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Welcome to a new year, and possibly a completely different market environment.

Last year kicked off with the meme stocks but ended up being marked mainly by the “Great Rotation” into cyclicals and economically sensitive stocks as well as the almost obsessive coverage of the 10-year yield by the financial media.

The economy did its best to reopen in spite of supply-chain bottlenecks, labor market disruptions and a pandemic that just wouldn’t go away. The Fed remained highly accommodative for most of the year but suddenly pivoted in December to a more hawkish stance citing a wave of inflation that turned out not to be transitory after all. 

In spite of the rotation into cyclicals, AAPL, MSFT and GOOGL continued to almost single-handedly lead the markets higher thanks to their knack for providing investors with the prospects of both growth and defensiveness, not to mention the sheer weighting they enjoy in the popular index ETFs.

The S&P 500 and Nasdaq 100 marched higher while small caps bounced around in a range for nearly the entire year. Volatility remained elevated relative to levels seen over the past several years but meaningful spikes were almost non-existent, most likely because pullbacks were generally led by big-money rotations and therefore didn’t seem to invoke any real fear or uncertainty.

Emboldened by the super-easy Fed and having never actually experienced a real market selloff, many of those who entered the markets after the pandemic crash of 2020 remained willing to constantly “buy the dip.” And all year long we kept hearing about how new cash was either coming in or ready to come in from the sidelines.

There was still nowhere else to put your money in 2021 where you could get any kind of meaningful yield other than the stock market.

Have you entered 2022 wondering if it’s going to be a different story? Or are you just hoping it’ll be the same environment and therefore planning to stick to the same trades that worked in 2021?

What if you’re wrong? What if the 2022 environment starts to change so much that last year’s trades stop working? What if they actually start to lose large amounts of money? Are you going to just throw your hands in the air and blame the new market environment for being too tough? Are you going to blame your underperformance on your trades? Are you going to complain that the market is simply rigged against you?

Or are you going to accept that the environment has changed and adapt to it?

If you’re a trader who wants to give yourself a fighting chance at achieving any level of consistent success, i.e., make more money than you lose in 2022, you absolutely have to answer yes to that last question. 

As Billy Beane said to his stubborn scout in Moneyball, “Adapt or die!”

If you’re not willing to adapt and the environment changes to a significant enough degree then it’s almost surely going to be a very tough 2022 for you. Why? It goes back to what we learned as children: you can’t fit square pegs into round roles.

What if big tech companies like Apple, Microsoft and Alphabet stop growing at the rate they’ve enjoyed for years now and the buying momentum slows down? What if earnings across the board aren’t as strong as in recent years? What if they actually undershoot estimates or end up being much weaker than expected? Do you think you’ll make as much money – or any money for that matter – buying every dip?

What if the Fed isn’t willing to pivot back to high levels of accommodation if the economy begins to show signs of weakening and the markets start to sell off? I mean, can they really afford to pivot back to being super accommodative in the face of persistent inflation?

In other words, do you have a plan in case we’re in for a choppier, more stagnant market in 2022?

What about a nasty selloff? We haven’t really had one since February through March of 2020 after all. Do you have a plan for a bear market?

What if we get different environments at different times of the year like in 2018? The S&P 500 sold off quickly and ferociously in the first quarter of that year, spent the next two quarters marching back to highs and then dropped 15% in the fourth quarter. Are you prepared for such sudden and meaningful turns?

Okay, so let’s slow down a bit here and get ourselves organized for the task at hand. The first question to ask yourself is, do I have a trustworthy way of determining what kind of market I’m in?

In order to adequately identify your market environment you have to build a process that will help keep you aware of the trends and developments in the markets and in the economy. The best way to do this in my opinion is by blending market fundamentals with price action (technicals).

My process involves using watch lists, scanning services and web sites, keeping up with news and watching price action across many different time frames.

My “macro” watch list is populated with sector and index exchange-traded funds (ETFs) like XLK, XLY, SMH, XLB, SPY, QQQ, etc., and sorted so that I can see what’s strong and what’s not on a daily basis. This gives me an idea of both real-time and ongoing risk tolerance and market sentiment.

On the Groups page at www.finviz.com I can view the list of sectors and industries where money has been flowing to and from on a daily, weekly and monthly basis. This helps me understand how the money is rotating through the markets, which helps me determine whether risk tolerance and sentiment might be changing.

Currently the main financial news outlets are CNBC and Bloomberg, of course, but there are many different news outlets to choose from. I watch financial media and subscribe to newsletters not for stock tips but to keep up on news and events affecting publicly traded companies as well as the economy. On top of this I rely on news flows provided by my brokers throughout the day, which is something almost any broker provides.

Watching price action on intraday, daily, weekly and monthly time frames across several different indexes, stocks and sectors is extremely important because many times it’s trying to tell you something. This involves learning technical analysis, of course, and I highly recommend doing this. There are many places on the Internet to find free instruction and there’s no substitute for experience. Just start looking at charts every day until you begin to understand what the patterns might be telling you. And, just as importantly, work to gain an understanding of the underlying elements that drive price action.

