4 Steps to Massively Improve Your Day Trading!

 Now, when we talk about day trading, day trading is something that people are really drawn to, they're fascinated by. Day trading represents a path for people to get rich, quick. This is why there's so much interest in it and in some respects, there's more interest in day trading now than there ever has been. This new generation that's in their 20s, and their 30s, they work from home and they look at day trading as something that they can do to either supplement or replace the income from their job. And they see the stories on Reddit and places like this where people are making 10, 20, 50, $100,000 in a day, they're like I want to do this. But we have to understand yes, the biggest returns can lie in day trading, but one thing it's so interesting is that in trading, wherever the biggest returns are, right next to the biggest returns is bankruptcy.

That's right. Literally, we can plot a graph of where you would make the most money in a strategy and right next to where you make the most money is ruin or bankruptcy. So day trading can be the best way to make money, but it's also the fastest way to go bankrupt, it's also the fastest way to completely fuck up your mind. It can be very dangerous. Let's talk about this for a moment. Why is that? 

I've never been a big gambler and one of the reasons I've never been a big gambler is I know that when I go to the casino, or if I were to play the lottery or bet on sports, or whatever the case may be. Particularly I'd say the casino. The odds of me winning are usually against me. Most games, the odds are in favor of the house. In some games like blackjack, yes, you can be patient, you can understand how to count cards, and in the right situation, you can generate a favorable edge. But that edge is small. It takes a long time and I'm like why do I want to do this when I can trade?

When I trade, the odds are on my side, not the house. And when I trade I can make so much more I can generate such bigger edges then I can if I gambled. So I've just never been interested in it. Now, my dad was a big gambler and we used to do these father son trips. So he'd go off and play craps for hours and so for a while I was playing blackjack just to kind of pass time. But what I found for me what was the most interesting was that I would watch the other players. I didn't really care so much about myself. It just became a psychological exercise that I would watch the plays that other players would make in blackjack and I would consistently see them make stupid bets where they would bet against the odds. Now their justification was they had a hunch. They had intuition that if they went against the odds, this time it would work out. Now sometimes it did but of course the odds were against them so most of the time they fail. But the big thing I saw was I saw gamblers completely fall apart while they were playing blackjack. So in gambling, they call it going on tilt.

Going on tilt is basically when you lose self control and you lose all your money. Now why is this? Well in gambling, like when I play blackjack, or I do swats or craps or whatever the case may be, roulette, the time between when I placed the bet, and when I get feedback about whether I won or lost is really, really short, almost immediate, right? If you think about blackjack we play hand, depends how many other players are playing, but we're gonna play that hand in a minute to three minutes and I'm gonna have feedback about whether I won or lost. Roulette, place my bet, they spin the wheel, wheel spins for 20 seconds or so, boom, I get feedback whether I won or lost. Craps, everybody places or bets, I throw the dice, as soon as the dice stops, I have feedback about whether I won or lost. So when the feedback is really short, like it is in gambling, this raises the excitement in the brain and when we raise the excitement, it becomes potentially more dangerous. 

So think about day trading, I could go make a swing trade, for example and I could be in a swing trade for 2 to 3, 5, 7 days. If it doesn't work, I'll get stopped out, the feedback will be shorter, but it's still likely be at least hours, if not a day or two. Right, so I make my trade and then I'm waiting. Well, I'm lengthening the distance between the bet, placing the trade, and the reward or the feedback. So the more I increase the distance, the less emotionally invested I am in the trade.

Now we go to day trading, what we're doing is we're shrinking it, right. Now on day trading, I have trades that are making that I'll be in for five to 10 minutes, an hour and again, usually in these trades when you're wrong, you get feedback faster and when you're right, it takes longer. This is also interesting because how it plays on the mind. So when I get feedback quickly that I'm wrong, it's the same way as losing in the game in a casino. So I lose and so what can I do? I could go right back and make another bet, I could come right back and make another bet. And then if I come back and make another bet, and I'm in I lose again, then my anxiety starts to rise and a lot of times what happens is rather than walk away and say you know what, I've lost three bets in a row. I probably should take a break. No, in day trading, or at the casino, you'll see the gambler, there starts to be like oh my gosh, I lost this money. I need to get it back. So I need to place another bet. If I place another bet, I can get my money back. If I place another bet I could get my money back. Well, I lose, I lose and I lose, if I place another bet I'll get my money back. So I placed another bet, and I lose. And not only that, the mind starts to think about to get my money back, I need to bet bigger.

