Things I Wish I Believed When I Started Trading

Although I've been involved with trading (i.e. survived) on and off for over 20 years, it has been 4 years since I've started actively trading again.  I'd be the first to admit -- although there are good moments, life of trading isn't always easy, especially when you're first starting.

For whatever reasons, I wanted to write some "things" I wish I believed when I first started trading.  Every time I see a new trader trader start to learn how to trade, I wonder if they really know what they're up against.  What most people don't tell you is that trading can be very difficult, especially mentally.

Don't get me wrong -- I love to read about peoples dreams and expectations, because it helps to remind me why I first decided to trade.  You MUST have those dreams, and they MUST burn a fire of passion deep within, or else it'll be too easy for for you to quit when the inevitable dark times come.  If you've been through the trading school of hard knocks, you know trading can get really brutal.

When I first started trading, I wish someone told had told me what to expect, and perhaps my journey would have been a little smoother, or totally different.  

Well, I take that back.  

Honestly, I probably wouldn't have listened or taken this type of message to heart.

Many of the "things" I list below are well known and no secret.  I would have said, "This doesn't apply to me."

We all need to learn the path ourselves, similar to how we need to discover what method and style of trading works best for us.

We're all different, so this list may not even apply to you.  But this is what I've experienced, and have also observed from many other traders on their (often failed) journey.  As they say, hindsight is 20/20.

You need to be a bit of a psychopath to do well as a trader

First of all, having certain psychopathic tendencies isn't necessarily a negative thing.  But on the other hand, if you are to become wildly successful from trading, you are not a normal person.  

The learning curve to trade successfully is brutal and takes a lot of time and energy.  Sure, when you're on a winning streak and on top of the world, trading seems so easy.  Get too confident, and the market will certainly punish you financially and mentally.

But to be able to keep pushing forward, when the chips are down, and you can't seem to do anything right when you book a loss after loss after loss.  It requires extraordinary effort, like psychopathic tendencies, to continue moving forward.

You can read an interesting article on psychopaths HERE.

Once you learn the basics, successful trading is mostly about behavioral modification / trading psychology

How many people do you know who have tried to diet or exercise or lose weight or quit smoking, or whatever, but couldn't succeed?  

Of those who are successful, how long have they been able to change their behavior?

Google up "Success rate for [smoking/losing weight/etc.]"  Is it coincidence that the % that fail are similar to those who fail as traders?

Chances are, you know many people who have tried to change their behavior, like a diet, achieve some level of success, then revert back to their old ways.

But I'm sure we all have seen success stories, long term success in some cases,  people who truly changed their ways.  

What were the successful people able to do?  They were able to modify their behaviors and habits.  It's very similar with trading, since natural human emotions are wired counter to successful trading habits.

Learn from other fields of study that require behavior modification or how to change your habits in order to succeed.

So in hindsight, what should I have done?

Learn as many trading setups and test them out, preferably live to work off the emotional charge of trading, but trade very small size.  Find ones that produce an edge for YOU over at least 50-100 trades, or more.

Pick your top 3 performing setups (or just ONE, per Trader-X below) and commit to them.  Get married to them, for better or for worse.  Continue trading super conservative risk management (RISK SMALL, risk well under 1/2-1/4% of your total account) and track how well you do with a more focused setups.

In the meantime, focus your energy on the behavioral and psychological side of trading, to see if you can simply remain consistent with your plan and execute properly.  If successful over time, this will build up consistency and confidence.

So, how do you work on your brain and make it stronger?

Self-hypnosis, NLP, meditation, mental exercises, sessions with a trading psychology coach, biofeedback, etc.  Like trading setups, there is no right or wrong way to work on this, only what works best for you.

Ultimately, finding what works best to strengthen and maintain your mental game will determine whether you succeed or fail as a trader.  It's not the setup or the strategy.  It's all in your mind.

If you're an adrenaline junkie looking for excitement, don't trade.  Find something else for excitement and keep trading "boring"

For a rush and excitement, perform in a musical band, compete in something whether it's chess or triathlon or to get on a game show like Jeopardy or a cooking show, go rock climbing, give public presentations, etc.  

Find a passion that will give you goals and excitement outside of trading.  But seeking excitement from trading will only make you lose money.  Because that's gambling.  And over time, you will certainly lose money if you gamble.

If your main goal is "I want to spend more time with family", don't daytrade.  Maybe consider swing trading. Or better yet, don't trade at all.

Active daytrading is more of a young person's endeavor.  When I was fresh out of college, I spent a considerable time learning to trade and I would easily spend 14-18 hours a day.  

There was no impact to family, since I was single.  I could blow up trading accounts, and oh well, no worries, since I have my whole life ahead of me.  

However, this not something as advisable if you have a family and are just learning to trade.  And are you over 30? [my hand is raised]  Then the odds are even more against you.

See an interesting article on about why there aren't many top traders over 30 years of age HERE.

Venture into the field of trading because you love it, not necessarily because you want to have more time for other things.  Learning how to trade successfully is all all encompassing and will take over your life. 

And if you treat trading as a hobby, then sure, that's fine, but it will likely be an expensive hobby.

Focus on mastering one setup

I should have listened to Trader-X, one of the original old school bloggers.  Read the articles HERE and HERE about "Chasing Success."  Read the comments, there's a lot of gold in there.

In the old school sushi restaurants in Japan, an aspiring sushi chef will spend years working in a restaurant and mastering various tasks, like simply making steamed rice for 2 years, before even being able prepare the fish.  

Seems a bit excessive, doesn't it?  But what a way to build discipline.  So what did I do?  

I went into stocks, then forex, then futures, then options, then stocks again, then options, then back to...

And within each of those asset classes, I tried discretionary trading, charts patterns, volume profile, Fibonacci levels, mechanical systems, quantitative/statistical outcomes, special situations, etc.  

A jack of all trades.

I have a personality that loves to research and to constantly learn.  So it's hard for me to just focus on one setup and only execute that for an extended period of time.  

Because it can be so...boring.  To just sit around waiting for one setup seems like such a drag, you know?  It's like a...job. 

