How to go Live Psychologically?

[Andrew Aziz 98]

Guys, I got an email that ask a very important queastion. Let's share best practices here. Becuase I think this is VERY important. 

Email: 

Quote

Hi Andrew,
I hope you’re doing well. I wanted to ask you a question regarding trading psychology.

My question is how would you recommend learning to trade live in a relaxed state of mind? 

I am trading on the simulator and today I made about $950 and was done trading about 9:50 AM. I typically make between $300 and $600 per day on the simulator and usually never trade after 10 AM EST. However, I know trading live is dramatically different as I have traded live in the past. When I trade live, I am not relaxed and feel tense etc. The best answer I can think of is to trade small size when beginning to trade a live account.

When trading on the simulator I am virtually 100% certain that I will make money if not every day certainly each week. However, when trading live I do not have that same level of confidence. The graphic you have on your site with a person walking on a 2 x 10 board on the ground versus walking on the same board 50 stories in the air is completely accurate when it comes to simulator trading versus live trading when it comes to me.

Thank you in advance for your thoughts.

Have a nice day!

My short answer is as below:

Hi XXXX, that is a million dollar queastion! I think you need to trade small to build the confidence and grow your account to have a shield on your capital. It is much easier to trade if you have already made some money on your account. First loss on your original idea is much more harmful and it will put you in a big emotional distress. 

What do you think guys?

[Abiel 475]

Trading small is a must. We all know that the max you can risk in a trade is 1 or 2% of your account. But you don't have to risk 1%, even 0.5% right at the start of your live trading. For me it's better to risk a low amount of $ per trade, whatever you feel comfortable with ($10, 20, 30 USD, etc.). These hotkeys help you to calculate the # of shares based on risk on $ or %:    DAS - Dynamically Calculate Shares on %Risk or $Risk - Hot Key + Configuration, Updated 10/30, v1.2

Choose your stocks: stocks with huge movements can be scary for new traders. Avoid huge ATR stocks like Tesla, BABA, SQ. In your early stages as new trader you need to learn and survive, stocks with decent ATR won't get you a lot of money but will help you to develop your trading muscle.

Taking big loses at early stages of the trader career can be undermining for learning and mindset, so going small on not too wild stocks is the way to go for new traders. You don't climb everest as your first mountain, it takes a lot of training and preparation.

 

[Raymond.l 3]

I agree with Andrew that we should trade small in the beginning, we all get emotional when trading live because you are risking to lose your hard earn money. Going live trade is like going into a competition, it gets you very excited and stressful at the same time. However once you have enough experience live trading, you will start getting use to it and your mind will stay calm. The reason you need to trade a small size is because you want to gather those experience and at the same not losing all the money in your account. 

[Norm 46]

Let's start with the agreement that the career or activity of day trading comes with inherent risk. As noted in Andrew's book, a large percentage of the total people that attempt to trade will fail. This is due to the fact that it is a deceptively difficult activity. For example, anyone watching Andrew's many recaps on YouTube sees something that has become intuition and from an outside perspective, he is "easily" making large sums of money day after day in the market. What they are not seeing at first glance are the years of training, mistakes, and struggles that it took for him to get to that place. He persevered through the learning curve, as any successful trader has, in order to become consistently competent in his trading. I'm yet to meet or hear of a successful trader that said they did not experience a good sized draw-down of their capital (or complete blow up of an account) before becoming successful, yet most starting out think it will never happen to them. Proper education and practice can drastically increase your odds of success.

In order to do the same and make it through this training period with minimal losses we take actions to protect us from ourselves, because in this field we are the only one that controls our destiny. There are many layers of protection for new traders; the most obvious that come to mind are sim trading, trading with small size, and risk controls when all else fails.

While trading (especially the way in which we currently operate today) is a uniquely modern task, it triggers some of the most primitive brain functions we posses as humans. From "fight or flight" (losing money/exiting a position too soon), to the rush of neurotransmitters produced causing us pleasure (clicking hotkeys/winning trades). Trading successfully is often in direct conflict of these pre-programmed instincts common to all of us. It takes time and practice to fight these forces.

We often use sports analogies to make our point, but I'll go a different direction:

Learning to become a pilot has parallels to becoming a trader. While theoretically after months of study and work in a professional simulator, one could perform the tasks needed to complete a full flight on their own from taxi to takeoff, navigation, communications, and landing. However, one would never think it sane to allow a person to make this leap. In order to bridge that gap you must spend many hours with a competent flight instructor by your side ready to take over the controls in an instant (risk controls). Additionally, you don't go from ground school to the controls of a 777. Instead, you spend hundreds of hours in a 2-4 seat, simple airplane at first (small size). The reason is the inherent risk, which is in this case death. From the moment your wheels leave the ground until they safely touch down, you are fighting one mundane, insurmountable force - gravity. 

