Dan’s Trading Thoughts – December 21, 2022
Hey everybody, I am kind of splicing a couple of things together to make this video. You are not going to be looking at any charts. This is just me talking now, think of it as kind of a special “think piece”.
What I am talking about here in this little audio missive is this idea of where are we going, what are you doing? How are you progressing as a trader? Why do you do what you do? It can’t just be to make money, you have to have some other reason for doing this. I have a lot more to say about it so listen up.
In order for you to get to a better future, and now I am talking about trading here but this is also a really good lesson in life, if you ask me, nobody did but I’m telling you. In order to get a better future you really have to see it now, you have to see what it is. You are not there yet, and you have to embrace the gap, which is that space between where you are now and where you want to be. That can be a monetary thing, this is what my net worth is or this is what my account value is worth now. This is what I want it to be next month, next week, next year, in my lifetime. You get to choose the time frame. That’s what I want it to be.
Now, sadly I don’t get to just wish, I have a bottle. I have several bottles but most of them have booze in them, and none of them has a genie in them. And so I don’t really get any wishes, I have to go out and make my own wishes. And I have to make my own future starting with what I am doing right now.
If you are resolving that in 2023 you are going to get in shape, then that is a great resolution to have if you are not in shape because it will improve your life. But I think what is important for you to think about is, not just I am going to get in shape. What does that mean? What are you thinking about in terms of shape, your resting heart rate, your weight on the scale, and your percent of body fat? Frankly, your ability to walk a mile, or ½ a mile, or your ability to run a marathon, or wherever you are now? Getting in shape, the next step is someplace that you are not right now, from a fitness standpoint.
You have to decide what getting in shape means to you. And this is why you have to make that decision. Because the definition of what getting into shape means to you, what being in shape means to you, that definition absolutely dictates the steps that you are going to take to get in shape.
Here’s an example, if your idea of getting in shape means you want to lose 30lbs. If that is your definition of getting in shape, you want to lose 30lbs, well you are focused on the scale, that is what you are focused on. You are not really focused on your body, what does it look like? You are not focused on whether you can run a 10k or a 200k. You are not focused on anything. Your definition of getting in shape is, I want to lose 30lbs.
That is a completely different program. That is a completely different process than your definition of getting in shape, where it’s, I want to run a 10k under an hour. Or I want to run a marathon, I don’t give a damn how long it takes me but I want to get across that finish line. That’s a different process. Now you are thinking about running. You’re thinking about recovery times. I guess you are thinking about weight, but not really because if you’re training for endurance or even speed, something like that, the body fat, the weight is going to drop as a consequence of your attempt to get into shape.
Anyway, I’m not a fitness trainer, that’s not my point. It is something I think about a lot because I am focused on getting in shape. And, frankly, I am doing a damn good job, if I do say so myself. What I am saying is, with respect to trading, you have to decide what it is that you are looking for. What are you trying to do? Because until you know what you are trying to do, you are never going to get it done. And it actually all starts with measuring, where are you now.
Now, one way to measure it is, what was my account value worth at the beginning of the year, on December 31, 2021? And then, what’s it worth now? Okay, well, I want to do better. If I lost 20 percent this year, I sure don’t want to lose 20 percent next year. Maybe your goal is to make 20 percent. I would say no, that’s really not the right approach. Because if you are going to set a goal of percent, I want to make 20 percent, well shoot, make your goal 200 percent, for that matter.
You decide what you are trying to do in 2023. Are you trying to stop making ill-advised trades? Stop trying to catch falling knives. Stop chasing stocks. That’s a common thing, especially in bear markets like this, where you will find yourself losing more money casing stocks. Because chasing stocks means that you are buying when others are selling the stocks. That is just an example.
What I am saying is, you have to decide what you want to do. What are you trying to do? And then just do that, focus on doing that. As they say, “The longest journey starts with a single step.” Great, fantastic, sounds great, but what does it mean? Here’s what I say it means, sure if you are going to go anywhere you have got to start. You have got to move forward. You have got to do something. There is this old saying, I think it’s old, only it was new to me, a lost pilot in WWII was radioing his base, “I don’t know where I am. I am totally lost, I don’t know where I am going. The good news is, I’m making good time.”
You don’t want to be making good time if you don’t know where you are going. Because if you’re trading poorly and you are losing money, making good time is the last thing that you want to do. So you need to get your stuff figured out and that requires you to take stock of where you are right now. How did you do? I know how I’ve done, I’ve made some mistakes, and I always do. In my best years, I will look over the last year and say, I made some mistakes here, or I goofed that up. And oh crap, that was a pattern that I had and I need to change that. And then in the years where I have done noticeably worse or poor, then I have those lessons that I learn as well.
This is a really important part of trading, and so you have got to be thinking about that. What are you doing? What are you doing with your trading career? Because this is a career, it’s a life. You are building your financial fortunes, you are not erasing them, you are not destroying them. But doing anything worthwhile takes time, it just takes a lot of time to do. And this is a really super important thing for you to be mindful of. Because if you are not, seriously, you are just playing a video game, that’s what you are doing.