BINGO!

When I've felt and treated like trading was a job -- you know, somewhat of a drag, somewhat boring (which trading can be much of the time), like something you didn't necessarily want to do (sitting around endlessly looking at a computer screen), but you know you have to do it and do it well -- those have been the times when I've executed my trades the best. 

Assuming you've successfully worked in the corporate world, don't immediately try and replace your salary

Before the latest return to trading several years ago, I was fortunate to be in the tech/financial space where 6 figure annual salaries are not a big deal.

So when I returned to short term trading, I wanted to replace that salary (AND MORE!) without really spending the time to develop a sound process and strategy that was in sync with my personality.

Why would I want to limit my losses to $20 and possibly gain only $80 on a great trade?  That's peanuts!  Wuss!  C'mon, I don't play the $5 tables in the casinos, so why should I do the same in the stock market?  Now add a few zeros to that and then we're talking!

Bad mistake.  Ego was talking.

Get a solid strategy and process in place first.  RISK SMALL (less than 1/2-1/4% of your portfolio per trade).  Achieve consistency.  Work on getting through any emotional and mental issues trading live.  Then scale up, slowly.  Otherwise, you are likely just gambling.   Which means you'll lose.

Trading small -- easier said than done.  

Most people will initially have the discipline of risking small, but will eventually get tired of the grind.  When the realization that someone working at McDonald's is making more than you, going for the big win out of boredom and/or frustration of a bruised ego is easy to do.

Sure, you might get lucky betting and winning big, but eventually, if you don't follow a sound strategy and process with an edge, it's only time before you lose it all.  I've seen it happen to many people.  On twitter, keep track of those traders who go quiet and/or permanently disappear.

For the first year or two (or more), it shouldn't be about the money, but about finding the strategy that works best for you, and creating a process that you can repeat over and over.  Make it through that learning experience with minimal tuition (i.e. losses).

If you're coming into trading from a successful career making respectable $'s, it will be especially hard to bet only peanuts while you learn.  Whether you admit it or not, you have a big ego, although you might call it confidence.

The temptation to size up will be big.  And you'll be lucky at times, or for weeks or months, but if you don't practice prudent risk management, the market will take it all back.  It's only a matter of time.

Learn to walk before you run.  Don't think about the money, just whether you executed your plan properly.  And RISK SMALL, especially while you're learning.

Trading is all about money, but successful trading has nothing to do with money

Yes, the basis of trading revolves around money.  So it becomes easy to focus on profits and losses for every trade.  

But this is one of the best ways to get sidetracked and to go down that dangerous road of emotional trading.  Focusing on money (especially if you're losing) can quickly lead to FOMO (fear of missing out) trades, along with impulse and revenge trades.  Once you're in that frame of mind, it's pretty much game over, and there's a high probability you will kiss your $'s goodbye.

Those who are successful traders will usually have a different perspective of trading -- the outcome of any single trade doesn't really matter, as long as the proper execution and position sizing has taken place.  

In addition, the routines of the processes/routines necessary to be properly prepared for the next trading day are repeated consistently over and over and over.  In many ways, it's just one big constant grind to be a consistently successful trader.

It's a lot of work, which has nothing to do with money.  So you better love everything about trading, especially all hours of research and homework you'll need to do when the markets are closed.  Otherwise, find something else that captures your passion.

If you're starting with a small account expecting to make a decent living, then yes, you're gambling

Study trading long enough, and you'll hear endless stories and mantras about "Don't risk more than 1% (or 2% or whatever) of your portfolio per trade.  Risking small works for people with a big account in order to make a reasonable living.

It's one thing to have a $1 million dollar account to try and achieve a 10% return in order to make $100k a year

But it's another to start with $5,000 and think you can make $100,000/year, consistently, especially if you've only been trading for less than a few years.

And let's say you are one of the few that does it.  Still, you can not quickly build an account without either risking a big % of your account on a several "high conviction" trades, and/or have a unusually lucky series of consecutive wins.  

For those of us who start with a small account and build their account to a sizable amount, there was significant LUCK involved.  Making big $'s from a small account -- it can happen, I've seen it happen, and I truly hope it happens to you!  I've seen people win the MegaMillion lottery, too.

But it's not a good idea to base your business plan and trading career on luck. If you do start with a small account, consider it additional tuition expenses, not your ticket to the big time.  Because you will likely blow it up either via losses or commission/fees.

And in the meantime, work hard and hustle to save up enough to open a respectable sized trading account.  Then you can risk a minimal % of your account so that you can statistically reduce your risk of ruin, but still generate reasonable account growth.

After you have a lot of successful experience, then maybe you can decide if you want to trade like George Soros, where you put all your eggs (and more) in one trade based on your level of conviction.  

But for the rest of us, that method is not a good idea.  

Expect AT LEAST 3 to 5 years to become consistently profitable, assuming you don't quit or blow up first

Huh, WTF?  That's a really long time, c'mon, that's BS, man.

What about "Joe Super Star Twitter Trader" who started making $10k/week after 6 months?  Or all those other people banking big bucks and killin' it week after week within a year after taking a trading class?!?

Sure, it's absolutely true that you will start killin' it in under a year -- very possible, but very rare.  Most of the time, it's just a lot of it is BS from people trying to sell you something. 

If you've been around long enough, you'll understand the saying "Trading is the hardest way to make an easy living."

For every Lebron James that skips college and immediately becomes a elite superstar in the NBA, there are millions of others that don't make it.  And even though he's at the top, Lebron continues to work harder in than nearly everyone else.

Same with trading.  If you happen to be "the one" that makes it big, I'd seriously be the first one to cheer you on and congratulate you.  I love to see people succeed.  

I'm not trying to be a buzz kill, but there's a 90+% probability you won't succeed and be around in 3-5 years, that's just the cold hard facts about trading.  It's a tough grind for the majority, you have to be a little crazy to stick around.

Want to increase the chances to beat the odds?  

When you first start trading live, keep losses really really really small for a long long time. 

