When in doubt, get out!

- Michael Levin

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Ok, here it is, the simple discussion on how to be a better trader by improving your decision strategies.

Quick story 1st; I was trading a lot as I was running a day trading firm in late 2002. My results were terrible; selling my winners as soon as they popped, shorting strong stocks on up days and riding my losers down, averaging down and hoping and praying for rebounds in losing stocks when the market was down.

I was ignoring things that confident, unattached traders see. The technical patterns, the technical triggers, upcoming expected news, analyst opinions affecting my trades, SO many things that the trader that didn’t have to trade saw. I knew I was a great trader “in the past”…. Why was I sucking so badly now?

A friend of mine that knew me well and knew that I was totally off my game suggested that I stop trading and pick up a book on trading psychology and try and “find myself” again. I hated the advice but knew he had my best interest at heart so I went to a library and to a few bookstores and checked out a few books that had high recommendations from readers.

The one I settled on was Marc Douglas’s “Trading to Win”. Now I’m not going to write a book report here or point to the many things that he said in the book (I DO recommend it VERY highly though) that I think is valuable but the one thing I did after reading his book was this: I stopped trading.

I realized a few things for myself that gave me the clear headedness to choose better from the start. To choose what is important to me 1st when trading and that is this: It’s about making money.

Wow, a revelation right? YES, to ME it was. How many of you reading this article like to make money  trading? I know it is 100% without a doubt. Now, how many here like the excitement of trading, or the art/science of tape reading or chart reading? How many like capturing news events and being the “quickest” trader. How many like getting even from the days before stop loss? There are so many reasons and triggers in the markets to get us to make a decision that who is making the call?

Is it you, clear headed with a game-plan to make money and to have clear cut patterns you are watching for whether they are chart related, open interest clues, seasonal patterns playing out or crop/inventory reports that shock the market that you are prepared for or even unprepared for that allow you to be in doubt and to therefore NOT trade?

I was very highly ranked in an international competition many years ago and had even broken a few records whilst still trading in this competition . I had an easy strategy that worked all the way up to when I stopped using it and started going for the “home run” plays. My strategy was simple really; I waited until a day that the market was up big or down big (this was in equities, bear with me on this) and I would then look at what the top winning stocks were for the day when the market was decidedly down and then check their chart patterns, volume and option volumes to determine that the “smart money” was nibbling there and I would be near term, at the money calls and within a day or so, the market would stabilize or reverse up and invariably that stock I owned calls on would pop nicely and I’d make 30-100% on my position and I’d move on without a thought or care. I did the same on big up days, finding stocks that were dropping off when they ought to be running with the market and I’d buy puts…. Yadda yadda yadda… the market would turn and my stock would drop like a stone and I’d make money on the puts.

I wasn’t even really doing much thinking, I just had something that worked, I saw the evidence and my strategy took over and I pulled the trigger. I could be right or wrong but I was unfazed as the decision points arose and I executed that decision and then I watched/managed my feelings during the trading day.

My point here is that somewhere along the line, we have points where decisions are available in our trading and we either take them, dismiss them, ignore them or, most importantly, we lower our level of consciousness as to pretend that these triggers don’t exist in our reality…

This is where things can get “heavy”…  This is the meat of this article: Where is your level of consciousness when you DO make a decision and when you AVOID making a decision?

Some traders are ill fated from the get go. We know a few and we salivate at the chance to take the other side of their trade, no matter what it may be, because we know they have a poor decision strategy and that for the most part they will be at the wrong place at the wrong time. Why is that?  They repeat their same mistakes over and over and they JUSTIFY it as something OUTSIDE of themselves.

How to defeat that is as easy as defining “What you want” ahead of time and letting go of “how” the winning trades will appear for you.

An example is this: You wake up and you are flat the markets and you have had this feeling about a commodity, say corn for example (this has been my feelings for a while) and you have been saying to yourself that corn can’t hold a rally, everyone you know is long, everyone is talking ethanol and the charts keep looking like crap. You know that eventually they have to unwind and with the weather being so good and the rainfall being just right and the acreage planted exploding…. You just feel that the best trade is a short and you put it on.

You pick the points at which you will cover if you are wrong and you pick the areas that it will drop to if you are right and then you let the trade go; WITHOUT an attachment to whether you are right or not… 

There are a few outcomes as we know that are possible, but what happens is what happens. You have the best intentions in the trade but are not attached to it. Part of a clear consciousness in trading is letting go of the fear/greed emotions and as they would say in the Far East: “Being one with the trade”.