Building your own process is a process itself so I recommend getting started right away. Make sure your focus is not on finding a process that validates your opinions and desires but instead on identifying in an objective way where the money is flowing, what the market sentiment currently is and whether either or both may be changing. 

Be aware of what exactly may be affecting the markets most significantly at that particular time, like Fed comments or sudden gyrations in the 10-year yield. Know about events coming up that might affect the markets, like Fed decisions or economic announcements regarding jobs and inflation. 

Be willing to remain flexible and to follow the path with edge, meaning the path that may give you the best chance to make money.

In mid- to late spring 2021 I took action from the information gathered through my process to start allocating risk to cyclical stocks and was able to build capital from the rotation, staying flexible enough to keep some risk with strategies that took advantage of money still going into tech.

I acted on the information through short- to intermediate-term equities trading strategies and short-term option spreads, which are both part of my overall approach. And this leads us to the next question you have to ask yourself as you build your process: do I have strategies I can implement that allow me to take advantage of almost any kind of market environment?

Market environments are never exactly the same but it’s good to have strategies that can take advantage of uptrending, rangebound and bear markets and then be willing to tweak them based on the unique characteristics of the current environment.

Depending on the vehicles and strategies you prefer to trade (swing or intraday in equities, long options, option spreads, automated systems, futures, etc.) you want to establish clear trading plans designed to take advantage of your current environment that you’re absolutely willing to follow. Being proactive and prepared gives you the best chance at consistent success.

And, most importantly, make managing your risk the number one priority. If the environment shifts back quickly or suddenly turns against you the only defense you have is to make sure the amount you risk is always in your comfort zone and that you’re willing to take your stops. Always have a what if just in case the shift in market environment turns out to be too slight or too fleeting or even completely different than you’d thought.

Ultimately, just make sure you don’t catch yourself uttering things like, “It’s a really tough environment. That’s why I’m not making money.” If you catch yourself saying or even thinking this and don’t take action to change this mindset and to adjust your approach then you need to consider finding another career because this one probably isn’t for you.

Just remember that whether or not 2022 is the same, similar or completely different than 2021 is not in your control so it’s no use complaining about it.

You have no control over whether or not Apple, Microsoft and Alphabet make as much as they did last year or whether new market participants continue to buy the dip or whether cash will continue to come in from the sidelines or whether the Fed aggressively raises rates through the year. So you have to focus on the things that are in your control.

What’s in your control? How you choose and then implement your trading strategies. That’s it. That’s all you’ve got.

So if you’re in to New Year’s resolutions make yours to replace any stubbornness you’re experiencing with a willingness to be flexible. That’s what consistently profitable traders do. The others simply continue to lose money, phase themselves out of the game or both.

Adapt or die!

The subject of this blog post is simple enough: don’t blow up your account while you’re learning how to trade. 

Seems obvious, right? But it happens more often than you might think. Even experienced traders can fall prey to the powerful temptation of quick riches in the stock market.

But unless you actually choose to follow the common trading mantra of “Live to trade another day” it’s going to be extremely difficult – if not impossible – to become consistently profitable on a long-term basis. This is because putting all of your money at risk in one trade or strategy is a sure way to lose it all. 

And huge trading losses, especially the ones that clean out your account, not only set you back financially in a big way but can also force you out of trading forever and lead to significant distress in your personal life. 

As you get more acquainted with the world of trading you’ll hear a lot about how fear and greed are the main psychological drivers in trading, and this is certainly true. If you let either emotion influence your trading decisions it can wreak havoc in your account.

For instance, fear holds us back from taking positions at the right time, like when there’s “blood in the streets”, and instead talks us into getting in when the stock’s advance is near its climax. This is called FOMO, or fear of missing out.

Conversely, fear keeps us on the sidelines when the market rallies 50% because of our obsession with the possibility that the market will suddenly crash at any moment. This has been one of the more common bummers for traders and investors over the past decade or so.

But, most importantly, fear makes us sell out of our positions at the worst possible time. This is what can cause a big market selloff: panic selling. When you think the stock you’re in is about to go to zero or the market is about to crash is when the terror sets in. If more and more market participants start to believe the same thing then that’s when fear builds on itself and the selling really intensifies.

Greed, on the other hand, makes us stay in our positions way too long thinking we’ll somehow know where the top is, which many times leads to us overstaying our welcome and giving back what we worked so hard to make.

Greed leads to the kind of stubbornness that makes us continue to add to our positions on the way down thinking we must be right and the market must be wrong. Bad idea.

And, of course, greed tells us to load up on a company like Enron when we start dreaming about how much we’re going to make once it turns around and goes to the moon. This is where greed is especially dangerous because it makes us put way too much risk into one trade or strategy thinking it’s a sure thing. 

Greed tempts us to give in to those fantasies about making millions of dollars overnight in the stock market. I guarantee that more people have lost all of their money giving in to these fantasies than have actually made any money out of them.

We’re going to give in to these emotions every now and then because we’re human, but if we want to be consistently profitable in the markets we have to learn how to keep our perspective so that we can temper them. We have to learn how to not let them make our trading decisions for us.

