This took a lot more time than I expected, but I wanted to make sure I got it right and didn’t want to doctor my answers to fit the typical mold – so if you don’t agree with everything or it doesn’t match what is taught by most just take what you want from it. I cut and pasted the exact questions from twitter and tried putting them in categories so there was somewhat of a flow to everything. Some questions overlap a bit, but I kept them as is so hopefully everything ties together.
I’d probably start with my 2 CWT interviews if you haven’t already to get an idea of my background and style. Also keep in mind I am a very short term trader and most of my thoughts are not original but pieced together from many before me.
Let’s say, you were just getting started, knowing what you know and what you’ve experienced… what would be your number one focus?
- Patience. Patience. Patience.
- Finding and edge/strategy that has a positive expectancy and you trust takes time. There is a lot of trial & error and losses are a reality of every strategy, but if you’re hemorrhaging money take a deep breath, step back, and make sure you’ve put in the work before coming to the market. I rushed into things after a few big wins in 2013 and could have saved myself a lot of pain and suffering if I tested my process inside and out before chasing the dreams of overnight success.
- I recently met with an Australian trader, who nearly doubled my profits last year, that moved to Texas to talk about transitioning to the US markets. He didn’t just come over here thinking he would pick right up where he left off and jump in guns blazing. His plan was to make adjustments to his goals from $ gained to knowledge gained in a period of time. He took the time to dig into details of the differences/similarities between our exchanges, rules, brokers, software, sectors, and he is trading on demo while he becomes comfortable. That’s right – he went from a +500k year to trading on demo while the market is live to test strategies to avoid donating his hard earned money before putting in the work. I’d bet on that process working out quickly vs someone who funds an account and dives head first hoping the secrets will just fall into their lap.
What are your three greatest mental principles that you have with you when you start your trading day. And do you have one strategy for one type of set up or do you have multiple for various scenarios.
- Here’s what’s at the top of my trade journal for every single day
DON’T BE COCKY – BE CONFIDENT
Confidence comes from preparation and probabilities
- I have a handful of setups I trade with many different “signals” for each setup
- Ex: I like to trade simple bull flags, but the signals can be something in the level2, new catalyst, etc
Tips on how to develop good trading habits to ensure long term consistency. Journaling/record keeping pointers. How to develop key skills required to be a successful day trader.
- We’ve all heard “what gets measure gets done” and there’s a reason for that. Our brains/egos have a funny way of playing games with us changing data and history to make us feel better. You take a gut wrenching loss… a few weeks later you do it again… and again… We like to push those feelings out of our minds and move on but it’s those exact trades that need to be stared at straight in the face. When you can figure out the habits that continue to put you in bad trades you can start slowly taking away their power and shift to putting energy towards the habits you have found that put you in front of winning trades. Sounds simple, but it’s not because we’ve all got some shitty egos that like to hold us back.
You process to review your trades… what metrics are the most important for you.
- As I said in the interview I’ve been slacking pretty hard on my trade reviews but a lot of it became an automatic mental process after doing it religiously for so long. But because I honestly think of journaling as the “Holy Grail” I’ll quickly share what I did and what I think is most important. The 2 tools I used every single day were Edgewonk (not affiliated but love the product) and Microsoft OneNote (similar to Evernote).
- I went a little overboard and spent more time than I’d like to admit after the market closed setting Edgewonk up because it’s basically Excel for traders on roids. This was an important process because I was able to test tons of ideas and see the actual probabilities of each working. I tracked ~20 setups (many of which I realized were toxic for me and won’t even look at anymore), entry/exit/management comments, alternative exit strategies and 12 custom stats w/ tons of options in each (entry/exit signals, position relative to vwap, # of scales, etc.). Once the log was set up I entered every single trade every single day. Took screen shots with detailed notes on each trade in multiple timeframes. For a swing trader this might not be a time consuming task, but I was trading absurd amounts so I could see the outcomes. Over time I was able to lower my rate of trading and just focus my attention on where I was finding success.
- My OneNote journal is synced on my trading computer, laptop, and phone. It’s where I take notes on what I am thinking in real time during market hours, do prep work, identify areas in my process I need to improve, keep my “playbook”, my rules, things I’d like to research… you get the point. It goes with me everywhere and at night if I wake up with an epiphany I jot it down in my phone and the next morning it’s there for me when I wake up.
- I attribute any success I’ve found to these 2 things more than any book or other resource. If you can’t figure out what’s going wrong in your trading and you don’t have a trade review process and journal then please don’t ask for help because you aren’t helping yourself first.
Would be interesting to know a little bit more about your money management process, in terms of partial exits, profit targets, trailing stop etc … off course everything based on a risk perspective (R terms) … I appreciate any thought about this topic
- I’m going to keep this brief because I could go on forever, but it boils down to this. Towards the end of 2016 I made a decision that I was either going to make massive changes in my trading or move on because the emotional swings were not enjoyable. I decided from that day on my goal was to not focus on finding big winners, but keeping losses extremely small. So all of my process is built around consistency and small losses. I’ll answer these ?s below
How you manage stop losses, if they are hard or if you left them jiggle around the price before exiting? How you enter a trade via passive or aggressive with respect to liquidity?
