The Power of Keeping it Simple in Trading
Time for another great topic that we believe has had a big influence on our trading experience and results. It is how to not overcomplicate trading, but instead keep it simple! We have to give a nod to our guy EP (Eddie Pinero) from Your World Within Podcast because one of his best mantras states: “simplicity is the greatest form of sophistication,” and goodness do we get that on so many levels, having traded for three years now.
It truly is so easy to overcomplicate trading! In this modern age, we can get sucked into how much data is available in real time, the variety of indicators, styles and techniques to trade, the different platforms and brokers… It is important to learn about all that is available early on in your trading experience and we are so blessed to live in an era with so much readily accessible to us. But as you grow as a trader, it is generally better to learn about most of it in a global sense, but then trim down what you choose to keep in your playbook to only the content that truly speaks to you and your style and personality.
There’s an art to keeping it simple, especially in the beginning years. Ideally, we try to master one strategy at a time and build confidence in an edge, but also respect that it won’t work all the time and that is why we have a stop loss. Training yourself to be a positive loser so you can actually play to trade another day seems so counterintuitive but it's critical to stay neutral when you must take an L for the day. A loss or even going through a drawdown often can make you feel that you need to switch up your strategy or consume more. It’s almost a comfort or defense mechanism in a sense, to deflect the attention away from oneself. It can be embarrassing when we underperform and let ourselves down. Those negative feelings can almost trick you into doubting your process or total trading abilities. However, it’s quite the opposite, and can be more helpful to slow down and really break down where your execution flaws are occurring within your system, not where your system is failing you. It’s always an inside job and we need to keep in mind the need to realign ourselves with our process, rather than try to completely change it, in most cases.
One major example of a situation where simplicity is best is with trending, directional markets. On those days and in those moves, don’t try to fade, just go with her! This has been a major area of growth for Becky personally. Becky is a mean reversion trader at heart. She loves trading back towards VWAP from a standard deviation 2 band SO much. But Becky recognizes the need to be a jack of all trades, so she is purposefully working on improving her game on the trending days!
For some of this discussion, we will be making reference to our next must read book recommendation of One Good Trade by Mike Bellafiore (Bella). He is the co-founder of the major prop firm in Manhattan, SMB Capital. On this topic, one quote from author Bella is: “If the market is falling, you short the crap out of it.” Simple, so simple really. Aim for a fair pullback to a rhythm and then join the big money and ride the directional momentum. The end. Easy peasy one liner of a trade plan. So why do some have such as aversion to it!?!?!? It is a work in progress for Becky and she has recently tackled this by completely reframing it. Instead of dreaded trending days, Becky now wishes for them. Asking Miss Market to provide her the opportunities she needs to work on this area of improvement for herself to make her a stronger and more well rounded trader. Putting her attention regarding these types of markets in a positive, full of potential category in her brain has actually led to better outcomes now too, thank goodness! Owning the challenge of it and constantly reminding herself that she knows how to trade these days and to just do it has been powerful.
It’s funny really how opposite Becky & Kendra are in some respects. In contrast to Becky, Kendra naturally prefers and seeks out more continuation trades to the long side within an established trend. So she has had to do a lot of work to make herself participate in rotational conditions, especially shorting. To that aim, she created specific guides and parameters in her trade plans to take these trades. And she simplified it initially. For example, Kendra focused for a good while on only shorting VWAP to the -1 band if it wasn’t holding and there was already an established rhythm supporting that trade. Defining our weak spots in our game and then creating plans to work them is how we level up in this arena.
There’s always a need to improve our game while staying neutral about market direction, flexible, and open to receiving real-time data. From the book One Good Trade, Bella says: “The market does not reward stubbornness. The market is not interested in how you wish stocks would trade. You adapt to the market. You do what the market demands. And that is the way it will always be.” The beauty of day trading is that we don’t need to make grand predictions to make money, we just need to stay in tune and focus on identifying a low risk opportunity and then once in a position, honor the specific parameters for that one opportunity. Not doing this can allow one trade to set off a domino-like effect and take over your whole session. We’ve all experienced this when we look back and realize how we made our session way harder than it had to be by being stubborn.
“All failure is failure to adapt, all success is successful adaption.”
~ Max McKeown
If you journal your trades as we do and you see a trend in what really works for you, you don’t need to reinvent the wheel for a growth opportunity. For example, what if you find that most of your losing trades are midday? In One Good Trade regarding times of the day to trade, Bella wrote: “New and developing traders tend to over trade midday, and we see this on our desk. As such, we have implemented rules to regulate this. Basically, midday is just for exploiting our best set ups and gathering valuable trading information for the close.” He advises trading larger size and most trades during the times that are statistically most profitable for you and minimizing your risk during the weak time periods. This is such a powerful awareness of one's strong suits and weak points.