When you allow emotions to guide your actions instead of adopting a more objective, analytical approach, you’re more willing to do highly risky things with your money instead of proceeding in a disciplined, measured way. The markets demand the latter or they demand that you exit the premises.

I promise you that it’s going to be an exercise in futility trying to make lots of money chasing around the promise of big, sudden winners. Even the ones with the best fundamentals and technicals in the world may chop around in a narrow price range for years. But, of course, home runs are so much more exciting than base hits, and our quest for the next adrenaline rush makes us want to believe it’s right around the corner.

I’ve heard of and even met traders who’ve blown up their accounts and lost spouses and partners as a result. This is why I said this kind of thing can lead to significant distress in your personal life. It can lead to depression and anxiety and at the very least can be a huge hit to your confidence as a trader. 

I know traders who’ve quit after doing this, and some of them actually blew up their accounts multiple times before they finally quit. There are even instances of highly experienced traders, some with reputations as experts in the industry and a loyal following of aspiring traders to boot, who blew up their accounts. This is a prime example of how powerful greed can be.

Something those experienced traders should have known very well is that the only way you can stay in the game is to always make risk your first and most important consideration when placing a trade. Always make your first calculation how much you’re willing to lose, not how much you want to make. 

Before making any trade, force yourself to think about what it would actually mean if you lost that money. What would your bank account and personal net worth look like if it happened? It’s one thing to say you’re comfortable losing a specific amount of money but it can be another thing entirely to actually go through the experience of losing it.

If your bank account and personal net worth would be fine – in other words, if the capital can easily be categorized as risk capital and not as capital needed for everyday expenses or for paying off debt – then you’re much closer to feeling okay with putting that amount at risk.

If you do this enough you can eventually establish a process that becomes second nature to you and gives you a high degree of comfort in your trading because you’ll always know you’re not risking more than you’re willing or able to risk. 

And then, as you make a little money here and there in the markets, you may very well gain the confidence to earmark those steady gains for opportunities that demand a little more risk. These prime setups always show up; you just have to be patient and ready to pounce on them.

It’s definitely possible to catch a ride on a rocket ship now and then without using up all of your rocket fuel on the ones that blow up at takeoff or never even get off the ground. I’ve done it many times. Learning how to find these superior risk-to-reward opportunities in the markets and taking a little more risk when the right opportunities present themselves is the better way to hit big winners and, at the same time, to stay in the game.

In order to do this your focus has to shift from the excitement of scoring quick riches to finding opportunistic ways of compounding your money over time while always keeping your risk within acceptable parameters. But it’s extremely unlikely you’ll get to this point if you put all or most of your money on the line in order to make a lot of money all at once. 

I know it sounds very unexciting. You might as well watch paint dry, right? If the markets don’t provide excitement and instant riches why even trade them, right? But you can make lots of money in the markets if you’re willing to put in the work and to develop the right mindset. You just have to make that choice and hold yourself to it.

You have to be willing to chop wood, as they say. You have to be steady and patient. And you have to be ready for the bigger opportunities that come along and be willing to take advantage of them. Put all of this together and it’s how you make more money than you lose over time, which is consistently profitable trading. That’s the game.

Remember what Benjamin Franklin said: “Money makes money. And the money that money makes, makes money.”

The key is to not be focused on making all of that money at once.

If you’re at the very beginning of your trading journey, or you’re struggling to become profitable, you may tend to lean toward just wanting to have someone else do it for you. It’s very common and it’s certainly understandable. You feel like there’s so much to learn and you just don’t know enough yet, or maybe you think it would be best just to leave it up to the “professionals” to grow your account.

And this is where those people selling trading services and pre-built strategies make their bones.

You think surely these people who claim they have these ready-to-go and allegedly profitable strategies and alert services will make you profitable if you just follow their trade alerts or trade their pre-built strategies. This certainly seems logical. How can you argue that actually taking the trades of what’s sold as a highly profitable trader’s alert service or trading what’s promoted as a highly profitable strategy wouldn’t work? Makes perfect sense, right? You should be able to just plug them in and play, right?

The problem is, the longer-term results almost always say otherwise.

And that’s because there’s a right way to use these services and there’s a wrong way, and many of us tend to use them the wrong way in the beginning. 

So let’s talk about the wrong way: you think these alert services or pre-built strategies will be all you need to make money in the markets.

As far as trading services go, they send the alert to enter the trade, you enter. They give you the alert to exit, you exit. You make money. Right?

How can you not think this is going to be all you need to make money in the markets? Maybe you don’t need to learn to trade for yourself after all!

And when these services actually work for a while, like weeks or months, it can end up being the worst thing that can happen because it can give you that false sense of security and the expectation that they will always work for you.

But, again, the longer-term results are not in your favor.

One of the problems with alert services is the inevitable time lag in the delivery of information. The trader’s fill price may very well never be the same as your fill price. You might get much worse; you might get much better. Therefore your results will typically not be the same.

Or maybe they send an alert and you aren’t in a position to take it at that moment. You missed it! And it always turns out to be that one awesomely profitable trade. Ugh.

And not only did you miss the trade, you still have to pay the trader for the service. So it’s a double whammy at that point.

