What if you could get rid of losing trades?

Nov 26, 2021

Well over ten years ago, I discovered the "secret" to trading success. It happened right after I declared "trader bankruptcy"...again. 

What's "trader bankruptcy"?

When you open a trading account, trade away diligently every day only to lose 1/2 (or more) of your account. Throw your hands up in the air in complete disgust with yourself, and wire what's left back to you bank account, shut down your computer and not open a single chart for months. 

It's different for everybody, but that's how it happened for me. 

It was 2007, right smack dab at the beginning of the Global Financial Crisis. I thought I was a genius because I was shorting every rally in the stock market, because of a bubble theory or something. I'm sure I sounded like I knew what I was talking about, housing prices were so high, stocks were booming, blah blah blah, the usual bear porn thesis. 

By the way, I take 0 credit in claiming to be right about being bearish the market in 2007, this isn't me trying to brag about how I nailed the financial crisis. 

I was shorting a the freaking top of the bull market, right before an epic 60% selloff in stocks. And I blew up my account!

Being right on the call and right on the entry didn't matter, because:

  1. I wasn't sizing my positions correctly
  2. I didn't take profits correctly

In essence I would put a standard position size trade on, let's say it was 4 $ES (S&P 500 Futures) contracts on every trade. It didn't matter to me where I placed my stops, and I certainly had no plan of when I was going to take profits either. 

Why 4 contracts? Because that was how much buying power I could access with my account at the time. 

As you can see on that chart, I was shorting at a pretty decent place. But those arrows don't represent my only trades, I was actually taking 5-10 trades a day during that period, which isn't good or bad. 

When I took these trades, they were off of ideas, hunches, a pile of indicators that all pointed down at the same time, so I'd grab my 4 contracts and short. Often times these trades worked out well for me and some of them I'd take profits when I felt like it, only to watch the S&P fall another 2-3 times further and I'd chase it again only to get stopped out. 

Other times I'd get short, they'd work in my favor, again, but then they'd go against me and I'd stop out again. 

So at the end of the three months or so during this trading period, when I declared trading bankruptcy, I had a couple hundred trades. 

Now I could spend all day telling you about the drama of it all, but I'm really here to tell you about how I ended that cycle of opening an account with all the promise and optimism in the world, that this time I was going to make my millions, only to blow it up, again, take months off, again, then restart. 

This is how I became consistently profitable. 

After I shut down the charts, closed the account, went for a long run, slept in the next morning and did nothing at all that had anything to do with markets for about a week I decided to go back and analyze EVERY SINGLE TRADE.

In Excel I manually entered every trade from my trading report my broker issued. 

I'd enter the date/time, entry price, direction, size (4 haha), exit date/time, exit price and profit/loss, for each and every trade. 

I marked up my charts with every trade so I could start developing patterns.

Then I added a new column called "Ideal Exit", which was where I should have exited at the best possible location. 

What happened was that I started seeing patterns form, in my best trades. 

All of my best trades had the very same characteristics, a similar pattern.

And all of my worst trades, or even moderately bad trades also had a common characteristic, they didn't have any rhyme or reason that I could decipher.

This may seem like a "duh" to you, but to me, I couldn't see the forest for the tree's, and at that moment it became clear to me, clear as day!

So I took all of the trades off of my spreadsheet that didn't have the same characteristics as my best trades did. 

This cut the number of trades from over 300 trades to about 60 trades. Literally 240 trades were cut. 

Also, and most importantly, the return on my account went from about a 60% loss to about a 60% profit, in three months!

This was the first time I discovered the power of trading a single setup, and not taking a single other trade. All this time I thought I needed to have an opinion on the market on every single tick, rather than waiting for the absolute best setup. 

From this day on, I began to do this everyday, I'd go to a day back years ago on the chart and replay the trading day/week/month, only taking the trades that matched my criteria. And this is when I built my very first trading strategy. 

Luckily, going in to the worst of the Global Financial crisis I was actually ARMED with a successful strategy, learned about position sizing and everything changed for me then and there!

I built it manually, entering 100's of trades into Excel, by hand, spending hours a day doing this. 

To this day, I still spend 1 hour per day manually backtesting new strategies, or even old strategies, constantly improving, but more importantly, practicing. 

This is how I built the new Swing Beast Momentum Strategy, manually entering each and every trade into the spreadsheet. 

This is EXACTLY what the Systems Mastery Course is, how to backtest and build your own strategies. 

And this is what we do in the Trading Lab every day, trade these strategies, share our research, ideate new strategies, and support each other. 

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