3 Tips That Turned My Trading Around

2021年4月23日

How did I get here? To moving from Germany in 2002 to the United States, and came here with $30,000 in my pocket.

I put $20,000 in my trading account, and I put away $10,000 for a living. It wasn’t easy in the beginning. It was quite challenging.

Now things are different. I mean, thus far in the first four weeks of 2021, I already made more money than I was able to put into my trading account in the very beginning.

I know if you are there in the beginning right now, you may have $10,000, $20,000, or maybe even only $5,000 or less to get started.

How do YOU get started? This is what I want to focus on in this article. You see, I’ve been trading for a long time and there are a lot of things that I’ve learned the hard way over the years, and I want to go over three very specific things that helped me to become a much better trader.

Don’t Focus On The Outcome Of Just ONE Trade

The first thing here is don’t focus on the outcome of one trade. You see, at the beginning of my trading career, I was really stuck on looking at what happens with just one trade, or what happened on just one particular day, but it is so important that you keep the longer range in perspective here.

Trading is a marathon, not a sprint.

One of the few certainties in trading is that there will be losing trades no matter how good you are, but instead of beating yourself up about the P&L (profit and loss) of one specific trade, keep your eyes on the bigger picture.

For example, I woke up one day, and I saw my account was down $12,000 and it actually got worse over the day getting as low as $17,000.

Now I could have chosen to panic and focus on the red, but you see, this is why I say trading is a marathon and not a sprint.

You need to focus on the broader performance over the course of a few days, a few weeks, or even a few months.

Usually when you look at your account and you look at the P&L, what are your eyes usually drawn to? The red, right? You will focus on the one trade that is not working out in your favor.

I can relate to this because I was just like this in the beginning. Think about it this way, your hand has five fingers. If you take a hammer and you smash on one of the fingers, you focus on the finger that hurts, and not on the other four that are fine. It’s human nature to focus on the bad stuff.

But you see, when you do this, you’re losing sight of all the other good trades and also how you’re doing over the course of the year.

This is super, super important, and you see, one of the keys to my success in trading is consistency and growing my account systematically.

I do this through SRC profits. SRC is an acronym. The S stands for systematic. I like to trade what I see and not what I think.

This is why use indicators and have a trading strategy that tells me what to trade when to enter, and when to exit.

The R in SRC profit stands for repeatable, by trading my plan. By trading and following my plan, I’m able to find repeatable, profit-making opportunities.

The C in SRC profits stands for consistency. You see, I’d rather make slightly less money more often than bite off all my nails waiting for the big winner. So focus on SRC profits. Systematic, repeatable, and consistent.

So remember, it is more important to focus on this than on one trade, right? We will have losing trades and it’s unavoidable.

Don’t Trade On Emotions

The second thing to remember is, don’t trade on emotions. When you’re trading with your hard-earned cash, there’s certain to be emotions involved. When trading there are two main emotions to deal with: fear and greed.

So as traders, we fear that we’ll have a loss, and lose money. There are actually two ways to control this fear.

Number one, you want to keep your losses small. While losses are part of the business, if you keep them small you won’t be afraid of them.

So I like to use, as a rule of thumb here, the 2% rule. The 2% rule means you never risk more than 2% of your account on any given trade. Think about it, if you have a $10,000 account, this translates into risking $200 per trade.

Let me ask you this. If you have $10,000 in your account and you’re risking $200, are you afraid of losses? Probably not, right? If you lose $200, it doesn’t wipe out your account. You can live to fight another day.

Now, number two is don’t trade with money you can’t afford to lose. I know you might have heard this before, but I just want to tell you a story from when I started. In the beginning, I scraped together $8,000 to start trading.

This is before I moved to the U.S. and got serious about trading, and trust me, I could not afford to lose this.

This was 23 years ago, and at that time I was 28. And when I was 28, 23 years ago, $8,000 was a lot of money for me.

It was everything that I had in my savings account, so this is why I was super nervous when I lost money. It made me cramp up and it paralyzed me. I was checking my account every few minutes, anxiously see what’s going on.

Have you ever done this? You check your account every 30 minutes? This is why it’s super important that you trade only with money that you can afford to lose.

I know easier said than done, but keep in mind, if you don’t do this it will actually hurt your trading.

On the other hand, there’s the fear of missing out or FOMO. That is another type of fear, which is really, really critical. This also happened to me at the very beginning of my trading career.

So you see, how many times have you seen a stock that has skyrocketed, and then you beat yourself up for not getting in?

If you’ve ever looked at a stock, see it take off without you, and thought, “Oh my gosh, I should get in” then tried to chase the stock higher, you’ve likely realized afterward that this was a problem.

A classic example of this that you might remember is the craziness that happened with GME, GameStop, not too long ago. People started getting in at $20, then $40, then some at $160.

Another typical example is Bitcoin. If you look back at Bitcoin here, what do you think? Where did most people get in in 2018? Did they get in when it was trading at $600 or $700, or did most people get in when Bitcoin was trading higher around $14,000, $15,000 maybe at $10,000?

Most recently Bitcoin went up from $10,000 to $17,000. Where did most people get in on this move? Probably closer when it was topping $38,000. See this is where it’s the fear of missing out.