Or you happen to subscribe to the alert service right when it hits that drawdown after several winning trades. So now you hate the service because you think it’s bogus and doesn’t work at all. And now you’re spending all of your time figuring out how to cancel it instead of how to trade.

But let’s assume the alert service is continuing to work for you. It doesn’t have the best prospects for the future if you really think about it, does it?

What if the trader stops offering the service or becomes incapacitated in some way? Or what if the trader decides to change it or tweak it enough so that you no longer want to trade it? You’re right back to square one at that point because you haven’t been spending your time actually learning how to trade.

Okay, well then if an alert service isn’t the best idea, how can you argue that purchasing and trading a self-proclaimed profitable trader’s actual pre-built strategy wouldn’t work? I mean, all you have to do is buy it and follow the guidelines, right? Easy.

You buy a trader’s strategy for a sum that is not small (I typically see costs anywhere between $500 and $10,000) after being told it returns 50% per year. Wow! You’re all set. You’re done. No worries. All you have to do now is follow the rules and you’re good.

But this is an important misconception that most of us have had. “If I can trade like someone else or trade someone else’s strategy I can do as well as they can.” But you’re not someone else. You’re you. And that makes all the difference.

The only way you can make consistent money as a trader over a long period of time is to find what works for you and execute it in a disciplined way. You have to figure out who you are in the markets and what you do.

When you blindly trade someone else’s strategy the first problem is that you don’t always know if they actually know what they’re doing. The trader has claimed that he or she is consistently profitable but do you know that for sure? If you do somehow know that for sure, do you know for sure that the actual strategy is appropriate for the current market environment?

With any strategy that you didn’t design yourself and may not completely understand you’ll invariably reach a point where you don’t understand one of the rules in the trade plan, you don’t agree with it or you think it may lead to a loss. So you’ll change it, which means you’ll end up changing the entire course of the strategy because you think you know better than the rules or you’re afraid to apply them. It will then cease to be the strategy you bought and you’ll find yourself lost in a position you don’t understand.

Or when you hit that inevitable drawdown, just like with the alert service, you start getting emotional and questioning the validity of the strategy because you don’t understand why it’s drawing down.

This is because you didn’t design and build the strategy yourself. You didn’t put the strategy together based on how you see the markets and how you will adapt to how the markets change. You didn’t stress test it, think about it, practice it, study it, get familiar with it.

So when the markets change and the strategy starts to struggle, how will you adapt if you don’t fully understand what you’re trading?

Even if you do understand the fundamentals of the strategy, are you going to stick with it and endure that losing streak while you’re waiting for the environment to change again?  Or don’t you think it’s a good idea to start learning how to trade for yourself so that you actually have something that works in the new environment?

What if the environment doesn’t change back to what worked for the pre-built strategy? No market environment is ever exactly the same.

Dealing with adversity in the markets while trading someone else’s strategy can be like sailing through a huge storm in someone else’s boat that you’re not completely familiar with. You don’t know how it steers, any tendencies it may have, where all the controls are, where the bilge pump is. At some point you just want to give up and abandon ship.

But if it’s the boat that you built yourself, you surely built it to withstand such things. You know it like the back of your hand so you’re much more confident navigating your way through the rough seas.

You can see how blindly following trading services and other traders’ strategies can be detrimental to your growth as well as to your capital.

But don’t worry, paying for these services and strategies can still be extremely valuable because there is a RIGHT way to use them that can pay big-time dividends for your development as a profitable trader.

If you simulate (paper trade) them or trade them live with very small risk and simply focus not on the actual profit & loss they generate but on understanding why they work, why they don’t work, when they work, when they don’t work, why they were built the way they were built, etc…

Now you’re on to something. Now you’re making progress. Now you’re cooking with gasoline.

I paid so much money for so many alert services and pre-built strategies I can’t even recall all of them. I subscribed to virtual trading floors, bought stocks that famous money managers talked about on TV and traded every new idea I could find on YouTube. And I wanted them all to do the work for me. But I always found out that none of them had any staying power, for all the reasons listed above.

When I started using services and strategies the right way, which was for purely educational means, they led to discoveries and personal development I never thought possible.

And then I started to make them my own because I understood them on a deeper level. I would start tweaking them in a modeling or paper trading environment and running entirely different strategy models based on their fundamental concepts. 

I was using them for my own personal trading growth, like a singer/songwriter who begins by singing and playing other peoples’ songs, starts to write his or her own songs from these influences and then goes on to have a successful career with original material. I guarantee that this is how every great singer/songwriter started.

This is how I developed my own profitable strategies and how I took that next step toward profitability.

Everything I do now to make money in the markets has borrowed something from these services and strategies and benefited from them in some way. But nothing I do is exactly the same as what any other trader does, I guarantee it.

You have to understand and accept that there’s going to be a period of time that you need to focus on learning and not on making money. Once you start to personalize strategies that fit your personality and lifestyle, practice them over and over and get better at them, the money will come. But you have to accept the fact that you can’t just jump in and start making money, no matter what they tell you in all those promotional emails.