This will be very hard to maintain when you go on a losing streak and feel that you need to chase your losses.  Or when you think you need to cover certain financial expenses every day/month (like your daily fees or housing rent/mortgage).  That's when the downward spiral often begins.

So be prepared to give your blood, sweat, and tears, and but plan to GIVE IT YOUR BEST for at least A FEW YEARS.  It's a marathon, not sprint, so pace yourself!  

Find accountability partner(s)

When you're in a slump, trading can take you into some very dark corners of your mind, places where you may never have experienced.

Gurus are easy to find, but finding someone who will both be totally honest with you, have your best interests at heart, and have the TIME to spend with you, especially during the really tough times, are very difficult to find.  

But having such a partnership could make the difference between making it as a trader, or not.

When things just aren't going well, most of us become quiet.  We don't journal anymore.  We don't blog anymore.  We don't socialize anymore.  We clam up.

This is exactly the time when we really need to have a voice of reason, to make sure we stick with our process.  That we continue to grind away, journal and continue to study and review our trades.

We all need someone who can provide the intervention necessary to hold us accountable and remain true to ourselves.  Someone who will help keep us from being our own worst enemy.

Do you best to find a solid accountability partner.

Mental Game > Risk Management > Exits > Entries

When I first started trading (and even now at times), I was obsessed with finding the Holy Grail of trading, which meant finding a new way to enter trades.

So this is how I thought as a beginner:

Entries > Exits > Risk Management > Mental Game

But what I failed to realize was how important exits are (just as much as entries).  And how about position sizing and risk management?  Most don't realize the huge impact of position sizing to your longer term success.  

Assume you have the same exact system trading in 2 different accounts.  But you use a different position sizing method for each of the portfolios.  Let's say on one system, you risk 1% of the account.  And on the other, you risk 3%.

You will see a HUGE difference in performance between the 2 account simply based on the position sizing.

Ultimately, your mental game is critical to making sure you're able to take your trading plan, and execute properly.  That's the area most traders focus very little on.

I believe successfully working with your emotions is the holy grail of trading.

So whereas beginners and losing traders focus primarily on entries, successful traders will focus much more on improving their risk management and psychology of trading.  

Do what the successful traders do.  Focus on your mental game.

Develop other sources of income

Investigate any long time successful trader -- nearly all have other sources of income. Whether it's from a trading chatroom, real estate, business, corporate job, etc.  

This very helpful to reduce the amount of pressure you have to make enough from trading in order to pay your bills.  In general, income from trading can be a very cyclical, where you never know if you're going to have a good week/month/year, or not.

But with additional sources of income, you don't need to worry whether you'll have a good or a poor month from trading.  And don't forget the pressure from whether or not you'll have food on the table and a roof over your head.  

You'll be able to focus on trading from the perspective of having the valid setups.  And if they don't show up, fine, you'll have other non-trading areas to focus on and to help generate constant income, and thus reduce your overall stress.

As a result, this makes you a better trader.

The Grind NEVER Ends

I thought that once I figured out THE method with an edge, life will be easy, the money will flow endlessly, the sun will always be shining, the birds always singing...

Wrong.

Life happens.  As soon as you think you finally have it figured out, the market will let you know otherwise (i.e. will punish you mentally and financially).

Just when you think everything is going well, there will always be something happening that will ying and yang with our emotions and mental well being, thus messing with your ability to execute and to trade consistently.

Your holy grail/bread and butter/go-to strategy will one day, gulp, stop working.  Or your internet or PC will glitch on you right as the market is starting to go against you. 

That's why I've found that the amount of success is often equivalent to the amount of work you put into grinding away -- doing your journaling, doing your homework, doing your practice, doing new research for new strategies, and so on, especially when the market is closed.

This could amount to many hours a day, beyond just executing your plan during regular market hours.

But wait, this isn't what I signed up for, is it?  Didn't I want a life sitting on the beach, only working a few hours a day?

Sure, this could be achieved, but most of those people (assuming they're not BSing), have spent thousand upon thousands of hours grinding away, until eventually getting to that point where they're at peace with how they trade.

And even then, they're so used to the grind, that it becomes "normal" and they become lost in their routine.

If you truly love trading, the passion will keep you going, regardless of the good times or bad, till death do you part.

HEALTH is most important

When Paul Tudor Jones (legendary hedge fund manager featured in the first Market Wizards book) was in a slump, he signed up with Tony Robbins (for $1 million a year) to be his business coach.  

And Tony's first advice to Paul was to become his best, he had to get into his best physical shape.  See the article HERE.

Unless you're physically fit, your mind will not be operating at its peak, and all of the above won't matter.  And remember, you can't do much trading buried 6 feet under.

* * * * *

If you've read this far, thanks for reading.  As if you didn't notice already, the keys to consistent trading success is having a STRONG MENTAL GAME, along with RISKING SMALL / conservative risk management.

And surprise -- these are the topics least interesting by most developing traders.  Coincidence?

Best of luck on your journey!

Response from Spread The Trend

As was clear in my last post, as well as some of the comments under the Spread The Trend review (originally posted in October 2013), there have been some rough patches recently.  This happens to all traders, funds, investors, etc.  Participate in the markets long enough, and no one is immune to experiencing challenging times at some time or another.

Spread The Trend replied under the comments of the original review.  I thought it would be good to promote it to a blog post, since there are some clarifications, explanations, and admissions that will be of value to some readers.

Here is the comment in its entirety:

We are responding to the comments made by Marco Starr whose name is unfamiliar to us. When a trade is rolled, you close one position and then simultaneously open another position. The losses being referred to are paper losses. A true realized loss is not incurred unless someone chose to simply close all positions and not roll their trades. We are currently down for the year with implied volatility being anemic but our final tally is far from solidified. We have also been trading in and out of several positions to help reduce the cost of our rolls and being as conscientious as possible to our subscribers.  

