What does me being fat, sick, & nearly dead have to do with my trading process? …I’ll tell you the story. How putting blinders on and grinding through a process that stopped working nearly grinded me into dust. And no, it didn’t stop at my trading. My business, my family, and my health were all suffering. I felt on the brink of death. But first let me emphasize…
The most important part of any trading process is that it works for you.
Trading’s serious business. It’s your money, your life. You’re the Boss and your process is your Employee.
It’s up to you to grow and evolve your Process… or fire it altogether. The success or failure of your process is entirely up to you. Own that and you are more than halfway toward success.
So… does your current process really work for you?
WRITE OUT YOUR *IDEAL* PROCESS
A lot of coaches will have you write out your current process.
That’s the version of you from the past. The *ideal* version of you lives in the future — and I want to help you get there ASAP. To do that, focus on where you want to go, not where you’re standing.
Everyone’s process is different.
There’s no right or wrong way to trade. However, there is a right and a wrong way for you to trade.
How will you know? The market will tell you, if you listen. Your successes. Your Failures. That’s the market speaking to you. Listen to it. Learn from it. Build that into your process.
AND DON’T BE AFRAID TO FAIL…
You’re going to come up with your “Ideal” process. Test it. It will likely fail in some way…
It could be a big failure. It could be a small failure. But it will likely fail in some way and that’s okay! You Want it to Fail!
In this sense, failure is a sign that you’re pushing your limits. If you’re not failing it means you’re not pushing yourself hard enough. Like Evan Carmichael says “If you’re not failing, it’s a sign you’re racing against 3 year olds.”
Every time you fail — you find your limit — and guess what? You’ve got valuable info to help you improve!
Use this info. Push the wall a little further until you fail again. The more you get out there and do this the further you’ll go. After your 10th failure you’ll look back in awe at how far you’ve come. You’ll look at that first failiure and laugh! You’ll be going farther and faster than you dreamed possible. And it will be because you’re failing forward!
So like Tim Kennedy says “Hurry up and fail”.
WANT TRADES FIXED? CREATE YOUR SOLID SIX!
Want to guarantee your growth and success in the market?? Of course you do! Are you willing to do the work to get there? Yes? Great! Add The Solid Six to your trading process.
I’ll give you The Solid Six and share what it looks like for me. They’re good examples but in order for you to succeed you MUST make it your own. No carbon copy of someone else’s process will work for you.
I find it useful to have a trading process for every account that I have.
Yes, there may be overlap. Yes, that’s a good thing! If we analyze the market once and use that analysis for multiple trading systems, processes, and/or accounts, think of all the time you saved!
1. SET YOUR INTENT
Blow past this step like most traders and it almost guarantees failure.
Think about it. You’ll have a very different process if you are trading for Primary Income vs Play Money. Retirement vs Buying a Home. A Child’s Education vs Family Vacation… Set your intent!
And be Crystal Clear about your Why.
A powerful Why will keep you in the game and pull you forward! More on this in Forging a Trading Mindset of STEEL.
Here’s a sample of intent from my own Supplemental Income Account:
What I Want, Why I Want It, & How I’ll Get It:
- WHAT: Minimal touch during the trading-day (minimal mental real-estate).
- WHY: I want to focus on coaching traders and helping you as much as possible during the day. If I’m trading in a way that draws my focus away from my primary purpose, I won’t be happy and I won’t execute well over the long term.
- HOW: Develop trading plans at night/on weekends. Set alerts. Use buy and sell stop orders so I don’t need to be active intraday.
- WHAT: Monthly supplemental income regardless of market conditions.
- WHY: I want cash to be flowing to me consistently. The more income I generate, the more I have to contribute to my family, community, and the world.
- HOW: Trade Credit Spreads in the direction of the dominant trend. On a breakout, cover the short side, let the long side run, AND add another credit spread below support / resistance.
- WHAT: Avoid blowing up, stay in the game as long as possible.
- WHY: If I lose all of my chips, I can’t bet. Losses cost both money and time. They work exponentially against me. A -10% loss takes +11% to get back to even. A -50% loss takes +100% to get back to even.
- HOW: A Blow Up for me is a drawdown of -25%. Don’t risk more than 2% of capital per trade. This allows me up to 12 regular size losses in a row before blowing up. (Prepare for the anomaly! It’s possible to lose 3X more on any trade than you intended. I’ll hold no more than 3 positions in this account. If the market implodes, my max drawdown is -18%)
There’s about a dozen other intents in my process but you get the idea. Figure out What you want, Why you want it, and How you’ll get it.
