5/8 point run up inthe stock [tall helasDiscipline & Logic \s your frend Emotions are the enemy of traders Be Spock CompletelyLogical
Directions:
1. Print out a copy of the worksheet below and complete it once every few months, orwhenever you feel the need to gain better discipline in a trade.
 
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 ModuleThree
the Mental Game of Daytradiing:
Back toMODULE 3
=> Module Three: Worksheet 3- Developing a Daily Trading Matrix
L
weaknesses.
« Do you feel lIke you're fighting back and forth with themarket, like the cartoon on the left?
» The Powerpoint worksheet below is designed to help youidentify your trading habits, patterns, strengths and
 
« One of the best ways you can learn to ‘break out" of achoppy trading style (which only makes your broker rich),is to learn to capitalize on trading patterns and habits youhave with our Daily Trading Matrix (below).
Your Mental Trading Patterns: Make them Work for You
All of us trade using our habits and skills thatwe've developed over time
The amazing lack of discipline and marketknowledge | see in new traders who are trading(and mostly losing} real money makes mewonder if they're truly committed to tracing forconsistent profits, or are just gambling.
“iF you keep doing what you've always done,you'll keep getting what you've alwatys gotten",applies to trading as well. Maintain and enforcethe skills that make you a good trader, and find away to isolate and reduce those habits thatcause you to lose money.
One of the areas that is overlooked in manybooks is the need to be able to quantify andreduce unhelpful mental trading habits. Tellingtraders to “have discipline" and “take smallstops" is fine, but usually not enough.
This worksheet is designed to help you recognizebehavior patterns in your tracing that are bothsuccessful and unsuccessful, and reshape yourtrading style to one that is more profitable.
As | always say, we go for consistency in thisgare. I'd much rather be a trader that can get80% of my trades night on 1/2 point trades than20% on 1-point ‘home run" trades. The sign of aprofessional, in tracing like all careers, issomeone who can consistently post the numbersthat show success. Like golfing, or bowling, orYoing on sales calls, or playing billiards, it's theconsistency that we seek to achieve
The tools I've developed are all here to help yougradually learn how to trace consistertly, andprofitably.
You should use this worksheet (or a similar one you make yourself) to help you learn to
improve your mental trading habits.
Directions:
41. Print out a copy of the worksheet below and complete it daily for one week out of everymonth (example: do it each day for the first week of every monty}, or whenever you feel theheed to understand your mental trading patterns more thoroughly. 
Bally Trading Matrix - The Mental Side Gout IdantRy ny succusate anf uneuccesetotf Bealltg Sotherlore abd patterns
 
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Hew. compare your day's Profil and Loss wilh other dayefon which you've corrple ted Ihia Daily Tradeg Mabix,Look far palleuis thal were eluctaiad logethor on pioflable days, ond idchifly ar hy to racduee paltors that :led m Ineces: Take marks cchibliens inte accounttoo,aPtause... did you dai wallon anuipday and be your | Teehy's Prong: $____
beading on deen cb yr?
 
Back to
Three The Mental Game of Dayirading: MODULE 3
<> Module Three: Worksheet 3- Increasing and Decreasing Trade Sizes
« The Powerpoint worksheet below is designed to help you learn the
Be important skill of Position Sizing. This is when you add and subtractto your position in a single stock based on profit targets and chart
patterns.You may, for example, buy 400 CPQ at 22 1/2... then add another 100at 24 1/8 In an uptrend, then sell half (200 shares) later at 25 7/8, andthe other 200 at 26 5/8.Scaling in and out of positions like this is a very important skill tolearn. You should not always be tradi “all-or-none™ type trades,you want to adjust your total position size based on price action andchart patterns.You do this to lock in a percentage of profits at a certain price and“try for more” with the rest. It's a professional variation of usingtrailing stops...every pro daytrader and market maker trades like this,you should too.While not a ‘mental’ trading technique, I thought it might be good toadd it in here since it involves a change in the way most beginningtraders consider managing their positions.
 