Markets work against a trader in the same way as gravity works against the pilot. Both are unchangeable forces far greater than that of the individual. At any given moment there are millions of participants in the market and each and every other person trading is working their hardest to take your money to put it in their pocket. You are doing the same to them. But, you need not be smarter, better, or faster than the entire market, just part of it. Similarly, if you and your friend are being chased by a bear, you need not be faster than the bear, only faster than your friend.

Losing in trading, unless stopped early, results in a financial death. At some point you must leap from the simulator to trading real money. The only way to do this and maintain some control over the amount of risk your are exposed to is by trading in smaller sizes. Sizes smaller than what triggers your ingrained fight or flight instincts, while you work out how to deal with the primitive, natural response to a dangerous threat. Once you learn to deal with this stress, you can safely increase your position sizing over time to what your capital is fully capable of.

Andrew, or any successful trader, has rewired his brain to diminish the fight or flight instinct that stress causes and in turn produces irrational thought. He's done this by building confidence in himself with the knowledge he is capable of producing positive results over time. This is only accomplished by a track record of hundreds or thousands of successful outcomes. Continue to safely notch those successful wins on your belt, with small size one at a time, until you have the confidence to trade to your full potential

Now that I've described the reasoning behind why we feel this way, here are some thoughts on how to trade with a relaxed state of mind:

1) Trade with small size - This does not mean 10 shares, or 50 shares, or 100 shares. By small, I mean small size of risk. 50 shares of MU trades vastly different than 50 shares of TSLA. If you lock yourself into the mindset of a number of shares, this can be disastrous. You can lose $500 in a minute on a low float or TSLA with as few as 50 shares, this is extremely unlikely with MU.

2) Work from the bottom up, not the top down. - By this, I mean before entering a trade determine a reasonable stop with enough room that normal gyrations in price won't stop you out. Then ensure that your reasonable profit target has the appropriate 2:1 risk to reward. Once that is confirmed, decide how many shares you can buy based on the dollar amount of risk you have decided is comfortable to potentially lose. If my max loss is $20 and I need a .30 stop, then the MAXIMUM size I can take is 66 shares. No matter what, I know if I stick to my stop I will only lose $20. This will not hurt me. This enables a relaxed state of mind. **All too often, new traders base share size either on some predetermined number (as I discussed above), or they base it on how many shares they have to take to hit a profit target. Base the share size on maximum risk, not profit.

3) Know that you are going to lose and accept it - We are human, and as humans, we feel a need to be right in the decisions we make. It causes us emotional pain when we have to admit we are wrong. Disengage from this type of thinking and know that there is not a trader in the world that is right every time, this is just something you have to accept in this profession. Fortunes have been made by traders with win rates under 50%, but they had great risk mitigation techniques and exceptional risk to reward in their trades.

4) If all else fails, use external risk controls. - https://bearbulltraders.com/lessons/das-risk-controls/

I wish you the best of luck in your transition from sim to real money! If you find yourself in a bind, always feel free to reach out to any of us that have been trading real money for a while and ask. We are here to help.

 

Edited November 4, 2018 by Norm

[Bibonow 19]

On 11/3/2018 at 9:56 AM, Norm said:

Let's start with the agreement that the career or activity of day trading comes with inherent risk. As noted in Andrew's book, a large percentage of the total people that attempt to trade will fail. This is due to the fact that it is a deceptively difficult activity. For example, anyone watching Andrew's many recaps on YouTube sees something that has become intuition and from an outside perspective, he is "easily" making large sums of money day after day in the market. What they are not seeing at first glance are the years of training, mistakes, and struggles that it took for him to get to that place. He persevered through the learning curve, as any successful trader has, in order to become consistently competent in his trading. I'm yet to meet or hear of a successful trader that said they did not experience a good sized draw-down of their capital (or complete blow up of an account) before becoming successful, yet most starting out think it will never happen to them. Proper education and practice can drastically increase your odds of success.

In order to do the same and make it through this training period with minimal losses we take actions to protect us from ourselves, because in this field we are the only one that controls our destiny. There are many layers of protection for new traders; the most obvious that come to mind are sim trading, trading with small size, and risk controls when all else fails.

