Good Morning Folks-
I was recently asked if there is a certain state of mind which is better, or even a prerequisite to be able to trade well. Is it all about analysis, indicators, trend-lines or is there something more to it?
Are good traders which is to say profitable traders, are they good because they are really good at analysis or is there something more to their success?
All of these are important questions. And I felt compelled to give it a deeper thought.
While I cannot claim to know how other successful traders think, I can look back at my 15 years of experience in the markets, trading almost every day, to elaborate if there are certain traits or behaviors at a personal level which promote better trading
Can I then document certain habits or certain ways of my own thinking which have preceded good days?
On the flip side, are there other days where I have performed poorly and what sets those types of days aside?
To answer this, I decided to catalog my trading day. While I cannot share all aspects of what I go through to maintain some respectable personal boundaries, I should be able to share many of my actions and thought processes.
At a high level, everything is about patterns. Your work, your relationships, your trading, your money- it all comes down to patterns.
Conscious thinking is hard. It requires a ton of energy and therefore nature makes it only a small part of what we do. The mind then solidifies what we think and do on a daily basis into patterns.
Broadly speaking, there are 3 types of patterns:
Mindset (thought) patterns
All of these play a role in how well or how bad you do. In this post, I decided to take some of these patterns from my own experience and elaborate a bit more on them as to how they impact my trading.
For sake of organization, I structured these patterns in 3 broad buckets. This makes it easier to visualize on a timeline:
During the market
After the market
Since the market is an unstructured environment, there are no absolutes, only relatives. Remember the market is all about these relative-references and reaction to those references. There are no good or bad traders. There are just traders with good or bad references. I spend a lot of time trying to understand these references. My personal opinion is lesser the clutter in your brain and life, the better your references will be. This is a key reason I do not use any kind of technical analysis other than the basic profiling and DOM. I instead spend a lot of energy in understanding market references from a continuous market auction perspective.
Pre market consists from the time I wake up to the time of opening bell. I get up early. Like really early. I am up most days at 4 am. I attribute this habit to having started trading forex back in the day when I was just starting out. I had a regular 9 to 5, was low on margins and only hours I could trade was London/Frankfurt sessions. I used to get up between 2 and 3, trade for a few pips on a bucket shop broker before heading out to my day job. Rest of that story is for another day. However, coming back to now, I am up at 4 and before I do anything else I catch up on the following. Now I do some other weird stuff like a few minutes of meditation, shower, workout but I am not going to bore you with TMI 😉
I try to figure out if this is a risk on or a risk off day: you will not always be able to. Most days you won’t be able to tell on from off. However, on the 10 % of the days you can, the session will be easier to trade and you will not go against the trend. I use related markets like VIX and NASDAQ to check if something super weird is going on and not step in it. For example if the VIX shoots up 50% in a day, I am going in looking for shorts until proven wrong. If NASDAQ makes a new high on a 400 point day, I am only going to trade on the long side.
Know the story: most days , the market is being driven by a story. It could be anything, it does not matter. But you want to be in the flow of the story. Note I did not say news flow, which is very different and mostly fake. Stories can be lockdowns, defaults, bankruptcies, debt ceilings. These are facts and the markets form patterns around these which they tend to repeat, until broken. Some recent examples include DWAC, TSLA, PTON, MRNA etc. Understanding these stories can be lucrative even if you missed the initial move you can still squeeze some juice out of it on follow up reactions.
Be aware of the primary trend: I always keep in mind what is the short term trend whether that’s the weekly or monthly. Are we consolidating in a range or breaking out of it etc . I do all my analysis and levels before the market opens. These levels can be my Tic Toc orderflow levels, PLOD, PHOD (Prior day’s highs and lows) or weekly level. I do not go beyond monthly levels on S&P500 when trading intraday.
Do not ignore the obvious big ticket news like the FOMC: Always know the major economic news releases of the day . Even if you have no idea how to trade it , you don’t wanna be caught with your knickers down when that NFP report hits as that alone can cause a liquidity vacuum and cause adverse price movements of several points.
During the Market:
Market is now open. Now what? Just buy and sell Tic Toc levels? Nope, not so fast!
First things first:
Where are we in terms of prior range: this is perhaps very important and many people ignore it. I want to know where we are in the context of yesterday’s auction. Are we opening within the body of yesterday’s action? Above it? Below it? Important references NEVER to be missed.
Keep an eye on test of important references: If we open within yesterday’s range, is there an attempt made to break out of the highs or break below the lows? If we opened above the range, is an attempt made to test the prior highs or Value Area High? When was the attempt made? Early in session or late in the game? What was the relative volume on these attempts?
