Trading for a Long Time, And a Good Time
The same techniques that make trading more enjoyable also make it sustainable.
This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.
You can and should be enjoying trading.
It is possible to be a successful trader without a dealing with a ton of unnecessary stress.
What I have always found interesting is the discipline that allows you to stay in the trading game for the long term is the same discipline that makes trading enjoyable.
What does enjoyable trading look like?
Your break-even point is a long way away, the trend is in your favor, and you already have profits put away for the day while looking to add more.
You know the feeling. And it’s awesome.
When the trade is working, and the possibility of losses are really low, trading becomes fun. Every tick higher is a great experience.
But more importantly, the moves against you don’t feel nearly as stressful because as noted, there is a lot of room before getting back to break-even.
So how can you create this scenario over and over again?
There are a few simple steps that you can take to get you there and I think it is worthwhile to break it down.
And when better than now.
Creating Optimal Trades
You are in control of how many stressful trades you take and how many trades are like I described above, which I will refer to as “optimal.”
Simply put, do not take a trade that doesn’t allow you to enjoy the trade while you are in it.
That really is the secret.
If you are in a trade and it doesn’t feel good, you are guaranteed missing the mark for one of the following:
Profits - take them early and often. This is key!
Entry - multiple data points before entering a trade.
Stops - respect your stop loss, exit the trade.
Trend - don’t try to be a hero, recognize the trend.
Sizing - if you’re putting too much in a trade, you feel it.
Profits is listed first because profits are most important for your happiness as a trader.
Profits
Take profits early. Take them!
I am not saying take all of them, but definitely take at least a little off of the table when the trade goes your way.
I take half, sometimes more. Here’s why.
Let’s say I have a 10 contracts at 1.00 each, and shares move in the right direction for my trade. Now the contracts are worth 1.20 each but your price target is still higher.
I like to sell half of the position, leaving the remaining half on with a much lower break-even price.
Now the options contracts need to drop from 1.20 to 0.80 for the entire trade to be at the break-even point. That is a 33% drop before losses start to show up.
This is a powerful move.
Your ability to stay in the trade not only improves from a profit/loss perspective, but your mental state is also positively impacted.
Taking an early win builds confidence while reducing risk for the remaining position in the trade.
I can’t understate how important of a move this is. Give it a try.
Entry
Number two on the list is taking a quality entry with multiple data points.
For me, this means multiple technical data points on a chart.
DraftKings is a good example of a current stock with multiple data points favoring additional upside.
First, DKNG was sitting on and holding the $26.41 support level.
Second, the 150-day simple moving average is also acting as support at this level.
Relative strength also curled up over the past week and has room to move higher.
Add in the non-technical factors like increased revenues from expanding into new regions and the pop from heading into the heaviest part of the sports betting season.
All of these data points make for a quality entry at or near the support level.
Notice that if support breaks, so will the channel DKNG has been trading in and the 150-day SMA will no longer be supporting the price.
These multiple negative pieces of information should make exiting the trade that much easier.
Stop Loss
This leads me to number three, respect your stop loss.
It is incredibly difficult to do when you are out of trades for the day. But you must respect your stop loss levels.
Keep them tight.
Sometimes this means you’re done trading for the day and the day is red.
It happens and the sooner you get comfortable with the idea of having days where you have small losses, the sooner you will see your account start to build.
The larger the loss the harder the recovery.
Trend
When you enter a trade against the trend you instantly feel the pressure of feeling like the only one in the trade.
Why would you do this over and over again?
Trying to guess the bottom or the top is where many traders lose the most of their money.
The trend really is your friend, and you will have a better time if you’re trading with it.
Odds are good you will also have more profits to enjoy.
Sizing
When your account is smaller and you are just starting out it is incredibly difficult to be disciplined about trade sizing.
If you’re risking your entire account and immediately start stressing over any reverse in action you are not going to enjoy trading very long.
Instead, understand what your risk tolerance is and stay within those bounds.
It is easier said than done when you have the temptation of putting the remaining 90% of your account into a trade you just know will work out.
When the trade goes your way it can be even more difficult.
But when you actually trade a reasonable size, consistently, and over the long term, it becomes addicting.
This is because you realize there are no longer trades that can wipe out your account. The risk of having to start over because of a single trade is no longer present.
Figure out these five key pieces of trading and I promise you will enjoy trading even more.
Find the discipline to do this consistently and your account should enjoy it too!
It’s true that discipline is a big part of the equation and the part that is hard to control for. I can’t teach you discipline.
I can speak to the power of it though. Consistent profits come from discipline.
Find a strategy that allows you to enjoy trading and you will be on your way.
Schedule
I’ve got a lot of great things in the mix and I am excited for the rest of 2023!
Here's the new schedule:
Sundays: WOLF Financial Newsletter, The Trading Triangle Podcast/Newsletter
Mondays: X Spaces
Tue-Wed-Thu: A Trader’s Education Premarket Audio/Written Newsletter Posts, X Spaces
Fridays: X Spaces
Saturdays: Family time!
Thank you for reading and let me know if there is a stock you would like me to cover or any trading topics you want to learn more about.
Have a great day!
-Nate