While trading (especially the way in which we currently operate today) is a uniquely modern task, it triggers some of the most primitive brain functions we posses as humans. From "fight or flight" (losing money/exiting a position too soon), to the rush of neurotransmitters produced causing us pleasure (clicking hotkeys/winning trades). Trading successfully is often in direct conflict of these pre-programmed instincts common to all of us. It takes time and practice to fight these forces.

We often use sports analogies to make our point, but I'll go a different direction:

Learning to become a pilot has parallels to becoming a trader. While theoretically after months of study and work in a professional simulator, one could perform the tasks needed to complete a full flight on their own from taxi to takeoff, navigation, communications, and landing. However, one would never think it sane to allow a person to make this leap. In order to bridge that gap you must spend many hours with a competent flight instructor by your side ready to take over the controls in an instant (risk controls). Additionally, you don't go from ground school to the controls of a 777. Instead, you spend hundreds of hours in a 2-4 seat, simple airplane at first (small size). The reason is the inherent risk, which is in this case death. From the moment your wheels leave the ground until they safely touch down, you are fighting one mundane, insurmountable force - gravity. 

Markets work against a trader in the same way as gravity works against the pilot. Both are unchangeable forces far greater than that of the individual. At any given moment there are millions of participants in the market and each and every other person trading is working their hardest to take your money to put it in their pocket. You are doing the same to them. But, you need not be smarter, better, or faster than the entire market, just part of it. Similarly, if you and your friend are being chased by a bear, you need not be faster than the bear, only faster than your friend.

Losing in trading, unless stopped early, results in a financial death. At some point you must leap from the simulator to trading real money. The only way to do this and maintain some control over the amount of risk your are exposed to is by trading in smaller sizes. Sizes smaller than what triggers your ingrained fight or flight instincts, while you work out how to deal with the primitive, natural response to a dangerous threat. Once you learn to deal with this stress, you can safely increase your position sizing over time to what your capital is fully capable of.

Andrew, or any successful trader, has rewired his brain to diminish the fight or flight instinct that stress causes and in turn produces irrational thought. He's done this by building confidence in himself with the knowledge he is capable of producing positive results over time. This is only accomplished by a track record of hundreds or thousands of successful outcomes. Continue to safely notch those successful wins on your belt, with small size one at a time, until you have the confidence to trade to your full potential

Now that I've described the reasoning behind why we feel this way, here are some thoughts on how to trade with a relaxed state of mind:

1) Trade with small size - This does not mean 10 shares, or 50 shares, or 100 shares. By small, I mean small size of risk. 50 shares of MU trades vastly different than 50 shares of TSLA. If you lock yourself into the mindset of a number of shares, this can be disastrous. You can lose $500 in a minute on a low float or TSLA with as few as 50 shares, this is extremely unlikely with MU.

2) Work from the bottom up, not the top down. - By this, I mean before entering a trade determine a reasonable stop with enough room that normal gyrations in price won't stop you out. Then ensure that your reasonable profit target has the appropriate 2:1 risk to reward. Once that is confirmed, decide how many shares you can buy based on the dollar amount of risk you have decided is comfortable to potentially lose. If my max loss is $20 and I need a .30 stop, then the MAXIMUM size I can take is 66 shares. No matter what, I know if I stick to my stop I will only lose $20. This will not hurt me. This enables a relaxed state of mind. **All too often, new traders base share size either on some predetermined number (as I discussed above), or they base it on how many shares they have to take to hit a profit target. Base the share size on maximum risk, not profit.

3) Know that you are going to lose and accept it - We are human, and as humans, we feel a need to be right in the decisions we make. It causes us emotional pain when we have to admit we are wrong. Disengage from this type of thinking and know that there is not a trader in the world that is right every time, this is just something you have to accept in this profession. Fortunes have been made by traders with win rates under 50%, but they had great risk mitigation techniques and exceptional risk to reward in their trades.

4) If all else fails, use external risk controls. - https://bearbulltraders.com/lessons/das-risk-controls/

I wish you the best of luck in your transition from sim to real money! If you find yourself in a bind, always feel free to reach out to any of us that have been trading real money for a while and ask. We are here to help.

 

I have been riding in the Flying Simulator for more than 7 months now. I crashed it a couple time because I did not used the co-pilot with me (Auto Stop DAS Control). Now that my copilot is always sitting right next to me, I never need him anymore. Because in my head I think to myself : I don't need that guy, I can do that by myself. I know that when I'll drive the real plane, the co-pilot will be there but I won't need him. Step-by-Steps, stick to the rules, follow the plan and when you feel the simulator is almost impossible to crash even with your eyes closed, you go Live.