So for the past few weeks I have been studying like a madman, and not just Master Sykes' stuff, but also the stuff I learned from my first teacher (a trader from Spain. Sykes and him are the only two trading teachers who have my full respect, and I have had several of them).
In any case I feel I am a lot more focused on finding that perfect play these days. And what is more, I can actually define what the perfect play is because I am sticking to one and only one pattern. I am not sure if it is due to sheer repetition after watching a gazillion lessons or because I have finally lost enough time and money in the market, but the truth is that I feel disgusted at the thought of taking a play that does not adhere to the pattern that I am practicing right now.
Having said that, I think it was Roland Wolf (love the guy) who said "develop a REPLICABLE and REFINABLE process" referring to the entire activity of trading, from scanning the markets to reviewing trades. That really stuck to my mind, and even though I am working on my entire routine (scanning, building a watchlist with a plan for each play...) it really got me motivated to develop a trading system with rules that are as clear cut as possible (so that they can be replicable) and that can be improved as I gain experience (so I can refine it).
These past few days I have been trading small or straight up paper trading a new way to go into breakouts + pullbacks, and the results are rather encouraging. However I need to keep in mind that as solid as this pattern seems to be when following the proper rules, it all hinges on having iron discipline.
Admittedly my biggest problem since day one has been that I do not cut my losses quickly (yeah, I know). Well the beauty of what I am seeing these days is that I now am able to exit trades a lot quicker because I know that if this play does not workout, the next one probably will. And that is a real warm, fuzzy feeling.
In sum, here is a list of the factors that have lead me to this Zen-like state of mind:
- I got tired of losing time and money. Lots of time and lots of money. The gambler in me has been pretty silent ever since.
- I found a pattern that aligns with my long bias and which I naturally feel more inclined to focus on (breakouts with pullbacks).
- I started using a set of rules to time my entries and determine my risk level and B/R ratio (still have to refine my exit rules, but I do have a basic set). There is a degree of freedom that I allow myself, but only to be more cautious, never to increase my risk. These same rules allow me discard many plays that end up being false breakouts.
- The high probability of success in every play that meets the criteria makes it a lot easier to abandon plays that are not working out because quite simply, they are not worth it. Also helps to know that by focusing on the proper stocks you will likely have another shot in a matter of minutes.
- That same high probability of success combined with being tired of losing time and money makes playing different patterns A LOT less appealing.
These are all pretty basic notions, I know, but much like last week where I said I had internalized a few basic lessons (versus just studying them), this week I feel that something is different; I have not really had an "ah-ha" moment that I can pinpoint, but instead I feel that things are gradually flowing a lot more smoothly, and that things going well feed off of each other. But as I said earlier on, the only way I keep this going is by having iron discipline (both to follow my rules and to cut losses quickly). The good news is that it is a lot easier to remain disciplined when you see that what you are doing is working out!