 
Adding to a position does not mean "averaging The technique is todown", although that may be one technique thatpeople are familiar with As opposed to that + Buyladd smaller share sizes in winning
(generally losing) method, we want to instead (uptrending for long) positions, til you reachlook at ways to dynamically change our total a top or resistance level, then fade out of theposition size based on price action and chart position either all at once or gradually, withpatterns. the biggest number of shares adeled at thetop. Example’ | buy 300 DCLK at 46Professional daytraders trade in total lots of 1000 4/2. buyers come in and | add another 100shares, generally speaking, and may scale up at 48 1/4, and add a final 100 at 49. | thenfrom an initial position of 300 to add to a winning sell all of them at 49 3/4 around 10:15 am,position As | mentioned in an earlier lesson, you or, sell 300 at 49 344 and use a trailing stopshould not add to a losing position, and should for the other 200, eg sell them if it drops tonot add to an uptrending position in gradually 49 1/2. Total profit: $1225larger sizes
This worksheet is designed to help you add andInstead, you want to play the probabilities Let's manage trade size position scaling morelook at ¢ few exarnples successfully. Yes this technique costs a bit morein commissions, butis well worth it when you learnhow to manage It professionally
You should use this worksheet (or a similar one you make yourself} to help you learn to manageyour trades by using the technique of "position sizing".
Directions:
1. Print out a copy of the worksheet below and complete it whenever you are contemplatinginitiating a new large position (either long or short).
Increasing & Decreasing Trade Sizes Gort ifantty my successtil and unsuccessti| trading behaviors and patterns
 
Une this warksheot to help youdecide whento add or subtract irom a curent positon you have nitisted
 
FRAL SELL jor cowes)INITIAL BUY OF SELL SECONDARY BUY OR SELL
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cache waich eae you'll do.
 
   
      
 
BUY more?THER: Gadd to current SELL THE ENTIREpeshiog} POSITION?ITM POSINONSUE:
-__- SELL PART OF THESELL? POSITION witrailinged stop for balanceor, No Change
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(initia. ize) the nasdag composite has just tumeddownwards andy &S showslots o€ sellers at 18. Se, I cell theentire lot fora 1 13 (61125) profit
 
 Rodale = the Menial Game of Dayirading:Three
<> Module Three: Activity 1 - “Thinking Like a Professional Trader*
Professional traders look at their work as any career business person does, with asense of responsibility towards produ: results, eting the expectations of theirboss, of being competent and effective in what they do. So should you
It helps to imagine having a "pit boss" looking over your shoulder as your trade. |she going to yell at you for entering that last trade you entered, or say "looks good, let's seewhere it goes?”
What vould an imaginary traders’ manager say as you enter or ext each of your trades? Ifhe's a coach-type he might ask, "okay, why did you buy there?", “was that the best place tosell?" “good effort. you got 4 good piace of the momentum on that last onel" etc. Be yourown "pit boss" and critique ach of your trades with 6 practiced, professional eyeIntuming professional with my trading, | found that over time | evolved to "not beingsurprised" at anything that hagpens for a stock. Instead, | became opportunistic andfaster in whet | did. If| see @ stock gap down, Mil check my realtime news, the 5-day, 10-dayand 6 month chart for 100. and 200.day MA and chart pattern etc, all inthe space of 10-20seconds. Then | make a trade decision: should | buy, short, or wait? Then | execute itDeveloping 4 professional traders’ eyes for the market takes hundreds of hours ofpractice in market watching. There Is no other way. \Vatch realtime tick charts and time& sales ‘tapes' over the months ahead to gain the axperience in seeing how the marketbehaves
kt does you absolutely no good fo just look at chat rooms and stock-picking sites alone.Sorry if that's not what you wanted to hear. Thase resources can certainly help accelerateyour learning, if you choose wisely, and that is good. But to trade for a living you need todo it on your own. No CNBC, no chat rooms, no stock pick of the day sites. It takes timeTrading stocks |s a profession that takes a4 minimum of months, and usually at least a yearor two, to become good at. Itis difficult work and | have never said otherwise. It can beworth It, If you are persistent and willing to be strang at doing what it takes ta succeed
This activity should help you learn to evaluate trade opportunities and look at themarket like a professional trader does. Remember, the vast majority of would-bedaytraders overtrade and “blow out" (lose) their accounts in a short time. Do notbecome a statistic. Learn to slowly do this successfully. Commit to it.
   
 
     
 
   