So, just to be clear, there’s nothing wrong with paying for an alert service or buying someone’s pre-built strategy. Just make sure that whatever it is you use it the right away by allowing it to teach you who YOU are in the markets. This is the only way you’re going to reach consistently profitable trading on a long-term basis.

When Robinhood burst onto the scene in 2015 and offered a brokerage product to retail traders that ended up turning the trading world upside down, leading to major retail brokers like Schwab, TD Ameritrade, E*Trade and Fidelity eventually going to zero commissions, it was clear that the retail trading landscape was changing. This, among other factors like the pandemic of 2020, resulted in a flood of new traders pouring into the industry and, of course, to the “Meme” stock phenomenon of 2021.

It made perfect sense: a significant amount of people suddenly without jobs or working from home seeking a way to increase the wad of new stimulus money in their pockets, temporarily blocked from or given limited access to sports betting for a period of time, needing something to do (preferably something exciting) while trapped at home. How could they not see the markets as the perfect place to put their money? After all, trading was suddenly – and seemingly – free of charge. Any costs now incurred by retail traders like slippage due to payment for order flow stayed mostly out of sight and therefore mostly out of mind.

Add to this a stock market soaring from the Fed’s constant and years-long infusions of liquidity, which had recently been ramped up to a head-spinning level in response to the pandemic, as well as passionate calls on social media platforms like WallStreetBets for a retail movement to right the wrongs of the corrupt financial markets by banding together to squeeze the evil hedge fund shorts. 

Compounding that were advertising slogans like “Don’t Get Mad, Get E*Trade”, seeming to imply that all you really had to do was open a brokerage account to make money, and the financial media’s general unwillingness to warn all of these new market participants that so many of them were seals loudly and blissfully splashing around in shark-infested waters because angering these new market participants could end up squandering an opportunity to get more eyes trained on its paying advertisers. Many of the talking heads chose to call Robinhood’s business model a “democratization” of the markets instead of what it really was, which was a campaign to lure as many unsuspecting consumers into an exciting but complex new world in order to take as much of their money as possible and to get paid for as much order flow as possible.

As traders and investors not necessarily aligned with Wall Street we all wanted to support these new market participants. We rooted for them. But if you’d been in the game long enough you knew there was a very high probability that many of them would end up losing a lot of money, not only because they were now caught up in a fast-moving, ever-changing and complicated financial landscape but also because they were being led around in that world by greedy pied pipers who weren’t in the least bit interested in offering these new participants sufficient education and guidance.

Now, I understand that you can offer all the education and guidance you want but it’s ultimately up to those being offered to accept and to apply themselves. This is not an easy thing in trading; many of us enter the industry with expectations completely out of whack and tend not to take the endeavor seriously enough. And the “Meme” traders openly bristled at any hint or suggestion that they needed guidance or didn’t know what they were doing.

I certainly understand this because I started out this way myself. I just jumped right in and assumed I’d be able to figure it out relatively quickly. I mean, how hard could it really be, right? And if I’d been a part of what appeared to be a wider social media movement determined at that time to right so many perceived wrongs, I would have been even more empowered to storm ahead in the face of any warnings from experts in the industry, no matter who they were or how emphatic they might have been.

But the journey of becoming a profitable trader turned out to be a long and arduous one. It took years for me to understand what I was up against and even longer to realize that the biggest hurdle was actually myself. So I knew that a large portion of these new retail traders were about to get chewed up and spit out.

You see, one of the things you absolutely have to understand about trading is that the second you begin the journey you’re surrounded by opportunists who are constantly trying to figure out ways to make money off of the fact that you don’t yet know what you’re doing and the fact that you assume that you do. They know you’re going to trade the same old tired technical setups and enthusiastically throw your money at all the exciting new strategies. They know you’re going to chase after every market inefficiency that has already been closed and hermetically sealed. The financial markets are full of traps set just for you.

They also know that you want to find that strategy that works all the time in every market environment. They know this doesn’t exist but they also know that you don’t know that yet. They count on the fact that you’ll seek the easiest path to making money in the markets – the one with the least amount of pain – which means you’ll very likely fall for every shiny new object thinking you can just plug it in and play. Fool’s gold is everywhere in trading and is very easy to mistake for the real thing.

The only way to turn this around and use it to your benefit is to force yourself to see every trading alert service, every pre-built strategy, every virtual trading floor as an opportunity to educate yourself instead of something that is there to do all the work for you. But, of course, this is much easier said than done. So I’ve set off on a mission to help people learn how to do this and it’s the main reason why I decided to become a trading coach and mentor.

My main objective is to help aspiring traders learn how to give this overabundance of fool’s gold actual value because I know they’re going to end up buying these products. So instead of discouraging traders from buying new strategies and trading services and virtual trading floor subscriptions, I encourage it. I actually recommend that they purchase, study, test and trade as many of these products as they can, but I strongly recommend that they focus their efforts on the personalization of each trading product so that they can keep moving forward instead of running in place on the trading hamster wheel, perpetually going nowhere as fast as they can.

So who am I and why do I think I can be of any help at all? I’m a trading coach and mentor first and foremost, money manager and have been a consistently profitable trader since 2014. I registered with FINRA as a Securities Trader in 2017, traded prop (proprietary) for two broker-dealers and have developed a skillset that will allow me to profit in the markets for the rest of my life. 