EASIER SAID THAN DONE!

No kidding, everything in life is easier said, that’s why people do it, but when was the last time you entered a trade and relaxed into it, instead of being caught up in the hype and excitement of it?

When I recently recommended Cotton as a very Bullish play, near the lows, I was a little apprehensive, but I also put myself in the camp as if I were short and to tell you the truth I would have been more nervous there than being long and waiting it out a bit.

So what about the decision strategies I mentioned earlier, when am I going to give you the Golden Nuggets of decision strategies that are going to take you from being a 50-50 trader to one that wins and keeps their winnings say 75% of the time?

Here you go:

1. Find a pattern in the market or 2 that you really like, like Island reversals or cup and handle patterns or trend reversal patterns and then look at your favorite futures contracts and FIND them. Whether they are on daily patterns, 60 minute patterns or 5 minutes, it doesn’t matter.

Then track what those patterns did on those timeframes and see where you would have been had you entered based on making a decision to trade it. Start finding them in real time and if you feel that you like the results, keep trading them.

2. Find seasonal tendencies in futures contracts that you like or like to hate, lol and track how well they do or even tinker with them a bit based on this current years situation. Make a choice that if you like it you will do it and then stick to what you set out to do, have a stop in mind and when your alerts hit for a stop loss, enter the order and get out or if it is an alert that hits for a gain, say thank you and sell. I don’t put live stops in the market, I have alerts that tell me when I am close, then I pay attention to the action and if my absolute number is hit, I already have the close out button ready and I push it. Whether it is a gain or loss, I actually have trained myself to feel GOOD about exiting a position.

Jesse Livermore said it best: “I was wrong; and the only thing to do when a man is wrong is to be right by ceasing to be wrong.”

3. Find the right REASONS to trade. For me, I like news and rumors and the hype that surrounds an equity, option or futures contract. If it is on a day where Fed announcements are to be made is one of the few days I don’t take major positions, but on certain times I do like to take small positions if I have what I call a “true bias” towards a market. It’s a ‘feel’ that isn’t based on my ego or logic as much as a “knowing”. I once heard that “The highest form of knowing isn’t really knowing ‘why” you know, but a feeling like you just know anyway”…  It’s not about being right, it’s about trusting in your instincts to a point where you could rely on them above all thoughts/logic and others opinions.

I like some of the info I have gleaned form the book/movie “The Secret” as well as some of Robert Fritz’s work particularly “The Path of Least Resistance”…  These kinds of books/movies/ideas border on magic as far as I am concerned for they allow one to literally conjure up the desired trades/ideas that drop in ones lap if you can grasp the “how to” of manifesting, creating, attracting and “allowing” of what you want. Highly recommended reading.

4. For futures traders in non index related products, learn to “stalk” the trade until you feel the time is right. What I mean by that is to know when all the available reports are in or are due and see where the open interest is where the volatility is and in what months are the best play for the direction you are certain of. Then do a “gut check” for yourself where you allow yourself to sit down in a quiet place (yea, I know this sounds hokey, just go with me on this) and contemplate your trade. Think about it as if you were already in it and OUT of it and what feelings come over you? Are they ones of dread or fear or resistance or of consternation? Then don’t enter the trade. Are the feelings you get real or are they forced? If you can see yourself happy or with feelings of exultation or even just satisfaction, then enter the trade, have your stops and “know’ that the trade resonates with you and then do it.

So much more we can speak about decision strategies, attitudes and manifesting, so please email me for advice or click on our links here regarding our very highly successful Spread trading system. Either way, I will give you objective advice on whatever it is you want to know.

All the best in your trading.

Michael Levin is a Consultant to Platinum Trading Solutions. He has been in the Financial markets since 1981, having been a broker and trader on the PHLX Equity Options floor in the 1980's and ran trading firms in New York in the 1990's to 2002. Mike briefly set a record in the options trading division of the US trading Championships years ago.

Trade the Platinum Commodity Spread Program COMPLIMENTARY for 60 days

PLUS, for a limited-time only, receive 30-days complimentary access to the Platinum Weekly email market performance update! This system works! Long only commodity funds that buy and hold huge quantities of futures contracts in many commodities have become a very powerful force in the market. These funds act in a very predictable way and the Platinum Commodity Spread Program has found an ingenious way to profit from the price movements of the spreads caused by these long-only funds. The Commodity Spread Program is now offered on a limited basis by Platinum Trading Solutions. Go here to learn more.