Pros Respond Differently than Amateurs Do:
Situation:
Pro Traders’ Action:
Back toMODULE 3
1. Divergence exists inthe market, semis($SOX) are strongerthen internets ($GIN)taday.
2. Atrade is goingagainst him (ar her).
3. Trade is going withhim (or her).
1. |gnoreitums off charts for all nets, putsup a few more semiconductor charts tolook for trade opportunities (takes 1-2minutes).
2. Exits immediately, waiting for a betterre-entry price.
3. Takes some fast profit, sells theposition off a bit at a time, small shares atstall gain, more shares near the top untilposition is cornpletely liquidated by thetime the stock starts to weaken beforelunch
Amatuer/Losing Traders’ Action:
1. Slill watches the same group of stocks,including a favorite internet’ thay like to trade.May try to buy the ‘net on a dip, even though thesector is weak that day...
2. Waits, hopes for a turneround, Position goesso far against them they hold on to it, puttinganother mutt in the "dog pound” of stacks theystay long in as a ‘investor’ vs_trader
3. Sells the whole position fora tiny profit, eventhough there's still buying strength in tha stockDoes not partially fade out of a S00- or 1000-share position 200 or 300 shares at a time.4 Goes eats lunch, or quits for the day ifit's been a profitable day. Gotfs/shops
4. It's lunchtime.
5, Time and salesshows blocks gaing offas stock price rises.
direction:
Activity to Help you Trade Like a Pro Does:
5 Pro trader bids in between the spread,adds to position based on TASmomentum, fades the position out whenblocks start going off in opposite
4 Watches a chat ram, trying ta make lowepercentage lunchtime trades, nibbling downcapital with shakes and wiggles. Brokers love thistrader.
5, Cant read time & sales for their stock, sincethey'e using a free cheap semice. Doesn't investin proper tools, using a slow discount onlinebroker Ges money to the professianals
ws
Get out a piece of paper, and work on developing 2-3 specific trading actions for each af thesekey areas, They are designed to help you think {and trade} like 4 professional trader does.
Technical Analysis: Chart Patterns
« After looking at hundreds of charts,identify one chart pattern you want ta beespecially "on the lookout for" that can beprofitable for you to trade. (Examples,opening gaps, value reversals,bouncing off support or breaking throughresistance on yolume}
« Choose 1-2 technical indicators you wanttouse closely | recommend starting withyolume and moving averages.
Trading Someone Else's Money
« Apro trades with client's money in a fundaccount, and he or she is accountable to
the company's trading Yeage expectations.
Pretend you are trading for a friend'saccount, and you need to generate capitalquickly through tracing profits YWould youreally have entered that last trace if it wassomeone else's money? Why or why not?In 4 sense, you are already doing this, asthe money you earn or lose will probablyimpact the lives of cthers clase to you.
« Think of yourself as Goldman-Sachs“Head Equities Trader'in training. Whatdo you need to do now to become headtrader for this company? How will you starttrading differently?
Market Sector Scan & Analysis
Identify 3 different market sectors you want to.keep a close eye on, and on what exchangesthey are traded (eg Nasdaq semis andinternets, beaten-down dow stocks that arebouncing, retatlers etc}
For each sector, identify both the
"generals" (eg YHOO EBAY AMZN AOL forinternets, INTC AMAT KLAC for semis}Activity: during the nea trading week, | wantyou to identify Which sector was strongest forthat day. Was It the semis? The nets?Software? Biotechs?
Finally, practice paper- and realtime tracingstocks within the Sector leader for the dayyou're trading.
Daily Trading Expectations
» Setting arbitrary ‘profit targets’ should onlybe done on a "daily average" basis, egdon't say "I want to earn exactly $500 a dayeach day", say instead "for the month ofApril want to eam 4 profit of $410k, whichaverages $500/day" Why?
« On strong days you should trade much
more than on weak or choppy days,
depending on your trade style. If you're a
scalper, you want choppy days, If you're a
shorter, you want sellweak days
Also set trading process goals (eg "I will
trade 100% of the time | see a high-
percentage trade opportunity)ModuleThree
Back to
dhe Mental Game of Dayirading: MODLLE 3
Module Three: Activity 2 - "Becoming Focused on the Trade"
itis essential that you narrowly focus your attention completely on thetrade that you are playing at ary given point in time.
© Trying ta jugale 30 stocks, participating in a chatroom, surfing financial
sites anc listening to CNBC all at the same time you're in 4 trade is a
disaster. Adding noise from farnilyfriends/other sources makes it worse
The only thing you really need to be focused on is time and sales, after
you've confirmed a chart pattern that looks like a good setup....use level 2
to time your exact ertries/exits.
If you're in a professional trading room, make sure you're around traders
who are consistently winning.. a few winning traders wi80% losers is Not
a place you want to be. That includes chatrooms too
Let's look at how to get yourself in the frame of mind to trade successfully,
how to build a concentrated frame of mind for "microtrading" that's
needed to win
Think of the whole market as a cloudy day, your goal is to have a laser
like beam of sunlight that penetrates the clouds to allow you to profitably