You are seeing your account going up and down. You are getting depressed when it is going down, and then you are getting excited when it is going up. Your emotions swing right along with the value of your account, with the last trade that you made. Maybe you have been doing very poorly lately and you are getting kind of depressed. And then you happen to get in one stock and then they get a buyout offer the next day and it’s up 44 percent. And you get so excited, I would, you get so excited and say, This is why I’m trading, this is exactly why I am trading. I want to do that again. As opposed to saying, Do you know what? I am trading my process.
Trading is an endeavor, it’s a career it’s not an event, it’s not one trade. I happen to be very, very fortunate to be in this stock, I got a totally massive payoff. That’s the icing on the cake, the one big trade. But that is kind of an outlier and you have got to forget about that. You have to just be focused on the type of trading that you are doing. And you have to be doing that all the time.
It doesn’t have to be mundane, and it doesn’t have to be unpleasant because I don’t know about you, but when I am working on something, whether it’s trading or anything else, I really enjoy it when I am making progress. If I am playing the guitar and I am working on a particular solo, or I am playing the piano and am working on some song, and then you start getting better, you start mastering it, or you’re making any kind of progress on it, that feels really good, it feels really good.
Try to get that feeling in your trading. And in a market like this, you don’t want to be setting the standard for feeling good, such that you have to double your money in order to feel good. Or you have to make a certain amount of money in order to feel good. You want to be basing your bar, so to speak, on feeling good, in accordance with your actual trading actions. Are you trading well? Do you have a process that you are sticking with? Do you have a way to find stocks that are good candidates to the exclusion of everything else?
In other words, are you able to look at this big crop of stocks and go through and put in your basket only those stocks that have the kind of criteria, that have the kind of setups, that have the kind of characteristics that you like, that work for you? Is that something that you are able to do? Because that is truly where trading starts. It is not just part of the process, that is the first step of a trading process. It is not the process of inclusion. It is the process of elimination. You are removing every stock from your view that doesn’t fit your criteria.
You don’t have to fill your basket, you only have to make sure that everything that is in your basket is a good candidate. And I will say it again, you do not have to fill your basket. You don’t have to walk around with a basket full of stocks. And I am not talking about stocks that you are actually owning. I am talking about stocks that you are just looking at, stocks that you are considering. You do not have to have a basket full of stocks, or a watch list that is 200 long, let me take care of that. I’ve got many watch lists but I’m on a different side of the microphone, on the computer monitor than you.
You need to have a basket that works for you. This is what your view is, if you are looking through the market and your basket is getting really empty, don’t start looking elsewhere. Go back, look at the market again, and make sure you haven’t missed anything. And then irrespective of whether you have missed something or whether you haven’t, you are still looking at the stocks in your basket and that’s it, that’s it. You look at the stocks in your basket. If you see a setup, then that is when you consider taking the stock. But it has to be a setup with a stock in your basket, that’s it. That is how you stay focused.
Just that simple practice of doing that will make you a million bucks. It will save you 2 million bucks. Because think about this, I get scared thinking about it for me because I have been doing this for so long. How many trades have you made? How much money have you lost, because it all adds up? How much money have you lost throughout the year when you make a trade and you take the loss on a stock? You look and say, What the heck was I thinking about? Why did I make that trade? Oh, I saw somebody talking about that in the forum. I just saw it, it was a shiny object and I snapped at it.
How many times have you done that? You have a certain process that you follow and it works, and then you see something else, and that something else would be in a different basket. It would be somebody else’s process but it’s not yours. It’s not yours, but you see it and you go, Oh, I know what that stock is going to do. I am going to go ahead and make that trade. And then you make that trade but you lose money. You don’t lose a lot of money but you lose money.
Why did you lose money? Well, because the stock went against you. No, that’s a consequence of why you lost money. The reason that you lost money is that you did something stupid. You did something that you know you shouldn’t be doing. The stock wasn’t in your basket, you said, That’s okay too, I’ll take a shot, we’ll see if it works. Ah, this is good, I’m bored, hopefully, this will work out. Stuff like that. Just contemplate, if you can, go ahead and put it on an Excel spreadsheet, but that’s a lot of work.
Think about all the trades that you have made throughout the weeks, months, years, and decades that you’ve been trading. How many of those trades did you take that you shouldn’t have taken, that weren’t your setup? They were just random trades, just random trades. How much money did you lose? Now, take that money and put it in your account right now. Forget about whether it would have compounded if you hadn’t made those mistakes. Forget about that, you could do that but that is not the point of this. Just think about putting that money in your account right now,
Now, how would that happen? It would happen very easily, you wouldn’t be making those mistakes. You wouldn’t have made those mistakes. Those mistakes would not be part of your process, the downside of your process, the part where you are still working on it or something. You would not have, as a part of your process, the occasional random trade. You have eliminated that. And as a consequence of that, magically and theoretically, all that money that you lost is in your account right now.
