After 26  years of trading, I can tell you this: most trading losses are not caused by bad strategies. They’re caused by your decision making. In other words, traders break their rules when certain emotional triggers are activated. For example: 

• Fatigue.
• Boredom.
• Revenge after a loss.
• Overconfidence after a win.

If you don’t identify your personal triggers (we all have different ones), you’ll eventually trade your emotions instead of your edge.

The Science of Triggers

Research in behavioral finance and psychology shows that emotional arousal impairs probabilistic reasoning and increases impulsive behavior. In real-time trading experiments, studies have found that physiological stress responses were strongly correlated with deviations from risk plans.

Fatigue alone significantly reduces cognitive control and increases risk-taking errors. Boredom, meanwhile, has been shown to increase sensation-seeking behavior and impulsivity.

These findings confirm what professionals learn...

One of the clearest differences between professional and retail traders is this: professionals think in asymmetry, not accuracy.

Retail traders obsess over win rate. Professionals obsess over reward-to-risk.

At its core, the 2R Mindset simply means:

For every 1 unit of risk (R), the trade must offer at least 2 units of potential reward.

Mathematically, edge lives in expectancy. The basic expectancy formula is:$$\mathrm{<br>}$$E =  (WinRate ×  AvgWin) −  (LossRate ×  AvgLoss)

Notice what this means: you do not need to win more than 50% of the time to be profitable. If your average win is twice your average loss (2R), you can still be profitable with a win rate as low as 40%.

For example:

• Win rate = 40%

• Average win = 2R

• Average loss = 1R

Expectancy = (0.40 × 2) − (0.60 × 1) = 0.80 − 0.60 = +0.20R

That is positive edge.

Research in behavioral finance shows that retail traders often chase high win rates at the expense of payoff asymmetry. They take quick profits (0.5R) and l...

Price action doesn’t respond to how confident you feel or how good your strategy performs. It responds to how volatile the market is at the time. Here’s a good rule to use:

High volatility = smaller size.
Low volatility = normal size.

That’s it. No crystal balls, just reality.

Many traders make the classic mistake to size trades based on conviction or historical performance. The problem? The market is unpredictable. It expands when it wants, contracts when it wants, and punishes anyone who ignores the changes in volatility. Position size is the key risk management tool. 

Here’s what works:

When volatility expands with wider ranges, faster candles, larger ATRs, cut size automatically. Sometimes dramatically. That should keep your drawdowns shallow and your emotions calm. When volatility contracts, return to normal size, knowing your stops are tighter and losing outcomes more acceptable

What doesn’t work is trying to trade “through” volatility with the same size. That’s how small ...

Quick Tip: Measure them, plan for them, and reduce size when they last longer than average.

Every trader, professional or retail, experiences drawdowns, the period of more losing than winning trades sending your equity curve trending lower.

Don’t be surprised, they’re as normal as changes in volatility and trend on your price charts (although not as frequent!). Yet most traders treat drawdowns like personal failure rather than what they truly are: a common occurrence in a probabilistic business.

The best traders I know don’t fear drawdowns, they respect them. That respect keeps them in the game long after traders with bigger egos and weaker discipline get washed out.

What hurts the inexperienced trader is what they’re likely to do next…

1. Doubling size to “make it back fast”
2. Abandoning what works
3. Overtrading
4. Revenge trading
5. Predicting instead of following valid signals.

These reactions stack emotional risk on top of financial risk. A drawdown shouldn’t break your account. I...

One big distinction between professional traders and retail traders is this:

Pros know their exit before they enter. Retail traders try to figure it out once the heat is on.

If you’ve ever felt stressed, uncertain, or emotionally tangled inside a trade, odds are your exit wasn’t defined. And without a defined exit, your mind fills the vacuum with emotions like fear, hope, hesitation, revenge, even justification.

Clarity of exits equals clarity of mind, which in turn equals consistency of results. Every clean trading day is built on this principle.

When you don’t know where you’ll exit, every second of the trade becomes a negotiation:

• “Should I take profits here?”
• “Should I just tighten the stop?”
• “Maybe I should let it run…”
• “Maybe it’ll come back…”
• “Maybe I’ll just wait one more candle…”

That internal debate is one cause of inconsistency. 