In regards to “wiping out several years of gains” this seems to be an over reaching statement. You only need to view our track record page to see that we are well ahead of the game if you consider the longer and even medium term. Now had someone only been with our service for less than a year, then yes it is possible that their account could've temporarily dropped below the value they started with. http://spreadthetrend.com/yellow-condor-history  

All along it was explained to subscribers what our plan of action was and why our decisions combined with market forces lead to these outcomes. In all fairness, perfection in trading is difficult and we stand by our longer-term track record. Of course, we do our best to try and avoid getting into stressful situations altogether. We also believe we could have done a better job as well and have taken “key learning’s” to heart from this experience.

The majority of auto trade subscribers, or over ¾, did fill on the roll in question. As for those folks trading their own accounts the results seemed mixed as some did fill and some did not. It’s most common for everyone to fill or not fill as a whole but on rare occasions sometimes not everyone will get filled all in the same day. This can possibly be due to the timing of the order being sent or how quickly the broker is able to submit the order, or it could even have something to do with the liquidity in the market at the time the order is processed. 

When we see that the mass majority is filling that tells us that our order is priced fairly and correctly. If a broker did not fill, then we ask the question why? There are tools available where one can go back and see the amount of volume traded on these strikes, which shows there were many fills. Could Spread The Trend have sent the order earlier? In hindsight, probably yes. However, the process that has been successful for many years dictated that waiting was appropriate. We desired a different outcome as well and these trades impact our own personal accounts.  

All trades are posted on our website in the Member's section under current open positions with all of the details in their entirety. We do not post the trades to our closed positions page until the entire trade has been closed out and as of Mr. Starr’s posting and this posting; the entire trade has not yet been closed out. 

We offer a one month $1 trial so folks can get comfortable with the strategy and always ask that individuals add capital gradually. One may review both open and closed trades and decide if the newsletter is a good choice for them. Spread The Trend realizes that this period was stressful but we also have many winning weeks, months, and years on record. However, that concept that we were a “deer in headlights”, “virtually sunk”, or “listing” is disingenuous to our long term subscribers who are somewhat disappointed but are still extremely profitable and content with our strategy.

After 3 years, I'm still here

[NOTE: This was originally written about 3-4 months ago, but not posted until now...I've been admittedly a lazy blogger).  Material changes have taken place since then and noted with red text.]

Yes, I haven't been blogging much, but I'm still here.  

It has been 3 years since I've gotten back into trading from a long time off, and it sure has been an interesting journey.  Late last year, I hit a bump in the road of life where my health condition lead me down a path with potentially very negative implications.  

There were many times when I wondered about my worst case scenario: how my passing away would burden my wife and 2 young children immensely; how devastated my children would be; how I would never be able to see them graduate school, attend their wedding, see their children, and so on.  

Oh those were depressing times.  Although I was still involved with the markets, it obviously didn't mean as much, and my performance reflected it.  During those times, trading became somewhat of a distraction from reality.  In hindsight, I should have shut it down completely.

After many tests, my heath issues luckily turned out to be nothing major, and I have pretty much worked myself back to "normal."  But it sure was a big wake up call and reminder not to take health for granted.

Seize the day.  This moment, right now, you own it.

* * * * *

Back to the world of trading, my goals and plans from last year are still in progress.  And I have continued to approach trading within 3 key areas:

1)  Discretionary trading:  

- Continue to be consistently profitable, but sizing up slowly and organically

- Focusing primarily on weekly options, with some swing trading via stocks 

- Creates a source of ideas for analysis and system development

UPDATE 8/2014: 

- Recently had too much volatility with weekly options, so I'm putting it on hold with a loss after being up as much as a much as couple hundred percent net with a small account.  The losses were all due to commissions, and I was gross profitable overall, but that doesn't count

- Given the high level of difficult trading weekly options, I consider this experience and outcome successful with many lessons learned

- With swing trading, YTD performance has been stuck, with all time equity highs acting as strong resistance

- Moving back to focusing on short term stock trading, which is how I initially started.  Going full circle.  

- This month, I've joined a trading Boot Camp program just to shake things up, and after starting with low expectation, I've been very positively surprised -- the program has greatly exceeded my expectations.  More about this in the future

2)  Autotrade programs: 

- Expanded and diversified this year beyond credit spread options to include futures

- Added to size up capital 

- Overall, has been profitable year to date

- Tracking/analyzing the signals from various systems have created a source of ideas

UPDATE 8/2014: 

- As noted in the comments section of the Spread The Trend post, this service has recently experience significant losses.  Letting the dust settle, and looking to write an update soon

- My options credit spread account is currently down over -40% YTD.  Will monitor over next few months to determine next actions

-  The futures autotrading programs are up about breakeven YTD since starting this year (they were up +35% as recently as last month), although it was up as much as +60% earlier this year (it's very volatile)

3)  System development / quantitative analysis:

- Programmed a few algo type systems, some with surprisingly solid results

- But not quite ready for prime time

- Positive benefit, program backtesting of ideas and concepts useful for discretionary trading

- Great area of focus when I'm in a slump with discretionary trading

UPDATE 8/2014:

- Scaled back significantly recently.  Will need to reevaluate longer term goals

- Here's my mental road block -- after all these years, I've come to believe that solid discretionary trading can provide returns about 4x vs. a solid mechanical system

- But discretionary trading can have significantly more wear and tear on the psychological and emotional capital.  There are definitely tradeoffs

How quickly things can change over a few month period.  But that can be pretty much "business as usual" in the world of trading.

Review of SpreadTheTrend.com

In my prior post about Adventures in Autotrading Services, I discussed my overall experience to date with a handful of autotrading newsletter services.  And in conclusion, mentioned how one program has actually delivered solid results so far.  That service is SpreadTheTrend.com.

OVERVIEW

SpreadTheTrend is a iron condor/credit spread newsletter services run by Derek that trades the SPX index options.  Derek posts on Twitter under @spreadthetrend, doesn't have a chatroom, and communicates primarily by email, although he does publish a phone number which I've never tried. 

THE WEBSITE
The website is in the process of being revamped, so the information below could become somewhat dated soon.

• The non-member/public portion of the website has some helpful information including a very helpful FAQ's, how to get getting started, performance page, etc.
  
