Never hit the buy button

Ever look at the chart, see price action heating up - maybe starting to pull away from some moving average you have on - and instantly decide that YES! This is IT! THIS is the trade I MUST take!

How does that usually work out for you?

Yes, I thought so.

Because that’s exactly how it used to work out for me. Until I decided to take a look at my daily trade runs and realized that literally 90% of all my losses came from these impulsive, look-good-so-let’s-plow-all-in trades.

The single greatest difference between my winners and my losers was that nearly all of my losers were impulsive and nearly all my winners were pre-planned. Of course, some of my impulsive trades worked, and of course, plenty of pre-planned trades went bust but that’s not the point.

Day trading just like making donuts is a numbers game. It is the art of turning risk and uncertainty into profit. The idea isn’t to win every trade or to sell every donut, but win ENOUGH so that you can be profitable at the end of the day. And whether you are making day trades in NQ or Boston Cremes at the Donut King the key to success is a consistent recipe.

In any trading system the price needs to behave in a pre-planned way in order to justify an entry.  You could for example buy or sell at a limit if the price comes into or rises above a century mark. This is basically an old dealer tactic as you make liquidity at the point of greatest panic/fear and it requires high focus and balls of steel to basically step in front of a rising wave of price action that could instantly capsize you. To do this right you need to have everything set up in advance - the entry, the stop, and the exit. In high volatility markets of today, some of these trades literally resolve in one second or less.

Another setup could employ a completely opposite methodology. Instead of providing liquidity you could be taking it by  trading a stop-entry setup that bets on breakouts. Here you look at structural points on the chart that suggest a high possibility of breakout or breakdown and quickly ride that momentum to profit.  Embedded in the concept of a breakout is the very fact that it is a runaway trade. That means by its very structure you will not be able to catch it by just watching it on the charts.  You will inevitably be late in your entry if you don’t have your trigger orders set up ahead of time. Breakout trades, just like the limit trades, require preparation for entry, exit, and stop. And although it’s much rarer to get “instantly vacuumed up”  to profit I’ve had a few breakout trades that resolved in a few seconds or less.

Another way of trading - and this is a technique I use all the time - is to only enter on the candle close once some proprietary indicator signals a setup. The candle close technique forces me to confirm through BOTH time and price and that more often than not means the difference between winning or losing as markets love to lie and trick you into false entries. Here too - nothing can be done effectively unless you pre plan everything.

But perhaps the smartest thing I’ve done recently is to create a trading tool for everyone in our BK room that lets us structure everything - entry, risk, exit and all of the set up logic with just one click of the mouse. Not only are markets way too fast to trade manually these days, but the tool but its very nature FORCES us to take pre-planned trades only. The robot can sit patiently for years (otherwise known as hours to my dopamine seeking brain) and will only execute when all the conditions are properly met. And while it may be frustrating for us humans to wait, we need to understand that it is the trades you DON’T take that make profit possible. So once you have created a plan, it is always much better to let the robot do the actual dirty work of trading.