Day Trading Learning Approach

If you have traded in the past, and have continued to struggle, then you want to try and figure out why, along with making changes in your learning approach that can make a difference.

And if you are beginning to trade, then I want to discuss certain issues and problems that I have seen, and talk to you about progressing without doing some of these same things.

Let me tell you a quick story.  A few years ago I did a training session on what I call trading selectivity, which is what the most selective method trade setups are referred to.  This discussion also included what I called trader selective setups – those were setups where some group members had taken the core method concepts, and put their own twist so to speak on a trade setup that they could see real time and had good results and experience trading.

After the seminar, I immediately received an email with a supposed setup that someone told me they were doing on the open each day that they knew wasn’t method, but they were having very good luck trading – so they called it non-method selective.  I was extremely skeptical, so I reviewed the setup for the previous 8 days AND besides being non-method, the trade was a loser on each of these days, the whole thing just didn’t exist.

No one is better that method – they don’t need to be, and they shouldn’t try to be.  Our ability to trade successfully comes from the consistent and repeated application of method – trading the strengths, and avoiding the weaknesses.  Ignoring this and playing games, especially if you are a paper trader and think that your losses don’t matter, is only going to lead to never becoming a real money profitable trader.

AND by the way, the non-method trader selective person continues to struggle very much to this day

This is something that you want to be very clear about. I have seen many people that are trading a method, approaching trading as if they are trading a mechanical system.

Why is this critical? Because when you are trading a system, you have a set of rules that you follow regardless of your judgment or anything else; you get a signal, then you take the trade period. That is the strength and the weakness of a system, everything is 100% mechanical.

In contrast, a method has guidelines, but these are not rules. For instance, you get a trade setup that is both counter direction and in consolidation and you don’t trade it, or you get a trade setup that would be directly into a left side price as support or resistance and you don’t trade.

If discretion is very subjective and not based on ‘core’ method guidelines, then you don’t have a method, you are ‘shooting at the hip’. However, discretion used in a way that can consistently be repeated, where you continually make the same decisions for the same reasons, gives flexibility that is the strength of a method over a system.

The problem that exists is when you trade a method, but approach it as if you were trading a system, and try to trade the guidelines like they were mechanical rules. Or from misusing discretion, for instance taking a trade that you say ‘I know it’s not much of a setup…but’. That isn’t discretion that is justification for taking a bad trade – non-method trader selective doesn’t exist.

Day trading is unlike anything that that you have ever tried to learn, due to the real time nature of having to make decisions faster than you may like to.

A method needs to facilitate being able to make real time decisions. In our method, we have defined what is called a method base setup. Think of this as a baseline, or a trade setup that everything can be compared to. As you learn to recognize these, your focus goes to the possible filters and not whether you have a trade setup – for instance, you know that you have a method base setup, so instead of thinking about that, you are instead ensuring that you would not be trading it directly into resistance or support.

As well, our method is based on setups that develop from left to right across the chart, which thus give more preparation time as compared to making right side only-last couple bar decisions. And our setups are combinations of components, and thus take longer to develop, which has the effect of slowing down the chart.

So yes, day trading is about making decisions faster that you may want to, and with this includes a risk of being immediately wrong in that decision – this is something we must accept if we want to be a day trader.

Trading cannot be memorized like preparing for a multiple choice or fill in the blank test. Trading includes real time visualization and decision making.  Trading is a performance skill, which includes learning the method concepts and strengths and weaknesses, learning the method setups and filters AND then properly practicing them with discipline and consistency, which can then lead to making adjustments and enhancing your trading performance.

As long as you are willing to continually take trades that is non-method, or say things like ‘I know it’s not much of a setup…but’, it will be impossible for you to properly practice method and progress forward.

Don’t get me wrong, I am certainly not saying that to become a profitable trader you have to learn how not to make mistakes.  You are always going to make mistakes, and I am always going to make mistakes – that is the nature of real time decision making.  However, those mistakes can also be the exception, as well as things that are learned from and adjusted.  An approach where we are always developing and going forward, is an approach that will continually reduce the frequency of the mistakes.

However, what I am talking about is not about making mistakes.  Knowingly trading non-method and/or settling for very minimal trades that you know from the past usually don’t work out, can never allow for the consistency and repetition that is necessary.

Miss a trade setup and learn how to not miss it the next time.  Miss a trade and learn the discipline to stay flat unless there is a 2^nd method setup that occurs during the swing, which does happen all the time.  However, be willing to continually trade what should knowingly be non-method – and you will never learn.

You learn how to shoot a basketball in the gym – not in the last second of a game where your team is losing by 2 points, and you have to make both free throws to take the game into overtime.  You learn by taking 100s of repetitions in practice, trying to continually duplicate the same shooting skills that you were taught – knowing that it is only by the consistency of proper repetition that you will be able to find any flaws that keep you from increasing your shooting percentage.

This same kind of proper practice can be applied to trading and studying trading.  It comes from the way that paper trading is done.

The way that you paper trade is going to determine how you begin to real money trade, actually it is going to determine if you ever real money trade. However, let me first say – do not be in a rush to begin paper trading.

This is one of the biggest mistakes that I have seen made, where in the excitement of getting started with those new chart layouts and indicators – you just can’t wait to start indicator trading before you have really learned anything about method. You of course lose doing this, taking an immediate hit in your confidence in yourself and in the trading method – many learning traders never recover from this kind of start.

My favorite analogy for this is building a house, where you want to put on the roof before your pour the foundation and put up the walls – how could this possibly be done. Or back to basketball, and you are trying to make those last second free throws, not only without the gym practice, but without ever even learning the key shooting skills to practice. Don’t make this mistake.

After you learn core method, and after you learn method base setups, then begin to paper trade. AND do it the right way, which means that you are not going to play the simulator like a pinball machine taking advantage of the fact that it doesn’t matter whether you win or lose because it is all paper money.

I may not be able to guarantee you much, but this I can guarantee. If you take this attitude in paper trading and proceed as described, remember the story about non-method trader selective, then you will not be able to progress to profitable real money trading. The mindset of paper trading like this is just too diametrically opposed to what it takes to be profitable, and in this context your money losses may not be real, but you have lost your trading future.

Paper trade by taking each trade as if it was real AND in the context of learning method and making adjustments to go forward they are real. Take method base setups to begin and then progress to the method discretionary setups, which means that they have all the characteristics of a base setup but are missing a setup component, however the remainder of the setup, and especially the continuation, still allows the trade to be done.

This is method paper trading as if it was real – this will allow your practice to be meaningful.

Alright - done at last. I have worked with many people over the years, and I will suggest that for many people it was never about whether they were capable of being profitable traders, it was about how they approached learning trading and progressing as a trader AND thus never could go forward.

Please keep this in mind as you go through learning to trade. Most people lose as traders, and there is always going to be people that it just won’t matter what they do they aren’t going to get it. However, there should be far more winning traders than there are AND there is no reason why most of you can’t learn to be one of them.

Study, progress, learn and practice in a way that can lead to this, you can become a profitable trader. No more non-method trader selective.

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