enter and exit ‘You can't pay attention to the scenery, you must close in on
a trade like an eagle swooping out of the sky to nail its prey...absolute
concentration is 4 must.
Use earplugs if they help. Set your monitors against a wall, so there's no
distraction (I close the blinds to my ocean view here in hawaii when
afternoon trading so | don't lose concentration)
Look for things in your trading environment to help you become the most
concentrated you've ever been.
Think back to studying for final exarns in college...you need to have that
libraryfstudy-hall type mentality, with 100% focus. Don't trade til you can
achieve it.
Try doing each of the four tips below, and check your trading progress
Setting Up Your Trading Software
« Acluttered PC monitor makes it toughto trade - make sure to have at leastyour trade execution window always inthe same place on your desitop (andget two monitors).
Make sure to narrow the focus of howmary different software programs youhave running at the sarne time - taomary can slow your pe down and makeit difficult to concentrate on the trade.Experiment with different fort sizes,different fonts, and color combinations.Make it interesting to yourself and easyto read and understand.
Clearing Out Distractions
« Keep your software's extra functions to aminimum, don't use ail the bells and whistlesunless they really help you trade. Analyzeyour winning trades.
Try not to shuffle back and forth between toomany windows each day - it's tiring {1remember back when | only used 1 monitor,what a headache!) and takes your energyaway [ror trading
Check to update the latest version of all yoursoftware. For example, 16% of thethousands of people who visit us here atDTU are still using IE4.0, for example. Stayon par with your competition, and get thebest and latest software possible
Place a check mark next to each of these potential sources of distractions for you
curing your trading activities:___ Television (eg CNBC) and/or radio on
___ Family members and/or pets making noise
___ Environmental noise, eg street traffic, neighbors
___Internet distraction: you surf around too much during trading hours
___ Financial information distraction: you are looking at too many ‘inputs’___ Cluttered work area - you have disorganized stacks of stuff laying about____ Mental distraction #1: you obsess oyer losing money and are fearful
Mental distraction #2: you focus on the financials (how much can | make?) vsthe trade mechanics and chart setup patterns
Other (specify):
Personal Action Plan: On a pad of paper, write down 1-2 things you will do toclear away and reduce each of the distractions you checked in the area above
Critical: give yourself a tmetable & deadline for implementing each action
Finding a Mental ‘Anchor’ Statement
Finding a "safe harbor" in your mind, as a trader, helps you achieve mental discipline and security.There's two steps to this activity:
Step #1: Write down 5-6 words or short phrases that you associate with fun, pleasurable,rewarding activities (note I'm excluding ‘vices’ like eating junk food etc here). | want you to get in themental state of being comfortable, of achieving personal happiness. What are these words, for you?
eee esos
Step #2° This can be fun - combine the words and phrases yau just came up with into 7 or 2sentences, a "mental anchor statement" that describes the state of mind you want to achieve in yourtrading activities.
At the end of each day, your goal is to feel this way. You might want to include technical successphrases ("I traded the best! could and kept small stops", "| took consistent profits" etc)
My anchor staternent(s) are
1.Committing to a Focused, Successful Trade
Finally, let's look at some concentration tips to help you make a solid perscnal commitment to yourself and yourfamily to make successful trading a way of life, not a surprise.
#1. Practice some of the first steps of meditation: a few slow, deep breaths will help each morning
#2. Focus on one success symbol or sign with your eyes shut, for a few minutes. I like to create a visual image ofagreen P&L statement, eg the number P&L +$1100 in green is a motivator for me, my end of day target.
#3. See stock charts in your imagination, with your stops carefully taken along with your profits. A successfiltrader talces small stops, and larger profits. Both are critical
#4. Tell yourself the types of things you need to win I need to check my chart patterns, only carefully pick thehigh-percentage setups and sit out the "iffy" - questionable trades, especially longs in 2 down macket, Forexample.
ModuleThree
The Mental Game of Daytrading: anaes 3
<> Module Three: Activity 3- "Using Your "Lessons Learned” in Trading
One technique that I've found useful in building consistent trading skills1s to build safequards in my trading style to alert me to low-potentialsituations that | should not be trading in
Another important tip is to be sure to capitalize on all that you've leamedin each trading week, so that you increase your profits steadily overtime. If you only do well in bull markets, then you might want to look atthis area as well. I's important to be able to trade in all 3 marketenvironments: bear, bull, and ‘choppy’.
Let's say, for example, that one of your lessons leamed' is that it's agood trading strategy to buy a certain stock back once it's brokenabove a key resistance level and has consolidated for at least 3minutes. The challenge becomes, how do you now standardize thisknowledge in your trading approach?
