Anyone who has traded for any significant length of time has been through it themselves at some point. They hit a good run of trading days and became so over-confident in their own trading abilities that they suddenly deviated from what's was working for them so far, broke their own rules in search of more "I can't possibly lose" trading opportunities, and quickly see what profits they had gained fly from their accounts. Or they took a string of losses and became frustrated with a market that is "working against them" and threw caution to the wind with undisciplined trade after undisciplined trade to get their measure of revenge or in the hopes of scraping back to their previous account balance. Of course, both of these over-trading scenarios rarely leave a profitable result and only act to dig a deep hole in a trader's account that they now need to dig themselves out of.
Recently I've been thinking a lot about the emotions of fear and greed and how they impact our behavior and our profitability as traders. We've all probably heard the saying that "Wall Street is driven by two things: fear and greed" and while emotions do play their part in the big picture they can certainly impact individual traders as well.
This has been on my mind lately because I've been working with a couple of traders that are trying to push their profitability to new heights and a part of that is selectively increasing their profit targets on some trades. However, they've yet to find a good balance of greed that gives them the best long-term result.
That's right, I did say balance, so I'm not saying greed is bad. Then again, it's not really that good either. You could say that the dose makes the poison.
Learning to day trade and then achieving a consistently high level of profitability in this business can be a curious thing. When observing full time day traders the trading process often seems very simple, even nearly effortless, with minimal emotion getting in the way of decision-making. However, for the novice trader learning to day trade is rarely an easy and straight-forward endeavour and is often a rather emotional undertaking at times.
The interesting thing is that the novice's perspective of what the professional trader is doing isn't incorrect. Trading well should be a simple exercise, though not necessarily easy.
For some odd reason I've had a massive influx of emails recently from people wanting to know more about my day trading station and the hardware I use. All right, so maybe I'm embellishing that "massive influx" a bit. It's actually only been three emails over the past two weeks. Still, in the past couple of years I've only had one such inquiry so I suppose I should take it as some sort of sign and give a little glimpse into what my trading desk and overall setup looks like from my home office here in downtown Vancouver, BC. Read more
When it comes to maximizing trader performance one thing I've always believed is how important it is to take full advantage of a trading day when the market is moving well and providing high quality opportunities to trade. This seems obvious enough but in my experience I've found many novice traders have limiting beliefs and actions that hold them back and at least some of this can be attributed to the oft-parroted saying that a day trader "just needs to make 2 points a day" to realize their dreams of wealth and freedom.
It's true that someone making 2 points every day can become an incredibly profitable trader. Nobody is doubting that on its initial face value. If you can make 2 points per day with one contract you're doing fine but if you can make 2 points per day every day with 10 contracts you're making a very substantial income and there's no reason you can't ramp up the position size from there.
The issue is that when our focus narrows to the outcome of a single day or even the outcome of a single trade it can actually make long-term profitability that much more difficult to achieve. Read more