- There was a time that I lost trust in myself so to overcome the fear of trading I put hard stops in all of my trades. After some time I began to trust myself again and I saw how important stops were so I shifted from hard stops to mental stops. Now as soon as I put a position on I am ready to stop out if what I am looking for doesn’t happen and happy to reevaluate the trade.
- As far as trade entry I almost always enter a trade by taking liquidity using limit orders over the ask price and I never use market orders. From time to time I will place an order on the bid if it lines up on multiple time frames, but I never put size on the bid. For exits I like to place some shares on the ask to see if I can get some filled but typically I either market or limit order below the bid because when I want out, I want out and I aint gonna be a dick for a tick.
One thing I would love to hear about is trade management. What do you look for after you’re in the trade? You somewhat talked about it but hearing more details. Do you checkout the tape? do you see other setups you like and confirm to stay in/exit? etc
- Before entering a trade my focus is about 80% chart and 20% level 2. Once I am in a trade my focus pretty much 180’s and I focus 80% on level 2 and 20% on the chart (remember I am a very short term trader). I already have a basic idea of what my targets are when I enter the trade so I have to make sure there is liquidity for me to sell into and I have to make sure I am out of the trade before action dries up. I’ll look for big bids that keep pushing price higher, big walls ahead that I need to be aware of, the speed of the flow, and if it’s a sympathy play I need to be aware of what the other names in the sector are doing. At any point in time while I’m in the trade something seems off I’ll start to scale out and if it’s just not doing what I wanted to see happen quickly I’ll sell and reevaluate before getting stuck behind a heard of sellers.
What kind of technical patterns you look for; higher lows, HOD breaks etc. also what time of day do you mostly trade; at the bell or do you wait for things to settle and patterns to form?
- My day to day cashflow pattern is multiple timeframe flag breakouts. What’s been working really well for the last few months is looking for a massive intraday breakout on volume, wait for a pullback/consolidation, and stalking for 2nd or 3rd pushes. We’re in a pretty nutty bull market so these happen over and over and over again so until they stop working they’re my go to.
- I never try to pick a bottom (can thank my journal for showing me the pain this caused) on trades and always wait for a higher low in place before entering a trade. I miss a lot of big dead cat bounces, but the ones that really work set a bottom first.
- Time of day is becoming more and more important to me because liquidity matters more. Previously I had a big issue with starting the day in the red so I sat out trading at the open for a while and have learned to be a lot more selective in the morning to start w/ positive momentum vs digging out of a hole constantly. After the first 15min or so I’ll start to increase my size once there are clear areas to risk against and I’ll make sure to lower my size around lunchtime again because there is nothing worse than getting stuck in mid-day chop with no volume. I start getting more aggressive again in the last 2 hours of the day but make sure to cut losses quick so I don’t get into the “oh let’s just hold this loser into tomorrow because I don’t want to take the loss now” mentality.
Are u looking for the volume to come in before a breakout, or intraday during the b/o? Do u not look for contraction before the b/o? Or are you trading b/o pullbacks & continuation?
- Yes, yes, and no-ish. I don’t like to be the first person to anticipate a breakout and I don’t like to be the last one to get in after the volume explodes. I like to see the volume come into a level that I’ve identified as a high probability breakout area and I hop on the train as quickly as I can and as soon as the volume explodes through the level I like to begin selling to reduce my risk of a false breakout.
- If I don’t catch the first push/breakout (which happens a lotttt) I don’t chase and wait for a pullback and consolidation. This action is natural and gives the stock a chance to regain steam for the next push. Refer to the previous bullet to how I enter after the consolidation period.
- I rarely put a bid in place after a breakout (only if it’s a super-hot catalyst) to get shares on a pullback, but I let the chart reset and begin its consolidation phase. Often these phases don’t go anywhere and breakdown so I want it to prove to me it has the strength and trader eyeballs to make another sustained push.
Hey Alex. Do you risk a specific % of your account equity per trade? I.E. 2% per trade.
- Quick answer here is no.
- Here’s how I think about risk in real time
- Let’s say I’m watching 10 symbols and know their recent support and resistances. If one of my charts setups up and I get some sort of entry signal I don’t have a lot of time to think because I’m trading very thin names and entry timing is important. So if the stock is $4.80 and I have a target of $5 break I’ll quickly find a an area I can sell into if I’m wrong and maybe it’s .05 behind me. So right there I know I am risking .05 to target .20c and I put on the trade with the proper size to be able to exit .05 away. I can’t have a rigid set of rules that determines my size and risk per trade when the stocks I trade have such different characteristics like range, float, liquidity, halt risk, etc. – I have to determine the max risk that that trade in that moment will allow and be nimble. For me risk is dynamic and I know to make longer timeframe strats work I’ll need to make adjustments to this, but I’ve let the data lead me to this thinking for now.
what type of risk/reward ratios do you like to shoot for? And how do you manage trades to allow for maximum profit at the same time preserve capital? thanks homie.