Novice traders often underestimate how much mental bandwidth is wasted deciding mid-trade what they “should” do. Meanwhile, professi...

Warren Buffett is famous for his annual letter to shareholders. If you haven’t read one you should know that he’s a great writer and borderline humorist, well worth reading.

Since we’re near all-time highs in the stock market and the AI craze is bringing out the description “bubble” I’ll share some Buffett on that topic with you. 

Feb. 25, 2012 “Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the ‘proof’ delivered by the market, and the pool of buyers—for a time—expanded sufficiently to keep the bandwagon rolling. But bubbles blown up large enough inevitably pop. And then the old proverb is confirmed once again: ‘What the wise man does in the beginning, the fool does in the end.’”

Not being a long-term investor, I started thinking how I might apply the old prover...

As a 25-year trading veteran, I’ve seen plenty of winning and losing streaks, and I know how dangerous they can be—especially for less experienced traders. Here’s what I’ve learned over the years to help manage the streaks. 

On Winning Streaks: 

1. Stay humble. The market is always waiting to humble traders who get overconfident.

2. Lock in profits. Consider scaling out of trades instead of holding full positions too long.

3. Take a step back. If you’ve had a great run, consider reducing risk or taking a break to clear your head.

On Losing Streaks:

1. Cut back on trading. Reduce position size and frequency until you regain confidence.

2. Analyze your trades. Review what went wrong—was it the market, or your behavior?

3. Recenter yourself. Walk away if you’re frustrated or switch to simulation mode.

4. Stick to proven strategies. Don’t jump from one strategy to another just because of a few losses.

5. Accept that losing is part of the game. Every trader loses. The key is to lo...

To survive and thrive in trading managing risk is critical. The basic component in your risk management plan is the stop loss (how much you are willing to lose on each trade). Before determining the stop method you’ll use, make sure the dollar amount of the loss truly fits your personal risk tolerance. 

There are many types of stop loss methods including:

1. Fixed dollar amount

2. Maximum Adverse Excursion 

3. Volatility

4. Moving Average

5. Time

6. Opposing entry signal

7. Percent Retracement

Just like your choice in style of trading, your stop loss method needs to resonate with your personality. You must trust, even like it. 

Given that markets change in volatility constantly the volatility stop is an excellent choice. This method will adjust the distance from entry to stop based on present time volatility. One simple formula uses a multiple of the Average True Range. This method will tighten the stop when the market is calmer and widen the stop when the market is volatile....

Happy New Year! The next blog is part of a multi-part process to tune up your trading plan for the coming year. If you haven’t read the prior seven posts, you can find them here. 

Brokerage risk is rare but real. Ask anyone who had money with FTX. Keeping your trading accounts with reputable brand name brokers regulated in the USA is the safest decision. If you’re comfortable with offshore and unregulated brokers then start with a very small account and regularly take money out of it. That should give you some comfort that you’ll get your money when you want it, but it won’t guarantee that when you want a large distribution you’ll get it. 

Market risk is unavoidable. Major catalysts happen with no notice. Think about the reaction to the pandemic. Your best protection against market risk is a personal financial plan that is diversified among uncorrelated assets. Stocks, bonds, precious metals, real estate, cryptos, art, etc. Your best protection is having multiple income streams from ...

Newbies Only Part 7

Happy New Year! The next few blogs are part of a multi-part process to tune up your trading plan for the coming year. If you haven’t read the prior six posts, you can find them here. 

There are more risks in trading than the loss on any given trade. Here’s a few to consider. 

Liquidity risk. You’re buying and selling. That means someone needs to be your counterparty at a fair price. The difference between the bid (buyers) and ask (sellers) is called the spread. If this is wide enough it will ruin the edge your strategy has. 

Spread changes not only with the asset itself, but during changes in volatility. For example, the spread on the most popular ETF, the S&P Index (SPY) is less than 1% in the options market. Similarly priced stocks can have spreads of 10% to 20%. The spread is your cost of doing business with that asset. Avoid assets with a wide bid/ask spread.

Furthermore, the spread of any assets can increase during volatile markets. Consider the FOMC relea...