I bet 25 bucks, and I lose. So I'm down 25 bucks, right? So then maybe I do that for the first two bets, so I'm down 50 bucks. But now I'm like, Oh my gosh, I'm down 50 bucks, I need to get this money back. I know what I'll do. I'll bet 50 bucks and if I win, I'll be back to even. So I bet 50 bucks, I lose, now I'm down 100. Now I'm thinking well, if I want to get my $100 back, I'm going to need about 100. This is called a martingale strategy. So now I bet bigger. Now I lose 100. Now I'm down 200. I've lost four times in a row and I'm down 200 bucks and what starts to happen is the anxiety or the anger really starts to rise. Now we're no longer thinking objectively, we're thinking completely emotionally and we're fully focused on our losses. Same thing happens in day trading. I bet 250 bucks, I lose, I bet another 250 bucks, I lose, now I'm down 500 bucks, and I start going what do I need to do to get my $500 back? I'll make a trade about 500 bucks. And eventually, you might even get to a trade where maybe you lose, you bet 500 bucks now you're down 1000. Now you say I need to get $1,000 back. So now you bet 1000 bucks. Now, one thing in gambling that is a benefit to the bettor is that the odds are fixed. So when the event comes, you know if you bet $1,000, you lost $1,000. It's not the case in trading. So maybe now I'm in the case where I'm like I need to make $1,000 to get my money back. So I'll bet $1,000 knowing that I can get 1000 back. Well now that trade doesn't work and as it starts to near losing $1,000, you're like well, I'm going to be down $2,000 and I can't lose that kind of money. So I wait, I bet on this trade, I can wait and I can get the money back. So they don't get out when they're supposed to and now the losses go from 1000 to 2000, or 5000 and pretty soon somebody can literally blow 50%, or their entire account in a single day, even in a few hours. When people lose 100, $200,000 in a morning, because their mind is going through this loop. This is why day trading is so dangerous. So what I want to share with you, some of you, you never do that you're very disciplined, but you still struggle, you still struggle, you find yourself struggling with overtraining. You just can't help making trades. So let's step back for a moment and let's look at this.

When we stare at the screen all the time, the more we stare at the screen, the more we introduce stress. Paul Tudor Jones once told me, we were having lunch, he said to me, he's like, I know when I have a bad trade on, because I can't stop staring at it. He goes with my best trades, I don't look at the screen. but when I have a trade on, it's mediocre, or it's not working. One of the things that I'm aware of is that when I can't stop staring at it, I probably don't have very good trade on. I'm like I do the same thing Paul, I know exactly what you're talking about. Because we have a belief that if we stare at the screen enough, if we stare at the screen enough, we can will the trade back to being good. That's bullshit, that's not going to happen. Okay. The other thing is, is we have this work ethic that is built into our brains by many of our parents by society that if we go to work, and we put them out of time, and we get paid hourly, right with the hourly wage. So if I, if I work an hour, I get paid 20 bucks, or 50 bucks or 100 bucks or whatever. So there becomes this linkage in our brain between the amount of time we work equals the amount of money we make. So there's this, this linkage.

Well, in trading, we start to think about well, the more I trade, the more I will make. Therefore, I should trade more to make more. So when we're staring at the screen, the more we stare at the screen, the more inclined we become to take action, because it doesn't make sense that I would sit here for hours on end and not do anything. I make money because I trade, so therefore I trade to make money. It's this loop in our head. Well, this loop is not productive. It leads us to take marginal trades for the sake of making a trade. So we have this strong desire to justify our time by taking action. Then finally, there's this concept of seeing ghosts and when we see ghosts, this is basically when we see patterns in the screen that aren't really there, we see patterns in the chart that aren't really there. The more you stare at the screen, the more you will see ghosts, essentially seeing a trade that you go back later, you're like what was I thinking, there wasn't even set up there. So I just want you to notice all these negative things that are occurring because I'm staring at the screen all the time. So I need to build a framework to promote me to succeed, not lead me down a path of failure. 

