One of the most difficult and constraining parts about moving from being a beginning trader to becoming a more advanced trader is getting to the point of having the confidence to make your own trades.
So often, new traders get started by following other traders, whether on Twitter or subscribing to a guru. While this is a great strategy to get started with, at some point you need to spread your wings and start trading on your own.
Here’s an example from a recent spiker. Notice the very limited entries traders could have taken for a successful entry on the day — especially if they follow my 9:45 rule.
CYTO chart: 1-day, 5-minute candle — courtesy of StocksToTrade.com
I differ from many traders who are anti- trading guru. Sure, there are tons of shady “pumpers” out there. But, after you have read all of the books and watched all of the YouTube videos, you need to get to where you can see trades, especially entries and exits, in real time. That is when an honest mentor comes into play.
But, the goal of this post isn’t to recommend gurus. My goal is get you to the point where you understand the value of making your own trades, whether or not you are subscribed to a mentorship program.
I’ve seen so many traders get a lot of success and momentum, then stall and fall back on using the crutch of following other traders, guru’s or not. Many traders will hit a dry spell and simply follow any trader that talks big on Twitter. They could have no profile picture and 50 followers, but I have seen guys with decent skill follow these types of random tweeters, simply because they have hit a slump.
In my opinion, the best way to prevent a slump and, for sure, the best way to stay out of one in the first place is to simply focus on making your own trades. I repeat a phrase to myself, many times a day, “only trade your price.” If this means I miss a trade that others profit on, so be it. But this philosophy has kept me out of so many poor setups with mediocre risk to reward that I cannot begin to count them.
Chasing trades and following other traders can work, for sure, especially if you are fast and the trader or the chat room has a large following. But, this is such a low percentage strategy that every win you have will often be accompanied by several losers.
The other situation where following comes into play is when you have no solid ideas or setups to trade. I’ve seen traders and myself take trades that they would not normally have, simply because nothing on their watch list was moving. You must avoid this as well.
That being said, the biggest issue with following other traders is that you have no, “skin in the game” or “due diligence.” It’s like finding a $20 bill on the street. Sure, its cool and exciting for a second, but you have no satisfaction in that “profit” and you surely don’t expect to be able to replicate finding $20 bills on the street as some sort of consistent business.
In one of my previous posts, I went over the value of being able to write and execute a trade plan. This is a skill you must master, if you will have any sort of long term success as a day trader.
For the sake of the last part of this article, I’ll assume that you have a decent grasp on writing trade plans and have been putting them down, in writing, consistently.
So, what does it mean to, “only trade my price.” This means that once you have written that plan and cemented your bias, you WILL NOT deviate from this plan. If you had decided you will buy a stock if it holds $5.00 at the open, you will NOT chase at $5.25, simply because a chat room has bought there.
Many traders will think that their idea is confirmed by the chat room, chase this trade up, so now buying at $5.30, then the chat room sells at $5.50, too quick for you to exit. Now, the stock drops to $5.10 and you are looking at a loss.
And next, the justification often begins, and you think, “well, I wanted it at $5.00, I’ll add to my position at $5.10.” But, you have a much larger position then you originally intended. Any small blip in the stock, say a crack to $4.99 and you are stopped out. Then, later in the day the stock holds $5.00 and makes a run into the close.
I have seen this played out countless times by “chasing traders” who let their price be effected by others. Had you let the morning chasers and chat room sheep do their thing and waited for your price at $5.00, you could have avoided a silly loss, had less stress and ended up with a solid profit, potentially a multi-day runner.
The first conclusion most readers will come to is, “Wow that loss burns, when it ends up working after all.” But, while silly losses are always painful, I can tell you the true pain comes from the impulsiveness of chasing other traders/chat rooms and not trading your price. You will stare at your plan and curse yourself for being a mindless robot.
Our greatest asset as day traders is our ability to think for ourselves. It is perfectly acceptable to take input from other traders, but the end decision and entry and exit prices must be your own.
I have found, through my own experience and in discussions with other traders, that allowing your entry price to be changed by others is a no win situation. As I mentioned above in the $20 bill example, even when the trade works, it feels cheap, unwarranted and you know deep down it’s not replicable.
A key part of the core teaching in StocksToTrade Pro is developing a consistently repeatable method for profits and small losses when the losses invariably come.
Until next time, detail each day in your trading journal. Note whether or not you traded at your price as opposed to following. And if you do chase, HONESTLY write out how you felt about that trade, even if it was profitable. I think with some introspection you will find that you get much more of a true sense of accomplishment from making your own trades versus others, no matter the outcome.