Becoming a profitable trader isn’t easy but it’s definitely not impossible, even though there are times it may very well seem impossible. The interesting – and probably surprising – thing about learning how to become a profitable trader is that you don’t have to be a math wizard or have an extremely high IQ (I can attest to both). You don’t have to get up at 3 a.m., look at 500 charts, learn all the hotkeys and trade furiously throughout the market day, study 500 more charts after the market close and then go to bed and do it all again the next day. Actually, you can do this if you want to but it’s not required.

You don’t have to have relationships with Wall Street banks or money managers or analysts and you don’t have to live as close to New York as possible to get speedier executions.

What you do have to do is learn as much as possible about the markets, various trading vehicles and strategies, identify what you like and what works for you and your lifestyle, keep working and building on those things, develop an appropriate level of discipline and then BE YOU. Yes, BE YOU.

I know, it sounds way too easy. And I have to admit that I’m oversimplifying it quite a bit here. But my point is that successful trading relies on education, knowledge, practice, discipline and knowing exactly who you are. 

By this I mean you have to know what you’re good at and what you’re not good at, what you like to trade and what you don’t like to trade, what fits your lifestyle and what doesn’t, and you have to be willing to accept these things. This is where purchasing, studying, testing and trading all of those pre-built strategies and trading alert services comes in. You have to pay close attention to the products and styles that appeal to you, become intimately familiar with them and then get better and better at actually applying them in the markets. 

This is customization, which is essential to the gradual development of your own unique and profitable trading approach. And the key is to stay in the game long enough to give yourself a chance at this. Once you gain enough knowledge and experience, have the bravery and confidence to let yourself be exactly who you are and then develop clear strategies and plans of action based on these things and execute them in a disciplined way, the markets will give you that special key and bow as you enter.

It’s neither easy nor quick to accomplish, but it is doable if you stick with it. And my intention by starting this business and establishing this web site is to help you stick with it.

I want Traders Rally to be a place you can keep coming back to during your journey. There are many times you may want to quit trading because you think it’s too hard and that you’ll never become profitable. I know that feeling very well. I quit many times only to find myself back at my trading desk, swallowing my pride and gritting my teeth. Sometimes it was a friend or mentor who helped me regain perspective and determination and sometimes it was just taking some time away from the markets, like a weekend here or there. Many times it was a trading community or web site that helped me get back to business. 

This is what I mean when I say RALLY. How you choose to rally yourself out of a slump or crisis of confidence may be totally unique to you and different every time, and sometimes you may not even realize you’re doing it, but ultimately it’s something that helps you pick yourself up, dust yourself off and keep yourself moving forward during challenging times. It’s how you get yourself unstuck. It’s how you stay in the game, as I like to say. The longer you stay in the game, the higher the probability you’ll eventually learn all you need to learn and get enough of the requisite practice in order to generate consistent profits.

You’ll also have to have very clear goals, which is a big part of the first step on the journey (see Ten Essential Steps in TRADER EDUCATION). You must keep yourself motivated by knowing exactly what you want and why you want it.  A large retirement? Financial independence? A vacation home? A new boat? Ultimately, it’s specific to you. And whatever it is, it has to keep you motivated enough to keep striving for it.

One particularly strong motivator, in my opinion, is to remember that once you reach a certain level in your trading career you’ll have many opportunities available to you. These include proprietary trading, investment advising, money management, successfully building your personal reserve, selling your strategies and systems, providing a trading service, and coaching and mentoring other traders, among many other options. I chose the path of coaching/mentoring and money management. These just happen to be the areas that I’m passionate about and which fit my personality. 

So don’t let strangers on social media boards – especially those who can’t be verified aren’t hedge fund shills – lead you to huge losses by making you think a $50 stock should go to $1,000 at any moment. Don’t let the allure of a trendy new strategy lead you into a hot stock right at the top of its trading range with no clear plan for how and when to get out. And don’t let that E*Trade commercial fool you. It’s highly unlikely you’ll get rich just by opening an account and trading the same old technical setups or all of those exciting but over-subscribed strategies that you don’t completely understand.

Accept that you’ll have to put in the work to become a consistently profitable trader in the long-term. Accept that you’ll have to learn how to keep yourself moving forward – you’ll have to learn how to RALLY – in order to find out who YOU are in the markets and how you’re going to generate profits in your own unique way. 

Accept that trading is a PROFESSION and that it must be respected as such at all times. Keep your expectations realistic and yourself adequately motivated. And know that it can be done.

I very much hope Traders Rally can help you get it done.

One of the most important factors in reaching consistent profitability is simply staying in the game. In other words, you have to not quit. And if you want to keep yourself in the game you’ve got to figure out ways to keep yourself steady through extreme emotional ups and downs, tone down the verbally abusive inner critic and persevere through overwhelming doubt. In other words, you’ve got to overcome yourself if you want to be a consistently profitable trader.