2. GAUGE MARKET HEALTH
“3 out of every 4 stocks will follow the trend of the market.” William O’Neil
If you’re trading stocks, wouldn’t you want a 75% better chance of being right?? Of course you would! So find a way gauge market conditions for your trading.
There’s lots of ways you can do this.
Some people run scans every week and let the results speak to them. (That’s what I used to do.)
Others will read newsletters, read the paper, or listen to other people’s opinions.
Any combination of this –or something completely different– is fine. What you want is consistency. If you’re reading someone’s newsletter today, doing your own research tomorrow, and listening to CNBC the day after that, your head will be spinning and your results will suffer.
My process evolved into three phases:
PHASE A: Analyze the BIG 5 Indexes. (S&P 500, NASDAQ, NYSE, DOW, & Russel). Look at their Daily, Weekly, and Monthly charts. Find the trend on each. Consider the Distribution Day Count. See if there has been any clustering of Distribution Days. Find Support, Resistance, and Trend Lines. Note what the Moving Averages are doing. Are they stacked on top of one another or are they tangled?
PHASE B: Look at the # of New Highs vs New Lows being made on the NYSE. TradingView makes this real easy to do. You can overlay it right on the chart!
It’ll be real hard for the indexes to move higher or lower w/o the stocks within them doing the same. Just look at what happened at the end of December and into early January!
New Lows dried up and the market rallied.
You don’t need to watch the news if that’s not your thing. You can just watch the charts. This is evidence. It’s how I trade. But the important thing always and forever is that the process works for You.
PHASE C: Observe the stocks on your watch list. How are they behaving? If they’re setting up, it’s a sign to take action. If they’re not, its a sign to wait. Only the stocks on my watch list matter to me in this regard. All others are noise. It’s through consistency that we get clarity. This is true if you are running scans, reading a newsletter, following a social feed, or watching the news. Try listening to too much and all you’ll hear is noise.
When we’re consistent, the noise starts to fade away.
There’s calm in the chaos because its the chaos we’re used to.
*Want some scripts I use to automate a lot of this? Grab it here FREE!
3. HUNT FOR IDEAS
A reliable way of finding ideas is crucial.
A consistent way will help you spot nuance.
For example… you run a set of scans. All of a sudden, half a dozen banking stocks pop up. It’s unusual. You check the industry group. Low and behold, XLF (the ETF that tracks the Finance Sector) is setting up. Not only that, 5 of the 6 stocks passing your scans are all setting up in similar patterns!
Guess what?? Thanks to your consistent process, you caught a group move and you’re poised to pounce well ahead of the crowd!
Here’s how I find great trade ideas:
FIRST: On weekends I’ll look at a list of stocks I keep called “Interesting Ideas”. I’ll add to and prune this list. I’ll get ideas from a few places but will define and limit my sources. Any source not in my written process is ignored. This is key in filtering out the noise.
I get ideas from what’s trending on StockTwits and Twitter. I’ll look at IBD’s Leaderboard and Swing Trader. I’ll also look at ChartYourTrade’s Advanced Stock Reports. This gives me different perspectives and allows me to triangulate for myself the best of the best ideas.
SECOND: I go through my list and look for clean, tight trades with great reward:risk. Every trade should offer me 5:1 or better. For every dollar I put at risk I want the potential to make at least $5 back. It doesn’t always work out that way but the potential has to be there. This does a few things:
- Forces me to focus on only the best of the best trades.
- Allows me to lose 4 times in a row, be right on the 5th time and come out ahead.
- Helps prevent over-trading since most trades won’t make the cut.
4. EXECUTE TRADES
Before executing any trade, ALL aspects of the trade must be thought through carefully.
Is your mind is right? The mind gets overlooked all the time… It’s critical. It’s another reason most traders fail.
Think about it. How often do you execute well while fearful? Ticked off? …Or fill in any other negative emotion?
If you want to execute like a true pro, get your ducks are in a row. A race-car driver will check their gauges, tires, and crew before hitting the track.
Do the same for your trades.
- Are you in the right state of mind?
- Does the trade you’re considering fit your process?
- How much risk do you want on this trade? In your portfolio?
- Have you considered this idea from all angles?
- What might the person on the other side of the trade be thinking?
I ask myself about 20 questions before I place any trade… and its SUPER EASY to skip a step if we don’t plan ahead.
That’s why I put together a template to help remember all this. I call it the “Trade Tracker.”
