This is the most important video you’ll see. Don’t blow it off (Note: It’s not a trade). (December 01, 2014)
SP-500
I’m not going to talk about the S&P today I’m going to talk about journaling, but I just wanted to show you this. Hopefully we get more downside, there’s nothing different, we get a bad retail number in, big deal. The market is down how much? Almost .7 percent after the kind of move that it’s had, you’ve got to welcome this. There’s a lot of stuff that’s going to wind up being on sale. The stuff that you were trying to buy before but you couldn’t because it just seemed to keep climbing and climbing and climbing. Here’s your bogey, you’re going to get entries on those stocks now.
Journaling, here’s the thing; people make the same mistakes over and over and over again. Trading is one of the only occupations, and think about this, look at yourself critically, look at this video alone, don’t have anybody with you when you’re listening to this video because you’re going to blush and feel kind of bad and embarrassed because I am talking to you. You make the same mistake over and over again. You trade too big; typically when you trade too big it’s because you wait too long, you’re always chasing.
You never buy when you should be buying, when you know you should be buying, because you’re waiting like you lost money on the last two or three trades so you want to wait until the coast is clear, “I want to wait until I know that stock is going higher.” The stock has gone up 15 percent and you decide, “Hey, now this is a sure thing.” So you pile in, what happens? Ultimately the stock goes up 16 percent before it rolls over, you made 1 percent before you lost 10.
You make the same mistake over and over and over again. Why is that? That’s because you’re not learning. The problem is you’ve got a high volume of transactions; you’re trading a lot. Name me the third trade, three trades ago. What trade did you make three trades ago? How about your second to the last trade? You probably remember your last one. How about the last ten? Can you think about those, can you write them down? No, but you can probably look at your stupid Fantasy Football list and know who scored how many points, right?
But when it comes to money, when it really comes to money, you’re one of the laziest people out there, accompanied by everyone else watching this video. You’re lazy, you think, “If I just trade a lot more I will get good at it.” No! All you’re really going to do is get really good at losing money because you’re making the same mistakes over and over again. That old adage “Practice makes perfect” is one of the dumbest things I’ve ever heard, right up there with “Trust buy verify”, another stupid thing.
Practice makes perfect, does it really? If you’re practicing the wrong way, if you’re constantly doing the wrong things, do you think magically that’s going to be perfected over time? Do you really think that? Do you really think that just trading away; “The market’s open so I’m trading today. It’s been open for an hour and a half and I haven’t found anything to trade so I’m just going to buy something. I’ve got to a hunch, I’m going to buy a bunch and that’s that.”
Do you really think making those silly, ill advised, dumb trades of high volume is going to teach you how to make money? No, you’re just going to learn the same thing over and over again. Practice doesn’t make perfect. Perfect practice makes perfect. Practicing the right things ingrains the right things into your trading behavior. Practicing good trading generates good trading. Practice does not make perfect, perfect practice makes perfect.
The way you do that is by learning. You can’t learn to trade from me, you have to learn to trade from you. It’s basically my full-time job, about two jobs for me, giving you information, hopefully passing on some trading tactics and methods of analysis and trading ideas and all these things that I’ve been doing for almost 20 years; it’s my job to put that stuff in front of you, and I work really hard at doing it. Think about this, I literally cannot teach you to trade, I can’t. I can give you the material, I can put it in front of you, you have to teach you to trade and you are not going to teach you to trade if you do not journal.
You have to write down, you’ve got to write down every single trade that you do. Now if you’re above this, if this is not for you, well then that’s great! Good for you, you’re the one; you’re the one person who doesn’t need to learn. But I’m telling you, traders that are a heck of l lot better than you, and a heck of lot better than me, and manage a heck of a lot more money than you and me, and I mean all of you and me combined, journal. Do you know why? Because this is real money you’re working with. This is real money, this is your money, so you’ve got to be journaling; you have to learn.
This is what I want you to do, again, write this stuff down. First of all if you see a trade that you’re going to make snap the chart. What I mean by that is take a picture of it, you’ve got all kinds of software that can do that, if you don’t have one, get one, get “Snagit”. There’s a way you can do it on Mac’s and PC’s so you know how to do that, and if you don’t, learn. So you snap the chart, then what is your plan? Before you do anything, what is your plan, where are you going to enter, where are you going to exit? Why now?