• The members section contains a couple dozen or so tutorials diving into more details regarding trading credit spread options strategies.  There's a lot of useful information in there and it's not overly technical, so it's relatively easy for a beginner with some basic options knowledge to understand.  But since I'm autotrading, I admit I haven't studied these posts as much as I should.  Maybe it's time for me to revisit them.
• The performance page format has changed starting this year.  However, you can still see the prior years in the older (and less detailed but easier to read) format.  I started with this program in Q1/2013, so I don't have actual performance results prior to that time.  But from what I have heard from others, the posted performance on the website going back a few years matches their actual account performance very closely.

COMMUNICATIONS
As mentioned earlier, the primary source of communications is via email.  Since I subscribe to his autotrading program for hands free execution of his signals, my interaction with Derek has been very minimal, only via email.  His response time has been timely, usually within several hours or less during the weekday.

For those who manually execute his alerts, there are examples of how his alerts are emailed on his website.  Pretty straightforward.

MARKET COMMENTARY
He also sends out market commentary on a weekly basis, or more frequently as conditions change.  I admit, I was initially ignoring his market commentary emails since I was in autotrader mode and didn't really want to know what's behind his signals -- I just wanted results.

However, I now look forward to reading his market commentary.  His emails are far from dry and technical -- they often have a entertaining and sometimes quirky or snarky tone (I mean this in a positive way), ranging from rants regarding the "cabal" propping the markets, some subscribers getting too nervous about current positions (or complaining about being in cash too long), or whatever is the topic de jour.  But in the end, his commentaries consistently contain very valid insights and perspectives.

He often says he has no idea what the market is going to do, which might lead you to initially wonder whether he's the right guy to lead the ship across the ocean.  But read carefully and you'll see that his commentary is peppered with wise trading wisdom that can only come from years of trading experience.

DOESN'T SEEM TO ADVERTISE MUCH
For whatever reasons, Derek is yet another newsletter service proprietor who doesn't advertise or market himself very much in his communications.  You won't see "BOOM" or "nailed it!" type comments from him.  It's hard to tell from his Twitter posts that he even offers a successful alert service.  Maybe it's because he's content with his subscriber base, or maybe he'd rather grow based on referrals and focus on trading.  I'm finding that a lot of the good services are very low key, and they probably like it that way.

THE BOTTOM LINE
Ultimately, just look at his past performance and results speak for itself.  I often sense an interesting dichotomy between his market commentary vs. his timely trade executions, and believe it comes down to his unique and intuitive feel for the markets, which can change quickly due to market conditions.  His trading seems to be far from mechanical, and that's what I have come to appreciate about his trading style.

Here's a breakdown of my P&L based on the autotrading service:

• $5,959.45 in profits net of commissions since starting in February 2013
• About 24% net return year to date since late February, based on a $25k allocation
• The net return does not factor in subscription and autotrading fees
• I started with a decent drawdown, at one point unrealized losses were around 15-20%.  So right off the bat, I was able to see how Derek managed difficult conditions, and in hindsight, he handled the situation very well.  Many other similar services panicked and booked big losses.

  

  P&L curve generated by TraderVue.com

• The report below indicates a 81% winning percentage
• However, this is based on how I grouped the various legs of the trades together in Tradervue (which were grouped by expiration month)
  
• But if you track the trades based on how they rolled (if applicable), the accuracy would be higher
• The profit factor is a very respectable 2.50
• And the probability of random chance is < 10%, meaning these results are not likely due to luck

Statistics report generated by TraderVue.com

MOVING FORWARD
SpreadTheTrend is a keeper, assuming the results remain within acceptable historical ranges, which I believe they most likely will.  Although my primary goal is to diversify with other autotrading programs, I will likely scale up my investment in this program next year.  So if you're looking for a solid program to begin autotrading credit spreads and iron condors, SpreadTheTrend would be a very good program to consider. 

Adventures in Autotrading Services

Currently, I have 3 ongoing trading initiatives:

1. Discretionary:  Discretionary trading strategies -- primary swing trading stocks and stock options.
2. Algo systems:  Develop and manage mechanical trading systems
3. Autotrading:  Research and invest in autotrading newsletter services

One of my goals for this year was to explore "autotrading" services/newsletters.  Since "it" (auto trade, autotrading, automated trading, signal providers, trade copy, etc.) can mean different things to everyone, I'll define it as an alert newsletter service you subscribe to, which then executes their trade recommendations in your brokerage account automatically.

It's an interesting space -- somewhat between alert service and chatrooms on one end, vs. managed futures accounts and perhaps some types of hedge funds on the other end. 

NOTE: One key point -- like most chatrooms, autotrading services are usually not operated by registered investment advisors, so be aware of your risks (very high) and recourse options (very low).

One of the main reasons for investigating autotrading services is to try and diversify my trading "business" and to hopefully recapture more time for my family as well as non-trading goals.  We'll see if that's possible in such an all encompassing field such as trading, but I going to give it my best.

This year, I've participated in a handful of autotrading services in various asset classes, including index options, stock options, stocks, and futures.  This "experiment" was all conducted with actual live accounts, since ultimately, there's only one way to find out how a program performs.

The autotrading world is a much bigger business than I expected, and I've only scratched the surface.  But if you haven't yet explored it, here are a few ways to find out more.

