The highest form of "knowing" (About a trade) by a trader isn't necessarily knowing "why" they know, just that they DO indeed know...

- Michael Levin

Get Quotes, Charts & Margins - RJOFutures

Five dollar corn?
Six dollar corn?
How high is high?
Can it go higher?

August 10, 2007

You just have to be good...

By “Good”, I mean that you have to make $ as a trader.  You can’t start the year with a $100,000 account in January, trade all year and wind up with $90,000 and then look at the $20,000 in round turn fees and say you were any good. In fact, you can’t even say you were any good if you only made 10% or so as a trader, that’s barely eeking out anything, let alone a living.

And when I said that you don’t have to be “smart”, I meant that IQ has nothing to do with making $ in the market.  You can be a “quant” guy with every mathematical degree in the world, but not know how to take a loss or to place a stop or even when to pull the trigger.

Some of the best traders I know ARE smart, but a few others aren’t the sharpest tools in the shed off the floor, but when they are in the game, they at least follow their own rules, know what they are good at and ply their trade.
A good scalper knows that they will miss big moves in the market, but those big moves allow him/her to be ABLE to get in and out with a few ticks/pips without much risk or time in the market.  A lot of people miss that edge, the one where you find a way to get in and out quickly with albeit the slimmest of profits but at the easiest/best of times.

Another advantage of scalping is that it is almost entirely an intra day game.  No overnight risk or headaches.  All one has to do is deal with the days sorrows or exaltations and then you have a clean slate for the next day.

Complimentary 30-day Trial on Grains Newsletter

The one source for cash grains and futures information. News, quotes, weather and more emailed regularly to keep you informed. Contact us for full access to our news services covering dozens of futures, forex and OTC markets. Decades of research experience delivered where and when you need it. Go here to find out more.

A swing trader has the ability to scale in and out of a position, using time as an ally as well as price.  Some traders will only scale “up” in price if long or “down” in price if short.  The reasoning of only adding to a winning position is the mantra there.  Others, such as myself like to scale into a position using time, price, support and moving average levels as our guides.  Sometimes that does backfire and other times it magnifies great turning points.

Spread traders are a sharp bunch, usually with intense data on their side as they put on large positions because of the favorable leverage associated with spreads.  It has been said in many trading venues that spread traders have the “biggest houses”.  Once in a while though, those houses get put on the auction block to pay for the huge losses if their spreads go the wrong way and wipe them out, like when the energy complex recently reversed and the short months rode up over the back months, crushing the bear spreaders and having them run for cover.  It can be a tough game for even the biggest of traders as well as their firms.

Look what has happened in the credit markets recently, as entire hedge funds are disintegrating, maybe bringing down entire firms in the process. You can be smart intellectually, but get caught up emotionally in a trade and have the world fall down around your head.

This is where instinct and capital preservation are SO important.  I can’t tell you how many times I went bust as a trader, it was sickening.  I’d make a few hundred thousand over a year and give it back in 2 weeks.  I’d rise up again, take a small “grub stake” and turn it into another small fortune, then drop it in a few months on a “pet” position I had that I just couldn’t sell and HAD to buy more of til my entire account was riding on it and we all know what happens when we do that...

So how do we become good traders and leave the smarts at the door?  It’s quite simple actually; here is my take on it:

1) Find what it is that you LIKE to do and find what it is that you do that makes $

 a. Choose the one that makes $ and hopefully it is also the one you like to do.

 b. stop doing what you like to do if it doesn’t make $ and just find what “works” 1st

2) Make what makes $ for you LIKEABLE

 a. Make it fun or enjoyable and REPLICATABLE

  i. If you can’t replicate your successes, stop trading.

3) Have a rationale for everything you do

 a. If you find that fading certain signals works, do that

 b. If you find a great service that is “smarter” than you and their entry and exit parameters are good (MAKE $) then follow that

 c. If you find that YOU are the one with the good read on the market, then do that

 d. Just find something that you can COUNT – ON and do that.

4) Have SOME rules that you ABSOLUTELY stick to

 a. Whether it is a position limit or a $ loss or a $ profit target, get good at following YOUR WORD and your Goals

  i. If you can’t stick to your own game plan, please tell me what you are doing so I can take the other side of your trade, you will eventually lose it all, trust me.

 b. There is a fantastic saying, take what I am about to write and re-post it somewhere on your computer that you trade from:  Every Powerful Trader, has Him/Herself under their OWN Control

 c. If you can’t control yourself or find that you are TRYING to find a good trade, take that as a sign to STOP.

 d. If you find it difficult to even find ideas or follow your own instinct, do not trade.  Wait until you feel moved to put your precious capital to work where you are certain that profits are to come from your moves.

5) How to find good ideas?

 a. This may sound strange, but I found Cotton in mid May because I wanted to just look at charts that had distinct problems with them.  Problems like huge run ups or messy declines.  Places where I knew that some people were getting it handed to them hard and then I watched and researched a bit and I took a longer term view and decided to wade in.

 b. Other times I wait for a commodity to break out of certain patterns or I wait for certain candlesticks or even retracements of nice moves, I’ll get in for the ride.

 c. Seasonal tendencies can be fun/lucrative to trade, but watch out if many are in on the same game, like the “Hurricane – Natural Gas play”.  If there isn’t a hurricane for a while, jittery traders may trigger wild moves, hitting your stops…

 d. Advisory services can be good, if they are run by REAL traders/Firms that take pride in their picks and their reputation.  Stay away from the many brokers that can’t even make $ for themselves, let alone you.

I can go on and on about what makes a good trader and some tips, but all of us traders that have been around for 20+ years know that the boring basics are the most important things in trading:

1) Money management – being able to stay in the game because you didn’t burn out too soon

2) How to take a loss – Why do they teach people to ski by showing them how to “fall” first?

3) How to let your winners run – Maybe the toughest thing to do for me personally

4) How to be UN attached to the outcome and more attached to your “swing” – This is about doing the right thing, no matter what and doing it consistently, using Baseball as the metaphor

 a. Hitting the ball hard but having it caught, is sometimes better in the long run than getting a bloop hit by swinging outside the strike zone.  i.e. Getting lucky in a trade doesn’t make you good, it masks the real results.

5) Realizing that your opinion means nothing to the market and there is no “they” trying to mess with your position, it is purely a game and is your results indicative of you being hired and paid for the results you bring in…

Take a varied approach to the many markets and make sure that you don’t do anything unless you have a clear-cut edge or have very deep pockets or Kahonies as big as the great outdoors...

In the end, you won’t be measured by the bold moves you made or the great ideas you had or the huge wins, it will purely be by the account balances at your clearing firm, the equity in your house(s) or even the many “toys” that you and your loved ones possess and enjoy and the real smile on your face as you face the new day, month and year, as a Successful trader that is confident in their outcomes before they even step on the field.

How do they know?  See My traders quote at the top of this Page.

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.

Complimentary Information on the Platinum Trading System

STOP LOSING MONEY - By trading the same tired system, by being a victim of your emotions, by letting slippage rule your trading.

START MAKING MONEY- By diversifying and by trading multiple systems with REAL track records, by letting fully automated systems make the calls (not your emotions), by having access to the most advanced execution platform, by concentrating on what you do best.

Go Here to find out how you can join our program and enjoy the financial rewards of having a truly diversified portfolio.