You see, you’re going to experience those moments when you think trading is too hard or the chips are just stacked against you and you’re going to want to throw your keyboard against the wall and shut it all down. That inner voice is going to tell you how terrible you are at trading and that you’re just wasting your time. But if you’re going to reach consistent profitability these are the very times when you have to reach down deep and find your resolve. These are the times you have to rally.

Do you recall that moment in The Empire Strikes Back when Yoda was training Luke Skywalker to be a Jedi? During young Skywalker’s struggles he let his curiosity get the best of him and entered that creepy jungle. Once in there he was suddenly confronted by his menacing archrival, Darth Vader, and without warning he faced a life-or-death showdown.

With one swing of his lightsaber Skywalker felled his evil foe, but when Vader’s mask exploded to reveal the face underneath it was his own face he saw. Unknowingly, Luke had faced himself in the jungle. At that moment he realized it was himself he was grappling with and not actually Darth Vader.

I’m not a Star Wars superfan or anything but I think this particular scene is very relevant to the process of learning how to trade. As we go through this arduous journey the frustrations and anger we feel are generally directed at the markets. We see the markets as a Vader-like character against which we are continually training to overcome.

But there are many moments we have like the one Skywalker had in the jungle. And every time we decapitate Vader his mask blows up and we’re reminded that it’s not actually Vader – or the markets – in that suit. It’s ourselves.

The markets are the markets. They’re not affected by how we feel about them. The only thing under our control is ourselves and the actions we take. You have to remember this as you go through the journey because this is also how you begin to understand that the way you become consistently profitable is by taking advantage of this very thing – your unique personality and the way you go about what you do.

You start to realize that the Vader that keeps showing up in the jungle is actually your inner voice trying to intimidate you, trying to push you back, defeat you. It’s bullying you into succumbing to the “dark side” which is, in this case at least, accepting that you’re never going to be any good at trading and that the markets are just going to win in the end. It wants you to think defeat is inevitable because giving in to fear tends to be the easier and safer thing to do. 

From what I remember, right before this scene Luke asks Yoda whether the dark side is more powerful than the Force and Yoda tells him, in so many words, No, it’s just more seductive. Flight is easier than fight, especially when faced with such a daunting task as becoming a Jedi or a profitable trader.

The temptation to fail, to give up, is very seductive in the face of adversity. It’s very powerful. But nothing worth doing is easy, right? Success depends on your resolve. How do you maintain your resolve? Determination and perspective. These are two very important things to hold onto. You have to stay determined and always strive for perspective.

Your determination will depend on why you’re trading in the first place. It has to be important.

Are you trading to become financially independent? Are you trading in order to make a career out of it? Are you trading to build your own personal reserve, or the reserve of your family? 

Maybe it’s more specific and short-term. Maybe you’re trading in order to build capital to buy that new boat or to build that dream house.

Whatever the reason you’re trading, remind yourself every day of what it is and how important it is that you reach your goals. Remember the WHAT and the WHY and always have it in front of you (see Step 1 of TEN ESSENTIAL STEPS in TRADER EDUCATION).

Perspective will especially help you get through the hard times. Why did you have a tough day trading? Was it because the markets are just corrupt and rigged against you? Or is it because it was just a tough tape that day for what you were trading but you traded through it anyway? Most likely it was the latter.

When I have a tough day of trading I force myself to take a pause and objectively analyze what kind of tape I’m dealing with. And then I assess my performance based on this and determine, without allowing any hint of emotional influence, what actually led to my struggles. If I feel that I don’t have an edge in the current environment with what I’m trading, I sit on my hands.

Often, I’ll use the weekends to gather myself again. This is a great time to step back and assess what really happened the week before. Was your strategy really falling apart or were you just reacting emotionally? Most of the time I realize it was the latter and I’m able to continue to push forward.

You have to have a great deal of patience with yourself and with the process. You are definitely going to experience adversity and you’re going to want to find an easier way to make money. There is no tip or trick that can accelerate your path through the learning curve. You’ve got to overcome that curve yourself, and in spite of yourself.

And along the way, as your resolve builds and you acquire more skill and get more knowledgeable about the craft of trading, you start to find out who YOU are in the markets. This is the angst-filled Skywalker slowly becoming the stoic Jedi, building toward a highly disciplined, confident and measured way of life, ready to face the real Vader with no fear. 

I won’t spoil the end of the first Star Wars trilogy for you if you’ve never seen the movies, but our hero ultimately faces down the real Vader with the strength and resolve he needs to succeed. And if we stay on the right path we can build the strength and resolve we need to do the same thing in trading.

I became a consistently profitable trader for many reasons, but one of the main reasons was simply because I didn’t quit. I faced down my Vader self in the creepy jungle, decapitated the menacing figure and realized it wasn’t the markets or the strategies that were the problem. It was me. And the realization of that gave me the clarity I needed to proceed with determination and perspective. Ultimately my resolve became stronger and stronger to not succumb to failure.

And here I am. Believe you can get where I am. Stay in the game!

When you start learning how to trade, or even when you’re just considering it, one of the questions that will most likely be in the forefront of your mind is, “Can I trade for a living?” I’ve heard many traders ask this and I asked it myself when I started. I know it would be much easier if I could just give you a yes or no answer, but it’s not that simple. There are many considerations that go into determining whether or not this may be feasible for you. So let’s look at some of these considerations.