HOW TO RESEARCH
I've found that the services are generally clustered around a particular asset class (such as stocks, options spreads, forex, etc.).  Here are some sources I've found useful for further research:

• Google search "auto trade stocks" or "auto trade options" or "auto trade credit spread" or "iron condor newsletters" or whatever other keywords you can think of.  There will be tons of sites that come up.
• Global-Autotrading.com - this company acts as the agent or middle man between the alert services/newsletters and your broker -- they take what the newsletter recommends, and executes the trade on your behalf at your broker.  You can see a list of all the newsletters they cover here.  For my autotrading program, I use this intermediary service linked with my brokerage account at Interactive Brokers (IB).
• Dittotrade.com - this stock and stock options brokerage also acts as a autotrading agent.  See a list of newsletters and lead traders that you can follow on this webpage.  I have an account with Ditto, and have used the account with both a Ditto autotrade service, as well as a standalone brokerage account.
• Pro-trading-profits.com - I'm not a member of this site, but they will take actual results from subscribers of newsletters, aggregate it, and provide that information to their subscribers.  You can see a list of what they track here.
• Collective2.com - I have not used this site, although I know someone who has subscribed to some services they offer.  They are somewhat similar to global-autotrading.com, in which they act as the middleman between those who generate trading signals and your broker.  The autotrade section of the website is nicely designed, with the ability to quickly search for various systems and evaluate their performance.
• Currensee.com - Another site which I have visited, but never utilized.  This site focuses on forex traders, and you can see the leaderboard here.
• MyFxBook.com - Last but not least, this is another site focused on forex systems that appears to have recently offered a new autotrade service.  You can also see their most popular systems here.
• Investimonials.com / forexpeacearmy.com - Many of the newsletter services you find above can be researched via these review sites.  I've actually contacted some people who posted comments on these sites and have gotten some great feedback.

HOW I GOT STARTED
Like many things, it was a somewhat of a fluke.  I accidentally received information about a iron condor credit spread newsletter late last year, and that made me recall learning about those strategies over a decade ago.

They say something like 90% of options expire worthless, so why not be the one that sells/writes the options and keeps the premium with a 90% win rate?  But here's the catch -- if you write options, the only thing to be worried about is the 10% of the time when the trade goes against you, and your losses are theoretically limitless.

I didn't like the thought of unlimited losses.  But I liked the idea of having a steady "income" via writing options spreads such as iron condors, which at least limits the downside risk.  I wanted to move forward with this trading strategy, but didn't want to deal with having to execute and adjust/roll all those iron condor legs, which seemed like one big complicated hassle.

After deciding to move forward with autotrading, here are the steps I took:

1. Subscribed to a credit spread/iron condor newsletter service
2. Opened an account with Global-Autotrading.com
3. Opened a brokerage account with Interactive Brokers 
4. Requested Global to link the newsletter service and  brokerage
5. Set the allocation per trade (i.e. % of portfolio or $ amount) for each trade

WATCH THE COSTS
A big point of consideration are the overall costs.  Depending on your portfolio size, costs can be high as a % of assets and/or profits.  Here's a general ballpark cost structure for stock and options trading.

• Newsletters range from $30-$150+/month
• Global-Autotrading charges based on number of newsletters subscribed:
• 1st newsletter = $70/month
• 2nd newsletter = $30/month
• 3+ newsletter = $10/month for each additional
• Interactive Brokers doesn't charge any fees for autotrading.  But what's interesting is that because all the accounts managed by Global are aggregated under one adviser umbrella, you benefit from reduced commissions as volume tiers are exceeded within the calendar month.
• Dittotrade doesn't have a monthly fee, but each of their newsletters/alert services have varying monthly fees.  And their commissions are middle/high end of the road, about $6/trade (and additional $.75/contract for options).
• There are some options brokers which work directly with some credit spread newsletters and either don't charge any autotrade fees (tradingblock.com), or minimal $2/trade (eoptions.com). 
  
• In those cases, you can avoid the global-autotrading service and monthly charges.  Their commissions can also be as low as $0.75/trade, with no ticket charges.  However, your fills may or may not be as reliable as using the Global-autotrading and IB combo, although it's hearsay and I have no firsthand evidence.

So depending on your portfolio size and/or returns, costs as a % profits can vary widely on a net return basis. For example:

• Using the higher range ballpark cost figures above on a $5k portfolio, you would need to make a 40+% net profit in a year, just to break even on your autotrading related costs! 
  
• Compare that to a $50k account, which would require a 4% net profit annually to break even.  Big difference.

SO, HOW'S IT WORKING OUT?
Surprise!  Most autotrade programs I've tried just haven't delivered.  Maybe it was bad luck with the selection process, or maybe that's just the way it is with most autotrading services  Keep in mind my sample size of autotrading services is very small.  But the bottom line is I've lost several thousand $'s on "autotrading research." 

DID ANY AUTOTRADING SERVICE WORK?

Yes, there has been one autotrading newsletter that ended up meeting/beating expectations, so I am considering scaling up my investment in that program.  I've posted a review of the performance to date on a separate blog post here.  

NEXT STEPS
It has only been less than a year since I began this journey into autotrading services, so I'm still tracking the newsletters I'm subscribed to as well as continually evaluating other potential ones. 

I'm finding that this is not a process that can be accelerated very quickly, except perhaps from others who subscribed to other newsletters and are willing to share their real time results or experiences.

So if you're someone who is interesting in sharing autotrading newsletter results, it would be great hearing from you.  Like any other endeavor, there are some good opportunities out there, but only after working hard (or luck) at uncovering those few autotrading gems.

Moving forward, I will continue to research potential autotrading candidates, invest a small amount in promising candidates as a test, and if results are within an acceptable range, scale up.  Ultimately, I would like to diversify into 3 to 5 autotrading services across various assets classes and trading methodologies.

Stay tuned as this interesting journey continues.

Review of TheTradingWife.net

Now that enough time has passed and hindsight analysis becomes 20/20, it's clear that joining Danielle's TheTradingWife.net chatroom had a big impact on my overall swing trading performance, as discussed in my prior two blog posts here and here. 

This is my unsolicited review of her service.

BACKGROUND

I had been a follower of Danielle via @thetradingwife on Twitter for a while and knew she also had a credit spread options service.  So when I started exploring various credit spread services around the end of 2012 and contacted her for more details, I found out she was no longer at that website. 

She said she was planning on starting her own service, so I got on her trial when it opened up.  In hindsight, it was a good serendipitous series of events.

Since launching her service earlier this year, Danielle has been positively mentioned by @the_real_fly on his ibankcoin.com website back in February, as well as profiled in this month's (October) Active Trader magazine.

IT CLICKED FOR ME, BUT...