What are the internals telling me: where has TRIN opened? Is it trending or flat? What is TICK doing? Is it making extreme readings in IB ?
The MOST important thing: You have done your preparations, you have watched the market for the first half an hour of IB. watching, AND you place your first trade of the day! It goes up pronto, you are up a grand, wow 🤩 it feels great! However, this is not what destroys us. Winning always feels good and begets more winning. What messes us up is a loss. It is my personal theory that really good traders handle losses in a very different way than the really bad traders. See the next point about learning to lose.
Learn to lose gracefully: For me to perform well, I have to be 100% agnostic, and pay 0 emotional attention to the losses. I need to cut my loss ASAP and move on to the next trade. The moment I get engaged to the loss, the moment I marry her and take her home to my heart, is when things start going downhill for me. I will set aside a max daily loss, say 10 points, on most days I never hit it. But the days that I do hit it, this is where I stop for the day. 15 years of trading has taught me that if I go past trading 10 points of loss, this is not gonna end well, it is gonna be a 50 point loss day!
Everyone’s PAIN threshold will be different: while I can only tolerate 10 point loss , you may be more pain averse and your limit may be 20. This is a subjective number and needs to be fine tuned based on many factors: your trading style, your personality, your goals and objectives.
To summarize, truly good traders handle losses very differently than the masses. In a way you could say they are fearless of the losses. I cannot stress this one thing enough times. If you could take one thing away from this whole post , it is this: all your preparations are naught if you let the losses get to you. The most optimum state for trading is a carefree state of mind. Free from fear. Free from any expectations even. It's free of any thoughts to be honest.
After the Market:
I go for a long walk or a hike after the market closes. I revisit every single trade I did and rethink it in terms of why I did it and if I could have done it differently. It is sort of a mental rehearsal to playback the entire day.
Earlier, before substack, I used a APPLE Notepad app to document my entire day and levels . Now I use Substack and share my levels and thoughts with subscribers. So don’t forget to Press that subscribe button 👍
Some other action and thought patterns which help too imo:
Active trading is a solitary pursuit. Being in a flow state of mind is a MUST. With practice you will understand yourself better and will know if you are distracted or focussed.
For example when I am distracted, I will not trade, or trade very small. These are some other things which help:
Good, 7-8 hour of sleep. Almost all of my bad days come after a night of bad sleep.
Eliminate useless apps which draw your attention like Facebook. Basically I cut down on anything where I am consuming information about other people's personal lives. I don’t care about it any more.
Read everyone's opinions but know at the end of the day they are just that- opinions. I do read a lot of FinTwit accounts but I do not take it to heart what they are saying. I read for the most part to identify an opportunity which no one has thought of before. Tweets which sound outlandish are many times good opportunities. Keep an eye for those.
Good traders think differently. Great traders do not think at all. They have automated a lot of their thinking. While technique plays a role, most wins come from the mindset for an experienced trader as technique plays a smaller and smaller role.
They prepare BEFORE the market even opens and during the open, they just execute.
Good traders do not even think about losses. They are fearless. They are quick to cut their losses without a second thought.
Good traders take care of their mind and bodies. They eat good, sleep well, workout and use performance techniques like Visualizations, meditations, NLP etc
What else did I miss? Feel free to Tweet at me or write me a comment below
I hope this added some value. Feel free to share this with traders like yourself if you think this made sense.
I was in a hurry to send this post out as market about to open and I have been at it since last 2 days. But I will keep this updated and add some more content on a couple NLP techniques I use. They work, believe me. Bookmark this to refer back in a couple days 👍
~ Tic Toc
Disclaimer: I am not a psychologist However, this post is a result of certain beliefs and opinions I hold about optimum performance. Consult your professional psychologist before implementing any of these recommendations. This newsletter is not trading or investment advice, but for general informational purposes only. This newsletter represents my personal opinions which I am sharing publicly as my personal blog. Futures, stocks, bonds trading of any kind involves a lot of risk. No guarantee of any profit whatsoever is made. In fact, you may lose everything you have. So be very careful. I guarantee no profit whatsoever, You assume the entire cost and risk of any trading or investing activities you choose to undertake. You are solely responsible for making your own investment decisions. Owners/authors of this newsletter, its representatives, its principals, its moderators and its members, are NOT registered as securities broker-dealers or investment advisors either with the U.S. Securities and Exchange Commission, CFTC or with any other securities/regulatory authority. Consult with a registered investment advisor, broker-dealer, and/or financial advisor. Reading and using this newsletter or any of my publications, you are agreeing to these terms.