First of all, you have to realize that trading isn’t like having a regular job. You don’t just perform some tasks and get a paycheck every week or so. Even when you work really hard and do your best you might actually have a losing week or month, or even a losing year! Just imagine your employer saying, “You worked really hard this month but I’m actually going to need you to pay me instead.”

So you can set profit goals for each week or month or year, but there’s no guarantee you’ll reach them and there’s always a possibility that you’ll actually end up losing money instead. 

This means you can’t just use a specified amount of risk capital every month, like $10,000, to make $2,000 and hope to pay your bills and buy your food this way. If you lose $3,000 in the current month you now have only $7,000 to make that target of $2,000 for the next month. So instead of shooting for an already lofty 20% net gain the next month you’re now having to shoot for an even loftier net gain of almost 29% just to get the amount you need and to be back at $7,000 for the subsequent month. But in order to get back to $10,000 in risk capital, you’d need to make $5,000, which would force you to shoot for a ludicrous net monthly gain of 71% against that $7,000. Good luck with that.

It’s just not the same thing as having a regular job, which means you have to approach the idea of trading for a living differently.

Earning consistent money in trading has to be figured over a period of time, particularly when trading your own money. In other words, being a consistently profitable trader really means you’re making more money than you lose on average over a period of time. If you rely more on an annual profit target and you know how much you need to live on every year, you can put aside that amount (let’s say $60,000) for the next year and then use personal risk capital to make it up the next year or to make even more for the purposes of capital growth.

So, for instance, if you have $500,000 in risk capital and you need $60,000 ($5,000 per month) to live on for the following year, you put aside that $60,000 and use the remaining $440,000 to make it back or to make even more that year. But you have to figure in taxes too. If your taxation rate is 25%, let’s say, then in order to shoot for net returns of $60,000 you’d have to make a gross annual amount of $80,000 with that $440,000 that year. That’s an 18% annual return.

But if $440,000 is your total amount of risk capital, or (god forbid) your total net worth, under this scenario you’re actually trading with all of your money. That’s a terrible idea because you always need extra cash for larger losses than planned or just for capital flexibility in case of position adjustments. And putting all of your money at risk is just irresponsible.

The most you want to trade with, depending on your trading style, is up to half of your total risk capital, and that’s still very high. The more prudent amount would be 20%-30% just to be safe, especially if you’re trading riskier strategies that tend to be high risk-high reward or strategies with a large amount of tail risk, like market-neutral options.

So making $80,000 that year with half of your risk capital ($220,000) would mean you’d have to make 36%. That’s pretty high. It’s not unattainable but it’s pretty high, and you have to remember that you can’t expect to even make that much money every year, or even make any money every year. 

It has to be an average amount over time. Some years you might make 15%, some years 40%, some years 20% and some years (god forbid) -10%. Even if you can average 36% per year, since you’re not making it every year your risk capital fluctuates a great deal and can make the percentage go up. Last of all, let’s not forget that 36% is just to make up what you’re using. You’re not even shooting for capital growth. Do you see how complicated this can get?

If your plan is to trade for a living with your own money you’ll have to have a very large amount of savings so that you can use a small percentage of it to make, at the very least, what you need to live on each year (plus any unforeseen expenses, of course) on average. And that amount should be a small percentage of the capital you’re using to trade so that it doesn’t negatively affect your total savings if you lose money or don’t make very much in one year. You’ll have to determine that amount because everyone’s capital situation is different. 

There are other ways to make a living in the trading industry, though. You can earn fees and a percentage of profits by managing other peoples’ money. Or you can become an investment advisor solely to advise people on how to invest or trade their capital and work either independently or for a company. You could also become a broker or work for a brokerage firm, like in sales or customer assistance. Some of these options require licensing and registration with the appropriate regulatory agencies.

Another option is trading prop, but some firms will ask you to put up a certain percentage of your risk capital from your own pocket. Even if you’re trading mostly with the firm’s capital you’re still dependent on your performance. There may be some “prop shops” or capital trading firms that pay traders a salary but these may be very difficult jobs to get unless you have a very strong track record over time. And, again, trading prop might require licensing and registration with the appropriate regulatory agencies depending on the structure of the firm.

You could set up your own brand and sell your strategies or offer a trading service on a web site. In order to make good money in these kinds of endeavors, though, you have to establish a high degree of name and brand recognition so that you have enough followers to make sales and memberships profitable for your business. I know lots of people who do this but it takes time away from their trading and demands a lot of ongoing hard work. It also takes a certain amount of natural flair and magnetism that not all of us have. So just keep that in mind.

When the question of trading for a living comes up, and it will very likely come up and keep coming up as you get farther along with your trading and get sick of having a boss and relying on other people for your livelihood, just make sure you don’t get carried away with fantasies of making huge returns every month. Sit down and really think about the reality of what it would take to do this for a living. It is definitely possible but it takes a lot of planning and understanding your own personal capital situation and needs, as well as what particular path would best fit your personality and lifestyle.