My belief is that there are no secrets with successful trading.  Everything you need to know is already out there in the public domain.  I believe one of the biggest challenges of successful trading is to "simply" discover what methodology works for you, as well as having the proper mental attitude.

One way to find out is to just keep trying various techniques and/or chatrooms in a methodological fashion until you find something that works -- but before you run out of financial and/or psychological capital.

I had studied many swing trading methods thru the years, so I am very much aware of the many different variations of trading.  However, I had yet to package up a method that I felt comfortable with, which also aligned with my personality and style and produced consistent results. 

After joining TheTradingWife.net and learning her overall process and methodology, I was surprised to learn how well her methodology resonated with me and with my own particular preferences I've picked up along the way.  And after nearly a year, my performance trading her method speaks for itself.  Note that my results are not based on her alerts -- I wanted to learn how to fish, not simply be given it.  As mentioned earlier, my actual results are here and here.

Will it work for you?  I have no idea.  And no one, except for yourself, will know for certain until you give this or any other trading methodology a fair shot.  If the overview below seems interesting to you, then it might be worth investigating.

MORE DETAILS ABOUT THE METHODOLOGY

You can see many blog posts and charts on TheTradingWife's website to give you an example of her swing trading method.  In a very simple nutshell, the swing setups are based on a combination of these criteria:

• Going with the daily 8 ema trend.
• Candlestick patterns such as left-right, belt hold.
• Chart formations such as rounded bottoms, J-hooks, and frying pan bottoms.
• Riding that trend until an appropriate signal appears to exit the trade.
• "Trade small and often"
• Position sizing no more than 10% of portfolio (sometimes half size), and generally, risk per trade much less than 1% of portfolio.
• Importance of staying out of the market during unfavorable conditions.
• Understanding emotional and psychological control when trading.
• For example, she will pass on a trade if she feels "emotions" about a particular stock. The way she explains this as it happens really hits home with me.

THE CHATROOM

This is not your typical chatroom full of emotional chest pumping daytraders shouting out boom at every opportunity.  So if you're looking for that kind of excitement where everyone is hi-fivein' and hootin' and hollerin' after "nailing" a few penny scalp, this is not the place for you.

TheTradingWife's chatroom is a much more relaxed and congenial place for those looking to learn how to trade for bigger % gains on a swing trading timeframe.  There's a good mix of content in the conversations -- heavy on trading obviously, but also open to current affairs, music, humor, etc. during slower periods.  It's like a friendly neighborhood pub.

BENEFITS FROM THE CHATROOM

• First of all, access to Danielle in the chatroom throughout the trading day (and often into the night) regarding any question you may have.
• In addition to live interaction via the chatroom, receiving realtime email alerts on stock entries and exits are great for those not glued to their computers.
• On occasion, she'll launch a video chat so that you can view her charts and comments.
• Great contributions from other members, but especially from the prolific and very knowledgeable "G.G.", who posts relevant and timely comments/charts throughout the day -- from very early morning to often late into the night. 

These days, I'm not around as much to monitor the chatroom in real time, but having a transcript to review is very valuable, especially since Danielle does a great job commenting the reasons why she took (or didn't take) a particular entry or exit.  If you take the time to study this the transcripts, there are usually some solid lessons.

THE BOTTOM LINE

Check out her closed P&L performance on her blog here.  And her open positions are listed on the top of her homepage.  I've watched enough of her trades in real time over many months to know these results are realistic.  She prides herself on transparency.

I'm not sure if many are even aware of the service she offers, since she doesn't really market or hard sell her chatroom -- it's just not her style to boast with tweet after tweet after booking a +30% trade, to join her room.  But maybe she should do just a little more self-promoting so that others could learn and benefit.

So if you're truly interested in working hard to learn how to swing trade based on her successful methods, she is a willing and capable mentor who will take the time to teach you in a congenial and supportive environment.  I'm just one of many who have had the privilege of benefiting from her mentorship.

The quest for consistency - Q3/2013 results

In my prior blog post almost 4 months ago, I commented at that time that I was profitable 6 out of the prior 7 months in my swing trading account.  Since that time, performance results have continued to remain consistent. 

Around that same time, I also made some changes to my swing trading.  I had a nearly forgotten IRA account at ETrade, and the account had been primarily in a money market fund making paltry < 1%/year.

But I was notified that the money market fund was shut down, thus leaving the account in all cash.  Well, at current money market yields where they are, being in all cash isn't much of a difference, but at least I was now "free" to trade in that account.

So I began actively swing trading my IRA account around the end of June. Here are some specifics of that account:

1. Due to IRA status, it is a long only and cash based (no margin) account
2. A steep $10/trade commissions. So that's $20/round trip, and even more when scaling out of a position.
3. The starting balance was a little over $30k, so it larger than my prior swing trading account.

So how did I do swing trading that account, with a much less favorable commissions cost structure?  Given the conditions, respectable.  Here are my actual results:

Performance by month from Tradervue.com

June - October 2013 statistics from Tradervue.com

Trade distribution from Tradervue.com

TRADE AND ACCOUNT RISK MANAGEMENT

From the trade and account risk management perspective, my risk management was even more conservative than with the prior account:

1. Except for a few dividend yield plays, my risk per trade was generally around 0.2% to 0.5% of my total account, often on the lower end of the range
2. Position sizing per trade was generally < 5% of the total portfolio
3. Total position leverage was on average < 50% but maxed out at around 85% for a short period

MY THOUGHTS

• This swing trading method has worked for me over the past 10+ months, and appears to be process with which I can remain consistent.
• However, a one year performance is nothing in the world of trading.  And I'm always wondering if the markets will change enough to negatively impact my future performance.
• How would I do in a overall downtrending market, since I'm in a long only account?
• Had I used a less conservative position sizing and/or more aggressive risk per trade, my returns could have conceivably been 2x higher.
• How much can I really size up my trading before I run into growth limitations?
• Commissions accounted nearly 25% of my gross profits (!!!), especially since my positions were usually small, only just a few hundred shares.  Had I used IB or TradeStation, my net returns would have been significantly higher.
• Even with swing trading, I still fight revenge/rogue trading at times, but it's very infrequent compared to daytrading.  I realize that this challenge will likely never go away.
• Trading with small risk per trade has been key.  I simply trade the solid setups, and follow the rules with little emotions.
• My greatest challenge now is to stay motivated and to remain consistent with following my overall swing trading process. 

