It’s been a few weeks since I have been able to put my thoughts down on here. I recently moved from Korea to Berlin. Although I am still getting used to my surroundings and moving things, I was able to trade the last week or two. And one thing I want to focus on is focus.
Remember when you were in high school or university and you had a tough exam coming up – one where you had to get a good grade or you had to really put in the time and effort to do well. And do you remember how you went into the test? Was your mind wandering? Were you focused on what questions could come up? Did you daydream about random things? Chances are, if you did well on that exam, you were focused on what questions could come up, how to answer questions should you maybe know the answer but aren’t 100% sure and you probably were in the proper frame of mind with enough sleep or at least caffeine to keep your head in it.
Why is all of that important? Well, day trading requires this level of focus and commitment EVERY SINGLE DAY. I went into a few days last week, fresh off of my move to Berlin, with bag still unpacked. My mind was on documents I needed certified, appointments I had to make to get my visa and whether or not I’d be able to find a reasonably priced apartment to live. Before moving, I had been doing well day trading – so I thought “I got this.”
Went into the trading day with my mind everywhere else but trading and got run over. I thought that just by seeing the pattern and entering that the world would surrender to me and give me my profits. I didn’t go in with a plan, when to size in, where my stop would be, where to take profits. Nothing. I thought I had it all figured out. And the worst part is, I traded like this for probably 3 or 4 days straight, thinking it’s just a numbers game and I had a few bad trades.
Only this week did I mentally prepare for the trading day ahead. I scouted a watchlist (reason for the gap), drew pre-market lines of S/R, had my bias for direction, patterns for entry in that direction of bias and the focus to stay patient and let my trade work out as I envisioned in my head. Just like that biology test that I aced in my sophomore year of high school. All the work was done before it. I just had to execute.
So for those of you hitting a rough patch, think to yourself – am I really focused and do I have situations mapped out before I get into it?
Bad scenario: If you are throwing up a few charts of stocks 10 minutes before market open that you think you might like (or that you got from stocktwits), with no pre-market bias, no areas of potential interest and just saying eh, I’ll risk $100 on this and enter with no target, a sort of kind of logical area for a stop loss and just exit if it hits my stop or I’ll take profit if I’m kinda in the money (not sure how much in the money). I don’t focus on the spreads, volume and use market orders to get in and out. NO. Don’t do this. You’ll get run over. Repeatedly. Or at least suffer death by a thousand paper cuts.
Better scenario: 30 minutes before open I have 6 stocks on my watchlist. I use my ThinorSwim scanner as well as market top 20. My 6 are all gapping up or down and the SPY is gapping up/down and these stocks are showing relative strength/weakness. The gap is clearing support or is gapping right into strong resistance. I’ll focus on the ones that have resistance far from my anticipated entry or the gap has cleared resistance. I draw lines where pre-market S/R has formed as well as prior day. I generally stick to using the 2-min and 5-min charts.
Market opens. Stock ABCD is approaching that area of resistance I drew pre-market. It is forming a breakdown/breakout pattern that I really like trading. The spread is tight, volume is good. Stop limit order placed .01 cent below this line so it’ll trigger as soon as it hits. Stop is placed above the previous swing high/low or opening price. Order triggers. Good volume on the pop and looking for follow through. If it doesn’t follow through I may look to reduce size. First target is 1x my risk with 50% of my shares. First target hit. Now price is pulling back. Do I want to sit through the pullback and leave my original stop in place (which means it’s a breakeven trade)? Or should I move it to break-even and squeak out with a small gain? Market (SPY) is moving with my trade so I will leave my original stop in place and it showed good momentum on the breakout/down. Manage from here.
See the difference?
So if you are having problems or streaky periods of wins and losses, consider your focus during the trade. The difficult part of trading is not the pattern recognition, entries or the exits. It’s the focus required to do well every single day. You are taking that tough biology exam or SAT or university entrance exam every single day when you trade. It’s mentally exhausting but it’s what the market requires to be successful. So ask yourself, are you really preparing and focusing? Did you have a fight with your wife or did you have a small fender bender and stressed about the car repairs? Sometimes it’s better not to trade.
It’s tough and I still struggle to get into that mental capacity every day. I find going for a run before market opens or some mental preparation exercises like meditation or whatever you use to get your mind right. Try it out. Let me know how your trading is affected. Peace.