No one is on point always and all conditions are not created equal. So it is definitely preferable when we can identify our strong suits and capitalize on them, while simultaneously cutting risk when we are less consistent. This may seem obvious, but it is easier than we would like to slip into a trading trance and really get derailed from simple plans like this when left to our own devices. This is a major reason why both Market Mamas set their days up like they do in an ideal setting. Having a predefined structure to your day can make things flow so much nicer, especially when you are at home. We will trade the first hour or two of the NY session, then fully switch to our household needs, the children, other work or studying, and exercise. These non-trading activities revive us to maximize our focus and productivity. And we can often times then see a great end of day setup if we want to trade more before market close after a solid break from the charts midday. These days are balanced and we feel fresh for both of our most proven successful times of the trading day.
A premarket routine can also be kept simple. Kendra, for example, has gone from extremely rigid regimens to more laid back style that varies at times and she doesn’t believe overtime that it’s been a large differentiator. It’s great to switch things up sometimes and see what your mind and body responds well to. Side note, we did a great episode previously on our top 10 premarket habits so check that out (https://youtu.be/1ET8KY8l5q4?si=da4GZoGQ3cwqEaj8)! There are of course non-negotiables like being well prepared, your charts should always be updated, and you should have a solid game plan that you’re confident about going into your session, so at any time you can gauge and explain why you are participating or looking to. We’ve talked before about seeing the forest through the trees. It’s so true when the market opens, we can easily get suckered into trades that we had not intended to take. Alerts, live note taking, and deep breathing can help quiet the noise and align your behavior with those intentions for that session. And even if you don’t end up green on your day, if you followed your plan and traded purposefully, then you did your job and are done.
Littered throughout the One Good Trade book was really so many concepts that fit with this idea. Many of those will be in our next episode more exclusive to that book, so you are going to want to check that out too! But, we really loved the parts about flexibility and they coincide well with the intent to Keep It Simple. Some of the quotes on that are: “There is always a solution to your recent struggles. But that solution mandates that you look in the mirror and determine what is not working and find the trading patterns that are. Even after becoming a consistently profitable trader, you will have to tweak your system.” This is excellent advice! The road you take in pursuit of being a consistently profitable trader will never have a destination. It will be a journey of constantly working, growing, learning, evolving, and expanding. And that, paired with the unending profit margin, makes trading so appealing to us as a way of life that we can forever grow into!
More from Bella on being flexible for the long game, changing markets, and/or world news impact is this: “This is the life of a trader.” “Every different market will make you a better trader. What doesn’t blow up your account, will make you better.” “Successful traders obsess over solid fundamentals, like one good trade.” This is just the best advice from a trading legend about embracing the unknown as a means of opportunity and significant potential. And keeping your system simple will help you navigate that. Don’t rely on complicated setups, because as soon as you really dial something like that in, market sentiments could shift, negating it’s whole premise. But if we have our chart fundamentals locked in with general market context and bread and butter simple, clean setups - this can be adjusted and applied much more effectively in shifted conditions! Key being, from our understanding, is that we need to just stay present with what is printing on the charts in front of us and what picture Miss Market appears to be painting each day.
There are countless ways to get overwhelmed with things that are not actually serving us. The more we add on, the harder it can be to really see what we should be leaning towards or away from. Both market mamas remember when they took on learning a more advanced style. There was a period of completely stripping their charts of almost everything they previously had learned to rely on and factor in to read the market. Knowing that if they were fully dedicated to learning a different way, they would have to start with a clean slate. And later, they could potentially add back in previous items if desired. It’s common to encounter resistance when trying to let go of old ways when leveling up, but that’s a huge part of keeping things simple. And for Kendra and Becky, it was the best thing we could have done. You can’t have one foot in and one out and find any solid ground to stand on for long. In trading, the ability to stick it out is what rewards you, from learning and honing an edge, enduring the painful lessons, being a forever student of the game, to holding a trade to your intended target. This is our experience anyway.
This whole concept of simplifying trading is honestly such a relief. Trading has to be complicated and vast for a bit. When it is new. There is a massive learning curve during your first several months of learning about the markets and how to execute trades, what systems are available, what a real edge is... But after that initial front-loading, then it becomes highly variable person to person with how and what sticks in a trader’s mind first and foremost and which direction that sends them. Then comes the fine tuning and psychology evolutions phases of your early trading career. This takes months to years. But after you know enough to be dangerous, it can really start to simplify. With the core of it looking like you are at your desk, peaceful environment, calm body and mind, preparing reminders on what your setups are and how they might present in real time. Organize your day’s potential trade plans with premarket data and then when your trading session opens, you just sit calmly and watch for a potential opportunity. No jumping long when a bullish candle prints and then getting lost on the one minute chart and over managing because you were impatient to start. No. That’s not it. You want a calm curiosity about what Miss Market will offer this day and a readiness to join IF she shows you your entry criteria. Simple. Beautiful. Profitable. This is our jam.
Our episode digging much deeper into the excellent book, One Good Trade, will be coming out in just a few days, so watch for it! Thank you to everyone who is subscribing to our podcast, reading our blogs, and providing us feedback! We are here to talk openly about everything that may help us all level up within our lives, be it day trading or otherwise. We wish you all the very best for your lives!