LOOKING FORWARD

As my discretionary trading continues to improve, my trading time continues to get squeezed due to increasing family commitments. 

My main goal now is to work hard now to diversify my trading business so that by doing so, I gain more time for non-trading activities in the future.  I'm continuing to explore autotrading services, as well as ways to trade other methodologies and products.  I've also reignited the development of mechanical trading systems with some promising results.
 

It's a very interesting and exciting time for the retail trader, with tools and services currently available that most (especially me) could not have possibly imagined even 10 year ago. 

Making The Turn / 2013 Trading Resolutions Revisited

I've winded down my trading for the month of June, since I'll be on vacation for most of next week.  And since we're at the halfway point of the year, it was a good time to do some reflecting and analyzing of my trading to date.

As of today (Friday, June 21st), I am up 15% for the month of June.  And based on the open positions I still have, it should not go down by more than a couple % points even if they are stopped.

On a longer timeframe, I have been profitable the past 6 out of 7 months.  Here is a chart of % returns based on closed trades (net of commissions) on my swing trading account for 2013.

My average number of trades have also consistently averaged around 22 trades a month.  No signs of overtrading.

TRADING RESOLUTIONS FOR 2013 - REVISITED

I wrote the following resolutions back in March 2013.  More details here.

1. Stop overtrading/revenge trading/daytrading
2. Lower expectations of returns and trade small to help build solid trading habits
3. Explore and implement other trading methods, products, and time horizons
4. Start thinking of returns based on % risk (R), not $'s

1) Stop overtrading/revenge trading/daytrading: ON TRACK
Based on the chart above, there is no sign of overtrading.  I've only had a handful of daytrades, and it's usually because I get stopped out quickly, or had such a good winner I needed to take some off the table.

There have been a few rogue trades, but it's a small % of total trades.  And revenge trading is nearly non-existant, since I'm no longer in the daytrading mindset.  Every trade I take is with the expectations of holding overnight and for several days or more.

I have also deliberately kept my account below $25k, so that I am subject to pattern daytrading rules (PDT).  This has been one of my best decisions.  TradeStation prevents me from entering the final trade that would trigger my account to get flagged under PDT.  This helps to prevent me from overtrading, and to get into the habit of thinking carefully about each trade I enter.

2) Lower expectations of returns and trade small to help build solid trading habits: ON TRACK
Trade small and often, is something preached and practiced by @TheTradingWife.  I've also watched @TheLincolnList daytrading live and consistently profitable for over a year with generally a few hundred share sized trades.  And those crumbs add up to very impressive daily/weekly/monthly returns. 

Following their examples, I've established small position sizes as a % of my portfolio for each trade, and that easily allows me to sleep at night.  This helps me to follow my rules and let each trade properly play out without interference or sabotage.

Letting each trade properly play out means I'm building good habits.  That's huge.

In the past, I used to want to make 25-50%/month or whatever crazy expectations of returns.  But a funny thing happened when I stopped caring as much about P&L returns and started to really care about simply following my trading plan -- it resulted in being consistently profitable.

As those who play golf are well aware, when you really try and swing the club hard, the worse off the shot usually goes.

3) Explore and implement other trading methods, products, and time horizons: ON TRACK

This probably requires a separate post, but the autotrading experiment has been very interesting.  The goal was to diversify my trading via other traders/trading services.  Similar to how you can diversify long term investments between various types/styles of mutual funds.

My timing to start was unfortunate based on market conditions, so I'm currently down about -10% year to date in my autotrading account.  But I've learned a lot and still see great potential.  In fact, in addition to my Global Autotrading account, I'm also in the process of opening up an autotrading account with Ditto Trade.

Compared to even 5-10 years ago, the opportunities today to diversify your trading opportunities are amazing.  In essence, you can now outsource your trading and manage it like a business.  Simply hire and fire traders/services based on whatever criteria and business plan you setup.

Here's an analogy.  There are an amazing number of talented people out there, such as musicians, that in the past would never have been discovered.  But YouTube has created a distribution channel where you don't need to be "discovered and chosen" by the old school record industry establishment in order to reach a mass audience.

On a similar note, we're entering a new era for talented and dedicated traders who don't have the right connections or pedigree in order to gain employment at hedge funds or premier investment banks.  Platforms such as Ditto Trader are a game changer for those skilled traders who want greater exposure and opportunity.  This is just the beginning.

4) Start thinking of returns based on % risk (R), not $'s: ON TRACK

There was a recent upgrade to TraderVue that has made it much easier to track performance based on R-Multiples.  I'm still in the lengthy process of updating my trade data to support the new reporting features based on R.  But once completed, this method of reviewing performance will provide a risk based return, rather than return alone.

I'm guilty of this, but it's so easy to say "I made a 2000% return on my options trade" without understanding the proper risk context.  Was your risk or position size of that trade 1% of your portfolio or was it 50%?  Because there's a BIG difference in the impact and risk of that 2000% return trade.

And as I've said many times before, thinking in % terms also helps make it easier to scale up.  Because over time, as I meet my goals, I plan on scaling up significantly.

HAVE I MADE THE TURN?

It sure hasn't feel like a switch suddenly turned on, at least not yet.  However, I am feeling a much greater sense of clarity and confidence with regards to what works for me, and my results indicate likewise.

But the efficiency of my trades are far from optimal.  I still make sloppy mistakes, and my execution still has a lot of work necessary.  However, my upside feels limitless.

It has only been about a  half year of consistent profitability, so in the big scheme of things, that's not much.  But so far, this track record is a huge accomplishment for me and I feel proud.  I set a goal, I'm accomplishing it, and I will continue to meet my goals and raise the bar.

It has been almost 2 years since I wrote the post about The Moment.  My moment is still here.  And I remind myself, "How Bad Do You Want It?"