Write this stuff down, this isn’t like a checklist, this isn’t like a checklist that you go through pondering everything, well now I’m going to buy. Literally write this stuff out, it is a journal, you are writing a journal. Here’s my chart, I plan to do this because this is my contingency plan, this is what I think this is going to do and this is why. You write all this stuff out. Why now, why are you acting now, why not wait, why didn’t you do it last week or 5 minutes ago or whatever. How much are you buying or shorting? Okay, why? Why that amount?
Is it because you want to put in a lot right now because you’ve got to make a bunch of money to make-up for your last trade and you’re kind of frustrated with small timing it so you’re just going to go in? Well you know what? If trading were that easy it wouldn’t be called trading it would be called winning. It’s not, so you don’t want to do that. How much are you going to lose on the trade? Write it down.
Okay, now what’s your upside price target? You have to have one. Looking at a chart here, I’m just going back to the S&P, my upside price target is 3,000.00 or something. Okay, where are you getting that from? My quote “upside” price target on this particular thing would be this way, the stock has pulled back, up here it’s about 2,075.00, I think I’ve got a 20-point price target, I just can’t project further that that so I think the maximum I’m going to make is about twenty here. So that’s your price target, it’s not a big deal you’ve just got to have one.
If it’s close to resistance like the S&P you just don’t get much upside, the stock may break out, but it might not and you can’t project that kind of stuff. If it’s all-time highs, the sky’s your limit and look at the distance from the key moving averages to get your price targets. You want to have that before you make the trade. How much money do I think I can make? Then after all that’s said and done what was the outcome? Did you make money, did you lose money, what happened after you got out, did you get out right, did you get out too early? Hopefully you did. Did you get out too late; snap the chart, take a picture of it.
This is all in the journal; you can put it in a Word document if you want. Okay, you snapped the chart so this was the trade right here, now comes the good part, now comes the beneficial part. Where did you go wrong? Even if you made money you usually did something wrong. Maybe it was a great trade, a great setup and you took a small position, like a too small position because you were kind of freaked out because your last three trades had been losers or you just lost a bunch of money on another trade so you really just kind of want to dip a toe here.
That’s fine to do that if that’s what you feel you need to do; but here’s the thing, and this is a big thing, how much and why? It should have been entered there; you know I just need kind of a little trade to build my confidence. I’m probably not going to make much money on it but I just need a win, I just need a win. That’s okay, if this was part of your plan then you really didn’t do anything wrong. You really didn’t do anything wrong, the trade worked out great, but I didn’t make much money because I didn’t take a big position. Fine! You knew you weren’t taking a big position and you knew why.
That wasn’t a mistake, you didn’t do that wrong, you just didn’t make much money. But typically even if you made money you’re going to see, well I could have added to this or I could have done this or I could have done that, whatever. But if you had a losing trade you definitely did something wrong, not because you definitely must do something wrong on every losing trade, but I’m telling you you’re going to find something, you’re going to find something. I chased, I didn’t have a stop and the stock just kept sliding and sliding and sliding and I just couldn’t take any more and I sold right at the bottom or whatever.
Identify, in this specific trade, one major thing that you did wrong, chasing, trading too big, or what you can call plunging, chasing, trading too big, no stop, no trailing stop, whatever it is. Identify, and there’s a bunch of things you can do. Maybe it was just a bad chart, maybe the one major thing you did wrong is this, you write it down, I didn’t know what the heck I was doing. Maybe the one major thing you did wrong is seen on this chart right here. I hope you’re paying attention to this video because I’m giving you pearls.
This one video, if you’ve got to watch one video from me let this be the one. Let this be the one because I’m giving you the keys to the kingdom. The keys to the kingdom open up the door to a lot of hard work and tough self-assessment. You’ve got to have some self-awareness to do this stuff but I’m telling you, this is going to keep you in the game and my bet is some of you are kind of close to being out of the game because that October surprise kind of freaked you out.
And then the extent that the market has rallied without any kind of a pull back, that’s kind of freaked you out and disappointed you. Then last week you got all in, Friday didn’t do too well, today you get a pull back to about 7 percent in the S&P, whatever it was and now you’re going what the heck? I’m wrong on the downside, I’m wrong on the upside; maybe I just need to get that job at 7-Eleven. What I’m saying is, this is the thing that’s going to keep you in the game (journaling).
