As many of your already know, every week I have traders in our STA Training Program send me their charts for a complete review. I get feedback on their own trading and combine it with my own analysis in order to find ways to help them improve their results moving forward. Sometimes this means big changes week to week, but more often it's just small tweaks that might not make an instant impact but will make a substantial difference over time.
I like to share some of these weekly results with readers on this day trading blog because I think they contain important lessons that are crucial to success as a trader over the long term. For example, do we really need to "make 2 points every day"? This is a commonly repeated phrase among aspiring Emini S&P 500 (ES) futures traders, but it's actually a fairly dangerous way to view the markets. We will get to that a little later. Similarly, is there any use to cherry-picking single days to post just because we knocked it out of the park? Not really, as the sample size of trades in a single day is simply too small. What really matters is long term consistency built over entire trading weeks and months.
First, let's take a look at the results of one of our students, and then we will consider a some key take-away lessons that can help you improve your own trading results.
The Professor's Trading Results
Why are we calling him The Professor? Because every trader needs a good nickname and he's started to earn it through his detailed analysis of the market. The Professor likes to break things down and run simulations and this helps him develop confidence in his trading and his edge. Considering his results in the STA Training Program, this approach is paying off extremely well and there's only better things to come. With only a few months experience in ES, the possibilities are endless as his win rate continues to improve and he starts to expand his profit targets a bit more.
As you can see, this was an excellent week for this trader as he managed to pull 14 points out of the market. This reaches our goal here at STA for established traders to make 10-15 points of profit per week and is more than enough for a nice living as a day trader.
What's interesting about this week was that The Professor managed to not only be profitable every day, but he achieved it in spite of a couple of days with a low win percentage.
That just shows the power of having a good trading expectancy and a solid edge.
We all know that our risk to reward ratio is important and of course many are focused on their win rate, but what really matters is how they play out in combination. In our case, the positive expectancy of our trading is strong enough that even on days where we struggle to find winners we can still end up with a profit. This is an extremely powerful concept when put into practice and one that many professionals embrace.
It should also be noted that this trader decided to step aside on Friday due to his uncertainty about the market action and the recent addition of the 09-13 ES contract. Every three months we see a switch to a new contract as the old one approaches expiration. Sometimes this transition is smooth, but often it leads to difficult price action and fair bit of market uncertainty. After an erratic Thursday that caused our trader to struggle to find a profit, he decided to step aside on Friday.
This was the first time this The Professor has actually experienced a contract change in futures, so he no doubt made the right decision to take the day off.
If you're not feeling confident about the market action and your trading, it will probably show up in the form of mediocre results.
It's much better to take a step back and just observe until you are confident to trade again, rather than forcing yourself into the market simply because you feel like you need to trade.
The Difficulty of "Just 2 Points Per Day"
I don't know where it started in the world of Emini S&P 500 futures, but this idea of aiming for just 2 points per day has been around for a while. It sounds good in theory - if you can make just a couple points per day then your potential as a day trader is unlimited. Your equity curve will climb each and every day and you can simply increase your position sizing to the point of making millions with ease. Sounds easy, doesn't it? Too bad that for the novice trader this sort of thinking is often very limiting to their trading potential.
So why does focusing on these short term targets actually impair your trading performance, particularly for market newcomers? Mostly, it comes down to emotions. If you are aiming for very low daily profit targets, even a small loss suddenly seems far more substantial. Relative to your 2 point target even a 0.75 or 1 point loss can seem like a big deal and can lead to a negative emotional response and poor future trade choices.
Similarly, setting very low daily targets also limits your potential upside. Many traders tell themselves that all they need is "just 2 points per day", so once they get there they suddenly get fearful of losing it. They avoid future opportunities and convince themselves not to take quality trades because they are afraid of giving their small profits back. Instead of absolutely killing it for a 10+ point day when the market offers it, you end up with a small profit that you are likely to regret when more difficult days come along.
This kind of risk-averse thinking is extremely limiting, because we know that not every day in the market has the same potential. Some days in the market are absolutely fantastic and will fit your trading strategy perfectly, but there will also be days that are just decent and other days where you might not find many quality opportunities and will take a small loss. If we don't take advantage when the market is moving well, our potential weekly and monthly profits will take a significant hit. Each week generally has one or two days that offer that extra bit of profit potential, so if we are truly looking to maximize our results then we need to keep pushing until the market suggests otherwise.
The interesting thing about the 2 Points Per Day phenomenon is that it is actually more difficult for many traders to accomplish than far loftier goals. The limiting mindset of small targets and the resulting emotions it tends to bring up means that trying to bank just 2 points every day can be much harder than averaging twice as much, if not more.
The trader who understands that their success is determined over the long term is the one who has the right mindset for outstanding weekly, monthly, and yearly results, but they also maximize their potential during each individual trading day. This trader feels no emotional pain from a small loss because he understands its minimal impact in the bigger picture. He is confident in his expectancy and his trading edge, and this allows him to trade according to his plan and to take whatever the market is offering.
Don't be the trader whose focus is so narrow that every tick of the chart causes an emotional response. If you want to trade for a living then you are making a long term commitment, so keep a similar focus with your results and you will find it much easier to achieve your goals.