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...

Thursday’s results: No trades suggested.

Today’s Best S&P Futures Turning Points: Buy 6023.75 stop 6018.00. Short 6097.25 stop 6100.75. 

The World Index: (+100/-100) dips from +29 to +14 with sentiment mixed but leaning Bullish on falling volatility. 

Catalysts: International Trade @ 8:30. Crude Oil Inventories @ 13:00. 

Quick Tip: Risk/Reward

You must have a risk management section built into your trade plan. Without it you’ll fail at trading sooner or later. Many traders think their chosen stop loss order is their risk management plan. That’s not enough. Here’s a list of all the risks you need to cover in your plan: 

1. Trade

2. Psychological

3. Market

4. Liquidity

5. Strategy

6. Brokerage

This game suddenly looks riskier! How do you balance concern over all the risks with a focus on a positive expectation? Target asymmetrical results.

For example, our swing trading team executes a powerful strategy that had a phenomenal 2024. For most of the team, the number of losing t...

Yesterday’s results: Neither trade idea triggered.

Today’s Best S&P Futures Turning Points: Nothing tradeable today. 

The World Index: (+100/-100) jumps from +50 to +71 with all major world markets Bullish. 

Catalysts: International Trade Balance @ 8:30. S&P Final Services PMI @ 9:45. ISM Services PMI @ 10:00. 10-year Bond Auction @ 13:00. Election Day. 

Important: Check your broker’s policy on day-trading margin today. TradeStation requires full margin for the next 3 days! What does that tell you about volatility expectations? 

Quick Tip: Losing Enough? 

A popular formula for determining your risk on any given trade is the Fixed Percentage Rule. You pick a percentage, usually 2% or less, of your trading account and that is the most you can risk on each trade.  

It works great because as your account grows your risk can increase giving you the opportunity for greater rewards. Conversely, if you’re in a drawdown you will be risking less until it ends. 

While that formula is fine...

Yesterday’s results: No trades triggered.

Today’s Best S&P Futures Turning Points: Buy 5861.25 stop 5858.25. Short 5859.00 stop 5862.00 if price retraces up from below.  

The World Index: (+100/-100) falls from +21 to -29 with mixed sentiment, China/HK down firmly. 

Catalysts: Empire State MFG Index @ 8:30. Fed’s Daly @ 11:30, Kugler @ 13:00. Contrarian Alert: VIX near 20 is unusual at new highs. 

Quick Tip: VIX Explained 

Have you ever heard of the stock market's “fear gauge”? That’s a nickname for the VIX, or Volatility Index. The VIX helps us understand how much uncertainty or risk there is in the market at any given time. 

It measures how volatile the stock market is expected to be over the next 30 days. In other words, it shows how much the prices of stocks might swing up or down. The more the market is expected to move, the higher the VIX goes. 

It's often called the "fear gauge" because when investors are nervous—like when there’s bad economic news, political uncertainty,...