So there's a few things that we can do, four steps specifically, that can help you massively improve your day trading. So let's talk about what those are. The four step process to massively improve your day trading, one, you put your orders in the market, don't hold them mentally hold them in the market. Some of you might say why I like to use metal stops, not actual stops, or, you know, I don't like having my level out there in the market. I need to get feedback. Well, that's fine. You could one, replace it with alerts or two, you can put smaller size in. You can work a one lot, you can work 10 shares, whatever the case may be, you can put an order in the market, orders in the market are real and you will pay attention when they get executed. You put your orders in the market, you get them all out there, so there's nothing for you to think about. These orders are based off of what you see. I'm gonna buy this level and if I buy this level, then I'll put a stop in here. And there's complex orders, you can use, I can buy this level, and when I buy it, it will put a stop and a target in. I can pre program all of that in advance. That's what I do, I have all that in the market ready to go. Then I set any necessary price alerts. If there's a key level I'm monitoring, and it gets down to that level, and I really want to focus in and stalk a buy, well then I'll put that price level in. If I have a trade on, and it's working, and there's a level that I want to make sure if it gets up there, I want to go take a look at it because I want to look at hedging my trade or peeling my trade, well then I will put an alert in at that level. I put my orders in, I set all my price alerts. Then we move on to step three, which step three is, we set time alerts. If we're trading a timeframe, for example, let's say you're trading 60 minute bars, well, you'll set an alert for five minutes before the 60 minutes is up, and you'll come back at the end of the hour and you'll evaluate everything that's going on as you transition from the end of the hour to the new hour, you'll reset your orders, you'll reset your price alerts and then you'll set another time alert for an hour from now, or five minutes before the hour ends. You can see what's happening is we're only returning to the screen, when there is something that we need to do, something we need to look at. Right? We always come to the screen with a purpose, we never just hang out in front of the screen, we never just hang out and watch. We come with a purpose, we get done what we need to get done and then we get out of there. Okay, so when the alerts go off, if a price alert goes off, then we return to the screen and we evaluate what's going on in the market. If you're close to having a trading entry, then you stay and you watch the chart because you're there for a purpose, you're there to stalk an entry, you're there to stalk an exit. If it's a new period, you reevaluate levels and you reset your alerts and then you move on. 

This concept of force checking can massively change the satisfaction that you have with your trading. Because you won't be in front of the screen all the time. You can be off doing other things. You could be learning something new, you could be journaling, you could be doing research on your trades. You could be watching a TV show or hanging out with your wife, or working out. There's all kinds of things that you could be doing that were productive while the market is trading, and you're a day trader. But this takes discipline, and it takes letting go of some of the attachments you have to watching what's going on. This all comes down to a key question that I asked all my students all the time. It's a very simple question and the question is, what do you want? What do you want? What do you want from day trading? And be real honest with yourself. Are you there to make money? Are you there for the excitement? If you're there for the money, awesome, this four step process will really serve you well. Because you know, I'm just here to make money, that's it. I don't care about anything else. I'm just here to make money. I'll work this process, I'll be disciplined, and I'll make money and now enjoy my life while I'm making money. If you're there for the excitement, you got to ask yourself a different set of questions. Because if you're there for the excitement, or you're there for the thrill, and you really are a gambler, you're really a gambler and you have to be honest with yourself that you're in danger of taking some massive losses. You're in danger of, at minimum of getting ground down and failing. Which is it? Got to be clear about what you want. Look, I know lots of traders who love excitement okay, they love excitement. There's nothing wrong with that, but you have to frame it in the right way. Do not get your excitement by day trading five minute bars in GameStop or whatever the case may be. Go get your excitement. Go make your money day trading and go bungee jump. Go sign up for a race car program and go drive race cars at 150 miles an hour on a track. If you love adrenaline, go get your adrenaline somewhere else besides the market. If you get your adrenaline in the market, you will die. If you do it somewhere else, you can have fun with it, you can meet this need you have for excitement, for the rush and leave the trading just making money. So there you go.