So I want you to identify one specific thing that you did wrong on a losing trade then highlight it, bold it, do something because you are creating a journal here. Again, it can be a Word document; you want to highlight it so you can see it. It’s like if you just glance at one specific trade, the journal on one specific trade, your eyes should be drawn to the one thing that you did wrong. Now, move on, what do you need to do next time? I’m not going to chase next time, I’m not going to go in too big.
No, you speak in the positive not the negative. There have been studies by shrinks, by brain engineers, whatever you want to call them; the brain does not recognize the word not or don’t or won’t. The brain only works in the positive so you want to say, I will do, you don’t want to say I will not do. You don’t want to say I won’t trade too big, because the brain thinks, I will trade too big. I won’t be impulsive, the brain thinks, I’ll be impulsive. So you want to be talking about what you will do; I will wait for a pullback that is within 5 percent of the up trending 50-day moving average, I will put no more that X amount of dollars into the first part of the trade that I make. You figure out what you need to do and you write that down in the positive.
Now, here’s where the good part starts, after ten trades I want you to go back and review all your journal entries and find the one common thing that you’re doing. My bet is you’re going to look at your entries, probably seven out of ten entries, maybe six out of ten of them, definitely five out of ten of them are going to be the same silly thing. You’re going to be going, I knew that I did that, I knew that I chased, I knew that I wouldn’t act when I knew that I needed to act, but I didn’t know that I was doing it seven out of ten times.
So what’s the thing that you’re going to fix? You’re going to fix that, and you’re going to do in a positive way, not saying I won’t case, instead saying I will buy when there’s a low defined risk. I talk all about that all the time in Stock Market Mentor videos, Option Market Mentor videos too but typically in Stock Market Mentor videos because we’re looking at stocks. So anyway I want you to do this and then I want you to write the one thing that you’re doing wrong in your last ten journal entries.
I want you to take the predominant thing that you’re doing wrong and stick it on a Post-it Note, however you want to do it. Put it on your monitor or in my case your monitors, and just let it sit there until you don’t need it anymore. The one thing I have on my desk is an old desk placard, or whatever you want to call it, from IBM, it has one word on it, “Think”, because that’s what I want to be doing at all times. So whatever it is that you need to do stick it on your monitor until you don’t need it anymore.
By the way, you may find two common things that you’re doing. What we’re doing is we’re using this journaling as a way to learn about ourselves. You don’t care about what mistakes I make, I make mistakes; you don’t care what mistakes your neighbor makes, the other guys in the forum or ladies, you don’t care about the mistakes they made because they’re not making you money, they’re not losing your money. You are making your money, you are losing your money so what you care about is your mistakes.
So I want you to do this, I’m telling you, I challenge you to do this. And here’s the thing too, I don’t want you to wait, “Oh that’s my New Year’s resolution, I’m going to trade like crap for next month and then I’m going to start journaling when I come back the first of the year.” Why do you want to do that? Now if you’re not trading the rest of this year then that’s fine, but this is the kind of stuff that you need to start today, you need to start today, with the trades you made today. Go back and make that journal entry, go back and do it. I challenge you to do that, and here’s the thing. If you do that, if you’ve got the work ethic to do as I’m suggesting I promise you that you will trade better.
And listen to me right now, is this like a big promise, am I really going out on a limb? No, there is no way that you cannot trade better if you journal. It’s impossible for you to, unless you want to lose money, in that case contact me too and I will take the other side of all your trades. Look, start journaling today, start becoming self-aware tomorrow, that’s really what it gets down to.
Again I’m telling you to do this; you’re going to start trading better, you’re going to starting getting better results. If you don’t, and listen to me, you guys know me, I’m really tactful; if you don’t do this now then don’t come crying to me tomorrow or next week or next month or next year; I don’t want to hear it. Now if you don’t happen to listen to this video then sure cry to me all you want, and then I’ll send you a link to this video. But if you’re listening to this video, if you say, what can I do to trade better Dan? I will say, I just told you in this video, so you do that and my bet is you’re going to wind up making good money.
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