*Grab the Trade Tracker FREE here.
5. MANAGE YOUR TRADES
Ask yourself, how frequently will trades need to be managed? Everyday? Once a week? More? Less?
Knowing this will help to prevent you from developing “Tickacitis”. The infamous disease traders get as they become glued to their screens, pulling out their phones, constantly checking their balance even though it has nothing to do with the trade.
Rules & Signals
Write out the rules and signals that will tell you when to add or when get out of a trade. Determine IF you will scale in or out. You don’t need to make all/none decisions.
How Hot Do You Want It?
Traders get burned when they don’t understand Portfolio Heat. The amount you stand to lose if shit really hits the fan. Don’t plan for this and your account could go to Zero or even worse… You get a margin call and you have to pay your broker!
HERE’S WHAT I DO:
I keep the heat down by only adding to a trade once my stops have been moved up. That way I’m not risking my starting capital. I’m risking my profits. Van Tharp calls this ‘Market’s Money’ and goes through several position sizing strategies around this concept in his book “The Definitive Guide to Position Sizing.” Mark Minervini calls it ‘Free Rolling’ and discusses it in “Think and Trade like a Champion”.
Here’s what it looks like:
Let’s say you buy 100 shares of ‘XYZ’ at $100/share. Your stop loss is at $95. You’re risking $500 on this trade (if your stop is hit, you’re out $500).
Let’s also say that the most you’re willing to risk of your trading capital is $500. Your ‘Portfolio Heat’ is as hot as you want it to get right now. Until you either close out this trade or move up your stop, you’re not taking another trade!
Now lets say your trade jumps to $120/share. You decide to raise your stop up to $110. Awesome!
Now you can take on a fresh trade because your ‘portfolio heat’ is essentially $0.
6. POST-ANALYSIS OF THE WHOLE SHEBANG
This final step is the one that will help you continuously level-up your trading for the rest of your life. If followed correctly, it will create a feedback loop. This loop will help you make the adjustments necessary to obtain success beyond your wildest dreams.
Skipping this step, however, can spell disaster. And it nearly did for me…
Fat, Sick, and Nearly Dead
You may have seen the documentary on NetFlix with Joe Cross (@JoetheJuicer). Well, that’s how I ended up feeling as a result of only reviewing my trades and not my trading process.
I was trading extremely well for about 7 years and was getting better each year. Then in May 2015 my daughter Lily was born. She’s one of the greatest blessings in my life and my love for her grows every day.
Unfortunately my idea of fatherhood didn’t mix well with my then trading process.
At the time of her birth I was still working a full-time day job, operating my first business providing market research and analysis to roughly 100 clients, and was trading my own accounts.
I had conflicting beliefs that were tearing me apart, though I didn’t fully realize it at the time. My idea of being a “good” dad meant being available to Lily, supporting my wife Melissa, and being present for those “special” moments like learning to crawl and seeing Santa. I believed that being a great entrepreneur meant providing outstanding service to my clients and I still do. As a solo-preneur at the time, managing that and being a new dad was challenging. Throw in day job that I still wanted to perform well at had me feeling as though I was being drawn and quartered.
This triple job insanity lasted for about 6 months.
I thought perseverance was the answer. Perseverance worked for me my whole life so naturally I thought it would here as well. If I could just continue to push hard and grind it out I thought I’d eventually pop out the other side and all would be okay.
To get everything done I had to make some cuts. Unwittingly, the first thing I cut was my health. I stopped exercising and to make myself feel better, I’d load up on ice-cream. I could tell you the Blizzard of the month at Dairy Queen. It was delicious but my health suffered badly. I was up to nearly 200lbs. About 40lbs overweight for my 5′ 9″ frame. If this weren’t enough I started getting sick frequently. Developed skin problems I’d never had before. And my marriage was on the ropes.
Melissa and I had many conversations about all I was trying to do and how it was effecting the family. To her credit, she never so much as hinted that I should give up on my dreams.
I was extremely stressed. My trading was erratic.
I felt like I was failing as a trader, a business owner, a father, and husband. My whole life was slipping through my fingers.
My breaking point finally came soon after Thanksgiving 2015. I was writing up my weekly newsletter and Melissa entered the room. “We’re getting ready to visit Santa. Do you want to… oh you’re working.” That was the final straw for me. “Fuck this!” I said to myself. I’d had it. I wasn’t going to miss out anymore!