Repeating the sarne trading errors over and over again is also costly, itis in your best interest as a trader to avoid these mistakes using a set oftrading rules and guidelines that you use as automatically as you drive acar
e You know to brake at red lights (eg take srnall stops).
« You know to accelerate when there's space in front of you (add to winning positions)
« You know to take curves slowly (eg avoid trading in lunchtime or other low-volume.times)
« You know to give pedestrians the right-of-way (eg don't trade against our "4horsemen strong market makers SBSH GSCO MLCO MSCO},«etc
« So, this activity is designed to help you use all the things that you'velearned via trial and error over the months to build a more successfultrading method that works for you, with the stocks you trade and the timehorizon that you trade themin
» ltis an individual process for each trader, itis our hope that theseguidelines will help you ta build mare consistency and success into yourpersonal trading style.
You must learn how to make more consistent, profitable trades that are bookedrepeatedly. An occasional win that's offset by many losses is not acceptable.
The most important goal is to preserve your capital - to do this you need to identifyyour trading mistakes and find a way to avoid making them again.
Of course, you want to also figure out “what you did right" about winning tradesthat wasn't due to chance - what were your effective trade entry and exit rules that
help you win consistently?
Activities to Help You Build Trading Consistency
Make it fun, first of all- pretend you'rea market maker at Goldman Sachstrading an account with other people'smoney. How would your trading bedifferent? Would you take the same.chances?
Although it's nat exciting, it's veryimportant that you: Keep a brief daily
trading journal, with your trade entries,
stop losses, and profits for each day'strading
In a place that you can see throughoutthe trading day, keep a list of severaltrading guidelines in large, boldprint where you can see them. As yourknowledge grows, adapt these tradingrules to be more specific. Eg, | have"Tight Stops - No Exceptions - 2spreads/1/4 pointis your max stoploss" still posted
« At the end of each week, make a list of"Things | did consistently" and "Things | did not doconsistently’. Never mind if they were right orwrong, for now - just make a list of things aboutyour trades that were both consistent andinconsistent, and work on irnproving
lFithelps, have fun rewards/punishments for beinga consistent, disciplined trader vs inconsistencyIf you traded according to your tradeguidelines, even if your profits were onlymodest, then reward yourself. If you broke allyour rules and took a larger-than-necessary loss,look for ways to change it the next tirne you're in asimilar trade.
Make a firm commitment to yourself to"become a consistent trader". Look at yourself asa professional. If ithelps, dress up a bit before thetrading day starts and pretend you're at work withthe head trader of GSCO watching over yourshoulder. Yvhat would this professional say to youduring your trades to help you win? Remember,winners are consistent and profitableActivities to Help You Avoid Mistakes: Your Costly "Lessons Learned"
Let's all agree to learn from our mistakes so we hopefully don't repeal thern,okay? Here's the technique I've found successful to help trim trading lasses toan absolute minimum
Remember, the cost of commissions and a small 1/4-point loss is finecompared to commissions plus 4 1-point or more loss, right?
Here's what ta do
1. First, print out your last month's trading account history, available fromyour broker's site.
2. You will annotate 1 month's trade history with 2 felt tip markers, onegreen and one red.
3, Use a green pen to connect the profitable trades, and a red pen for thelosses. Write the dollar figures in, as | have in the example below,
Symbol Shares Trans. Type PriceDCLE 400 Buy 42 1/24960 RNWK 300 Buy BBR 3/8ATHM 1000 Buy 18 1/2 AvoLK 400 sell 44 3/4 RNWK 300 Sell 39 1/2SS AT HM 1000 Sell 18 1/4Okay, now you need to find out Why each was profitable and/or a loss...Simply make a list with columns for the symbol, your net profitfloss and why.STOCK: ProfitiLoss REASON:DCLK wo ee AGOO eee. Bought at bottom end of trading range, sold at resistanceATHM - 250 Got stopped out (small stop), chart pattern reversalRAW. 389 eee. Momentum play, Time & Sales was all buyers when | entered
This was a very useful tool for me, each day | would print out my trade records and attach a reason to theprofits/losses | made to help me learn from my trading experiences. It's an "A" type activity.
vities to Help You Repeat Successes: Your Profitable "Lessons Learned"
 
The activity above will help you improve on both areas, minimizing your mistakes andmaximizing your profitable trades. Let's look at another set of ideas for helping you torepeat these successes. Remember, you cannot improve what you do not understand.That's why all these activities and worksheets are helpful, they are a guicle to build yourprofessionalism and trading skills
— Carefully note when your winning trades are entered and exited, on general. | usedthre mtr tal Tet | a graph and found my winners were usually entered around 10:30 +i- 15 minutes.Take a close look at the types of stocks you've traded profitably vs the ones you've lost in.
| The Stocks You Tradeis Avoid the cheap aversold stacks, buy quality stacks on dips.
For your winning