For me, when I trade, I’m not going for these hot stocks. I like to trade based on my PowerX Optimizer and The Wheel strategy because they help me to keep my emotions out of my trading decisions by telling me what to trade, the best time to enter a trade, and the best time to exit.

You see, if a stock has moved past my entry, I’ll pass on the trade and wait for the next one, because there will always, always, always, always be another trade. Trust me on this one, because if you are looking at PowerX Optimizer, and you see when you run the scanner every day, it is showing you a bunch of symbols.

So for today, The PowerX Optimizer brought up seven symbols that I could have traded. Tomorrow it will be another two to eight. So obviously there is always another trade and this is why you shouldn’t be too scared.

This is the next one and it is a big one because after all, why do we trade? We trade to make money, right? But there’s a saying, “Bulls make money, bears make money, but pigs get slaughtered.”

You see, as traders, we want to take the trade that makes the most money. We want to find the next Tesla, the next Bitcoin, maybe the next GameStop, but often times when we find them, we’re getting in way too late. So how do we battle this greed feeling? Well, this is where we focus on SRC profits and having a solid plan.

Have A Plan

This is actually the third thing that I’ve learned in my trading career. Have a trading plan, and don’t make it too complicated. A solid trading plan is a cornerstone of being a successful trader.

There have been times when somebody will buy a stock, and when I ask them when they’re going to sell they say, “When I made enough money” or as someone said to me recently, “After it went to the moon,” right?

When is this? Probably never. You got to have a plan and this is why I have these two trading strategies, which is The Wheel trading strategy, and it is the PowerX strategy.

So what is a trading plan? A trading plan tells you three things, and I’ve touched on these already. A trading plan tells you what to trade, when to enter, and when to exit.

When it comes to exiting, we exit either with a profit, or we are exiting with a loss because losses are part of our business as traders.

So let’s take a closer look at the three elements of this trading plan. First of all, what to trade. This is in general, a decision that you need to make. Are you going to trade options, stocks, or futures?

It’s important to define what you want to trade so that you don’t get distracted. See, for me personally, I trade stocks and I trade options.

I’m buying options according to the PowerX strategy, and I’m also selling options, according to the rules of The Wheel strategy.

Now, the next question is when exactly are you going to enter? And this is super important, think back to the idea of FOMO, the fear of missing out, right?

You need to know at what price you want to enter a trade and you need to be able to move on it so that you get in, right?

This is where limit orders come in handy. So this is where here for example, with when to enter I’m using again the PowerX Optimizer because it tells me exactly what is the option premium that I should be getting in order to achieve my goals.

So for me, it is super important to have a tool that gives you this information and not guessing when you should get in.

This is why for me, it helps me tremendously to do this on indicators, and the indicators that I like to follow are the RSI, the Stochastics, and the MACD.

By doing this, you see, I can take the emotions out of trading which was rule number two. This is where, again, the PowerX Optimizer for me is an indispensable tool.

Originally it was just programmed for me, my head coach Mark Hodge, and my son a few years ago. Now it’s available for everyone. It saves me hours and hours because it scans for me.

Since I have my rules in place, I can quickly scan the charts to see what I’ll trade and what I won’t trade which makes my life so much easier.

You need a great trading strategy, you need to have professional tools, and you need to have the right mindset.

We can talk about strategies until we are blue in the face, but if you are not following the strategy, it is absolutely useless.

What else does a trading strategy have to tell us? Well, this is where we’ll talk about exiting, and we need to know when to exit either with a profit, and in order to define this, we are using a profit target, or with a loss. For exiting with a loss, I always like to use, when it is possible, to have a stop loss.

Using the logic “when I make enough money” is not a proper exit strategy. I know this because I did that in the beginning, and I was just swinging for the fences.

I entered a trade risking $100 and I wanted to make $10,000, but it doesn’t work this way.

Now, what are great exits? How can you define exits? There are several ways. You can use support and resistance, right?

What are tools for exit rules? You can go for a certain percentage, it really depends on what works best for you. For me, it is a profit target and a stop loss based on the average daily range.

The average daily range measures how much a stock move from top to the bottom, and a good rule of thumb is for a stop loss, you use one times the ADR, and for a profit target, you would use two times the ADR.

For example, let’s pretend the ADR is 40 points, or instead of 40 points we could just say $40. So this means that my stop loss should be when the stock moves down $40. So if I have an entry of $850, we minus $40, this means at $810 I would get out.

Now for my profit target, I would use two times my stop loss. So here in this case it would be $80. So again, if right now, my entry would be $850 plus these $80, right? So I would exit at $920.

Now let’s just say I’m trading 10 shares, right? So this means that I would lose $400 if I’m wrong, but I would make $800 when I’m right. So I’m making twice as much on my winning trades than I lose on my losing trades. So stop loss and profit target based on the ADR.

Now for The Wheel strategy, I do it slightly differently. For this strategy, I use 90% of the max profit. I can’t stress enough how important it is to be prepared when you are trading. If you’re trading without a plan, you’re failing. If not in the short term, then for sure in the longer term.

Summary

So brief summary. What are the three things that really turned my trading around? Let’s quickly summarize it.

Number one, don’t focus on the outcome of one trade. Number two, don’t trade on emotions. And number three, have a trading plan. So these are the three tips that really turned my trading around, and I hope that this helps and that it helps you also to take your trading to the next level.