Within about 2 weeks I had come up with a plan to get my health, my relationships, my business, and my trading back on track and in that order. If we’re not well ourselves, it’s nearly impossible to care for others well. Within 3 months I dropped nearly 45lbs and was down to 155lbs, the lowest I’d been since high school. I was eating well. I started spending more time w/ my family and brought on others to help with my business. I also adjusted my trading process to fit my new lifestyle.
I was winning, and things started clicking again.
I hope this story shows the need for a consistent review of not only your trades, but your whole process. I do a weekly review and immediately incorporate any new knowledge I obtain. Some coaches advise against this blanketly and suggest it’s system hopping. Given all I’ve been through, I see that as naive. Both the market and our lives give us continuous feedback. If we’re open, we’re learning all the time. If we refuse lessons today, we’ll surely get them again tomorrow, next week, or next month. Why wait to evolve??
Consider this. You write your plan but you overlook some crucial element. Maybe your stock reports earnings next week. You know volatility will spike so you’ve planned ahead. What you didn’t plan for is that another stock in the same industry group as yours reports tomorrow. Earnings are terrible and it tanks; taking the whole industry group (including your stock) down with it.
Do you wait until next month or next quarter to incorporate this new found knowledge? Or will you start looking at when other stocks in the same industry as yours report earnings as well? Will you begin to better manage your risk now or will you wait?
Frequency Of Review
You can perform a post analysis as frequently as you like. The more you do it, the more you’ll gain from it. I find regularity to help keep me on track and spot changes easier. It can be done weekly, bi-weekly, monthly, quarterly… whatever your preference.
Just like anything else, you need to put in the reps. Like Gary Vee says, you get the benefits of doing push-ups by actually doing the push-ups. Trading is no different.
If you really want to take it to the Next Level, try adding these bonuses to the mix.
CREATE A GREAT ENVIRONMENT
Our environments can help us or hinder us. An inspiring environment offers us HUGE leverage. This includes both our physical space as well as our mental space.
Here’s 3 things I do to create a great mental space:
- REMINDERS: Add reminders to stick to the process. Even though I talk about it all day long I still need to remind myself. I’ll scroll through my own Instagram Feed, set the background image on my phone to the Trade Tracker, and keep the notebook where this process is written by my side.
- MEDITATION: Meditate 2x/day (first thing in the morning and then mid-day). At about 5am I’m doing the Tony Robbins Priming Exercise. Somewhere between 12pm and 2pm I’m doing 10-20 minutes of Headspace.
- Here is another article w/ a ton of useful nuggets about Mindfulness Meditation.
- GRAFFITI: I have an Excel file of #inspiring quotes. I’ll go through them and write 1/day on the whiteboard in my office as a reminder of greatness. These get shared on my Insta Stories often.
WRITE WHAT FULFILLMENT IS FOR YOU
You wrote out your whole trading process. Time to do it for your life!
Ask yourself “What does fulfillment look like to me?”
This broader perspective can give you clarity in all areas of your life.
What does fulfillment look like for your work? Your trading? Your health? Family? Home?
Maybe you find out you don’t want to give as much time to trading as you thought you did. It ebbs and flows over time. I was pedal to the metal w/ my trading. That all changed when my daughter was born. Life changes. So do our ideas of fulfillment. If we want to stay happy we’ll need to stay aligned.
Fulfillment or lack of fulfillment can bleed into other areas of our live. We want to approach this with intent. If we don’t design the lives we want, someone else will design our lives for us.
I recently went through this exercise again. I found that I needed to adjust my trading. It was taking up too much of my time and far too much mental real-estate. While I want to be the best trader I can be, my goal isn’t to be the next Paul Tudor Jones. My goal is to create more wealth in the world. To be one of the top trading coaches in the world. To help as many traders as I possibly can trade fearlessly. That means less time trading, more time coaching, writing blogs like this, doing workshops, leading groups like Trader’s Mindchat.
Getting what we want out of life doesn’t happen on it own. Asking yourself the right set of questions is the start. Next, we need to take steps to make it happen. Build momentum. Build consistency. Run with others to go farther and faster.
I WANT TO HELP YOU
Thanks for reading this far. It’s a sign that you’re serious about improving your life, the lives of those around you, and of course your trading. I’d love to help you more!
Let’s connect at an upcoming event! We hold Zoom sessions multiple times per week!
Best selling author. Trader. Coach. His mission, help you succeed in the market as he has with thousands of others. He has spoken at AAII, Stocktoberfest, Benzinga’s Global Fintech Awards, and has been featured on NASDAQ Live.