How does that benefit you? I will tell you how it benefits you because now you have a lot more money in your account. And there is one thing you don’t have. You don’t have the habit that cost you that money in the first place. So you’ve got two great things happening for you, you have the money that you lost, and you have the lesson that you didn’t learn, now it’s learned, and you are not doing it anymore. So you are in a better position to trade better. And you are in a better financial position to actually make more money, to improve your life.
This is what trading is all about, and I am going into this now because I tend to get more introspective towards the end of the year, kind of like everybody does. This is the important part of trading, and any fool can make money in a bull market, any fool can. It is the bear markets that reveal who the fools were and who the people were that were just really good traders. And so this is the time in the market when you have to be thinking ahead. Go back and listen to what I’ve said, listen to this thing again and see if any of it applies to you because I am not looking at any charts here, this is it.
I want you to be thinking about, where you want to be a year from now. You cannot go back and get all that money that you lost from taking random trades. Sorry, you can’t do that, I didn’t mean to get your hopes up. You can’t do that. But what you can do is take the lessons that you’ve learned, and again, I think you could just stop with the one I just said random trades. Just decide what your process is. Right off the top of my head, I am only buying stocks that are above their 200-day moving average. I am only buying stocks that are above or right at the 50-day moving average, give or take 5 percent. The 50-day moving average has to be above the 200-day moving average.
The Bollinger Bands have to be, we’ll say, within 15 percent. Bollinger Band width is 15 percent of the value of the price of the stock. So if the stock is at $100.00 the upper Bollinger Band is at 107.50. And the lower Bollinger Band is at 92.50. They add up to $15.00 and that is 15 percent of 100, there you go. Your Bollinger Bands have to be within 15 percent. Ideally, they would be tighter but it’s a process, it’s a basket. So I am just looking at those. I am only looking at stocks that trade, we’ll say, the average share volume, not money, not dollars, that’s a different calculation. But an average volume of 250 thousand shares a day.
You can make it a lot lower. I know Mark Minervini, I’ve seen him suggest stocks where they are trading 30 thousand shares a day, which to me is just madness. It is just nuts because you don’t know who else is listening to your calls. But you say 250 thousand shares a day, that’s your process. And you are only going to be trading those stocks that have a particular look. That has a particular look with respect to a volatility squeeze.
Anyway, these are just things that I have gotten off the top of my head. But you have to have a process and not any old process but a process that works. And if you are wondering, I don’t know whether mine works or not, post it in the forum. That is what everybody is there for, to help other people trade better. And that can be by giving you trade ideas. It could be by asking questions. You could ask questions, you don’t have to be a know-it-all, nobody does. It could be by asking questions, or it could be by helping somebody else. But these are things that you really need to be doing.
It is a major part of what we do. You may be one of these members that don’t have a chance to post in the forum, you’re really not in the forum. I think most members are that. Because it can be time-consuming and some people don’t have that time. But you should at least be looking in the forum. If you want to get full value out of this, if you find that, whatever your subscription payments are, you find you are getting great value out of just listening or watching my videos, Scott’s videos, or whatever. Then that’s fine, but I am just telling you that there is more value here than just that.
The forum is a big part of it. But I digress, the point is, you have a process, and that’s what you follow. Don’t think about the money, particularly in this market, it’s brutal. Think about the process and I guarantee you, absolutely guarantee you that the money will come. The money is going to come for you once you get your process refined. You will be losing money on trades, as the best trader does, but the gains that you are making will be outweighing your losses. That’s a part of the process, that’s just the way it is.
And so I want you to be thinking about this as you go through the rest of this year, we’ve got a couple more weeks and then into January. Don’t be thinking about the money, the dollars. That’s a consequence of trading well. I want you to be thinking about this, this is a market that can actually be a really good market for you if you’ve got the discipline to avoid taking a big loss, not even one. And you’ve got the discipline to be using risk management tools with respect to dollars, how much money are you risking on this particular trade? And then, what are your criteria for an entry?
If you are focusing on those things this can be a really, really good market to teach you. And this is why, because it penalizes bad decisions. This is a market where if you are making bad decisions it will absolutely crush you. Bull markets don’t do that, they actually reward bad decisions, and they don’t penalize bad decisions. That is why I say anybody can trade in a bull market.
But if you can be thinking about it in these terms of learning in a bad market, how to trade well. Then you are going to absolutely crush it. But don’t think about the money, think about the progress, think about the journey, and think about refining your behavior. Because I will say it forever because it will be true forever. The weakest link in your trading mechanism is what is in between your ears, no question about it. You are the weakest link. So if you can just focus on that, shoring up your own discipline and your own process, I am telling you, you are going to do so well in the years to come that you are not even going to believe it. That is a certainty, a lead-pipe cinch.
And the reason I say that is because just last night Jen was asking me, “How come you always say lead-pipe cinch? I don’t even understand what that means. Is that like a plumbing term or what?” And I said. “It’s just a phrase, you could look it up, it even made the way into one of James Taylor’s songs. Anyway, it’s a lead-pipe cinch that you will be making money as you learn to trade better. So don’t give up, you’re going to be fine, I promise you. I am here, I’m not going anywhere. I may be turning 65 but all that means is that I am eligible for Medicare.Free Chart