.  You must be ready to execute your trade when it is your setup and meets all of your rules.  If you hesitate as that is occuring, you can and will lose money.


Take what I have said to heart.  Trading is not for everyone, so if you are having trouble accepting this information then you might want to consider another profession.  It would almost certainly be a lot easier on yourself, your family, and your bank account.   However, for those of us who push onward and conquer our demons, the benefits of being a successful day trader are endless.  It is, after all, the near-perfect job.

Force yourself to realize there is no Holy Grail.  The way to make money in trading is not by having the perfect indicator or automated strategy.  No, no, no.  The way to make money in trading lies within your ability to understand yourself and become an expert in the market you are trading.  There are no short cuts.

Please visit Investopedia for help on creating your trading plan.  I also would like to try and help as many of you as I can, so leave your comments and use the chat box.  Other traders on this site have generously offered up their time to help as well, you will find many of them have gone through everything you have, and more, so take their advice to heart.