The last time I said ‘its great to know that I can make money, every day, short-term trading’ I fell off the wire. Not too high a wire, but a fall nonetheless. So I’d be silly to say it again, but I’m about to. The thing is, that is what short-term trading is all about, being absolutely precise about it.
My last fall was only a couple of months back. Prior to that I’d been in control and trading at the one million level, albeit for just a few weeks.
What the devil is the one million level and why did you fall?
The one million level.
As short-term trading should be/is precise – that is, on average, we know how many trades a day meet our criteria – we can determine how much we can earn each and every trading day. Now, to most traders this sounds barmy because most traders lose. Yes, that is correct, of those that use a spread betting platform to short-term trade, and that is most traders in the UK – and the subject of a future blog – only 5 to 10 percent win. And I think it’s closer to the 5 percent. So to say that we can be precise is a long way, in the non winners eyes, from making sense.
But lets come to that some other time, for now, what do I mean by this one million thing? Lets agree firstly on the amount of trading days available to us in a year. If we take away weekends, bank holidays and some much-needed holiday time for ourselves we are left with about 200 trading days. For me it’s somewhere between 100 and 200 trading days – as to find 200 solid, undisturbed days is difficult, and I only trade when this is so and I’m feeling good.
However, the principle still holds. Most professionals will achieve 200 trading days in the year. If it takes me 18 months, or some figure either side, then that doesn’t matter. What does matter is how much we can earn on each of those days. Even if we’re an extremely successful short-term trader, the amount we can or cannot earn on a daily basis is based on what we can handle emotionally. If we get to the point where the amount we are trading alters the way we trade then we’ve gone through the ‘no go through’ emotional barrier. And, unless we pull back in our trading size we’re about to very rapidly join the losing crowd again. I say again because we’ve all been part of that crowd for most of our trading experience. One part of trading successfully is that we must trade financially within our ‘it doesn’t effect me’ level.
That said, you will see from my ‘How much do we risk’ page that I have two distinct trading levels. One is designed to provide a daily amount of £500 a day, and the other £5,000 a day. The £500 is just the build-up to the £5,000. And the £5,000 a day, when we multiply that by our 200 trading days, gives us our one million. Professional traders will build-up in stages. Once £500 is achieved they will next move to £1,000, and so forth. I’ve already built up and been at the £5,000 level – right up until I fell off the wire – so I know that, emotionally, I’m fine at this level. I’ve also found out why I fell off and I’m fixing it.
I should work for 3-months at the £500 daily level and move up to the £1,000 level for a further 3 months before going again up to the £5,000 daily level. However, I don’t need to prove to myself that I’m fine emotionally at different levels so I’m staying at the £500 level for the whole 6 months, or until I know that I’m ready, and then move straight to the £5,000 daily trading amount. That is because the risk/reward calculations for each trade (£500 and £5,000) are the same – I simply add a zero to my trading amount. The transition to £5,000 daily trading is, for me, easier this way as the well practised mental calculations are the same – just one zero bigger.
In my last blog I talked about the very important ‘edge’. This is a dramatic word so instead I’m going to call it my ‘green line entry measure’ (GLEM). One of the reasons I fell from the trading wire, so to speak, is because I hadn’t properly defined my GLEM system. Or in other words, my final reason for why I’d enter a trade. As I trade over the next 6 months at the £500 level I’ll develop and prove my GLEM system more and more. A further reason for my fall is my weakness to trade a trending ascending market. We all have favourite cycles within markets – some traders build their entire strategy around a certain cycle and will wait for as long as it takes for that cycle to come around. I’m good in the trading range and descending trend cycles but, as I say, lousy at an ascending trend. That needs to be solved and is one of the reasons I redefined my GLEM system.
So there we have it. Our goal is to achieve a million return from 200 trading days. Which for me, after the 6-month preparation, will take, realistically, between 18 to 24 months. That’s the challenge.