- I typically shoot for at least 2:1 rr. I’ve learned that the tighter you can logically get your stops the better because it drastically increases your rr on every trade. This means I pass up a lot of trades that I can’t get really tights tops on, but it increases my win % drastically. And my style of scaling out is key to my trade/risk management. As soon as I put a trade on I want to see it working, and if it does, I’ll look to start scaling out which lowers overall risk, takes out emotions, puts money in my pocket, and allows me to go for further targets with confidence all at the same time. When I’m wrong (which is often) I hopefully was able to at least get some of my position off in the green and if it never went onside I’d rather take the jab and stop out early than get stuck in a fight for an exit. As my account and trade size has increased I’ve begun to work on allocating a part of the position as runner to see just how far it can go – but this is still very much a work in progress that will hopefully help me maximize profits in the future.
Do you wait for 1st red day to open short position? Do you short on 1st day of gap up if it seems extended(ie 80% gap up vs 15% gap up)? Do you have better win % when long or short?
- I’m probably not someone you want to be take shorting advice from because I’m in the early stages of getting it figured out myself but… I don’t short just because something seems overextended even if it’s up 4000% and seems ridiculous. My shorting style right now somewhat mimics my long side of trading breakdowns and quickly scaling out to avoid random squeezes. Long side is a much higher win % trade for me and I’m much more confident in those trades allowing me to take bigger size.
When do you jump in when you’re shorting parabolics? And what’s your cue to jumping in?
- I absolutely don’t. I know myself well enough to know that while there is money to be made in shorting parabolics it won’t be made by me and I’m 100% ok with that. If/when I short it’s always after a clear lower high has been put in on the 3min chart and usually a clear shift in momentum has already occurred. Again for me it’s basically my long breakout style just in reverse as far as cues to enter the trade.
What categories do you screen for when making a watchlist? 52 week highs? Relative strength? Etc
- I don’t know where my head was and messed up here on the interview and said I look for 2.5x avg volume, but I use anywhere from 1.5-3x relative volume and under $10. If there are wayyy to many charts to scan through with a 1.5x filter just start increasing it until you get a good number to work with. Here’s the uber simple free scan.
- Refer to my 2nd CWT interview for more details
Pls elaborate what do you mean when you say : “It was hard for me to know early on I was sacrificing huge $ gains for consistency”? Are you saying that you got such results by sacrificing consistency? Bcoz then it’s not gud I guess
- No – what I’m saying is that early on it sucked watching me put up lots of $200 days without many drawdowns when I saw other guys putting up $5-10k days. I had to set my fantasies of playing with the big boys aside while I built myself a foundation that would allow me to get there and that wasn’t easy.
INCREASING SIZE! PLZ
- I asked that question a lot when I started trading full time and looking back it was a waste of time because I didn’t even have a strategy worthy of scaling. Here’s how you increase size… you test and tinker with a strategy that YOU (not someone else) have proven to work and once you have the utmost confidence in that strat you begin to slowly increase size as your equity grows.
Did you keep increasing your position size as the effect of compounding started taking place or as your account grew?
- Everything happened together. As my account got bigger I was able to take bigger positions, creating bigger profits, creating a bigger account, and bigger positions. The key to the process was to keep losses as small as I could and just let mathematics work.
How do you increase position sizing and manage risk during winning streaks, and cut position sizing and risks during losing streaks?
- I know my system is rather high probability so when it gives signals I take them, but I also know there are long periods when I don’t get any/many signals. So my winning streaks are typically when there is a catalyst that has lit a fire under the small cap sector and that is exactly when I need to press to increase my account size and position size. For me to avoid losing streaks is accepting the fact that I can’t force trades that aren’t there and the best thing for me to do is stay in tune with markets, reduce my expectations, don’t give back profits, and prepare for better days ahead.
If the market go down so fast ? What will happen ?
- Markets can and will do things that will blow our minds time and time again. They will go higher than we could ever imagine and they will drop to levels we thought could never be seen again. My take here is that no one will ever know what happens next and it’s always easy to spot things after the fact so be ready and willing to adapt at any point in time.
Have you ever been through a bear market? As far your trading style is concerned, what changed on your approach?
- No – I was in college during the ’08 collapse and didn’t get interested in markets until the rebound started. I would much rather prefer that the market continue in its upward trajectory forever because I have a proven strat that works but I know things will change and we will enter a bear market at some point. I’m flexible enough to know that what worked won’t work but as long as markets are trading there is an edge to be found and I will reset, put on my big boy pants, and get to work finding that edge. Will I be successful? I have no clue, but I look forward to the challenge and hopefully I’ll come out of the other side with some stories to tell!