Thursday, November 15, 2018

How To Regain Your Confidence After a Slump

Hey folks!

A fellow AOT member asked me earlier this week, "how can i recover mentally after taking several losing trades in a row?" 

As we know by now and especially after the recent vicious market downturn, losses and the act of taking losses is a "necessary evil" in trading. 

Bo Yoder, one of my favorite traders whom i used to follow religiously in my earlier years as a trader wrote some very good stuff in his book "optimize your trading edge"... he discussed that ALL trading systems will go thru a "pay-out cycle" and a "pay-back cycle".
The PAY-OUT cycle is when your system is winning and making money consistently
The PAY-BACK cycle is when your system is going thru a losing streak and losses are becoming more frequent. 

A trader's job is manage himself as professionally as possible thru BOTH these cycles. 

Here's the way i look at taking losses while trading: 

Needless to say, the hardest part about trading is TAKING A LOSS, closing a trade for a loss. It's hard not only because it means that you will have to incur an actual loss to your equity which obviously will decrease your account size but also because as emotional, rational, thinking human beings, as traders we all want to be RIGHT! .... Nobody wants to be wrong of course..... but as we all know, this is NOT the reality of trading! 

You have to get into head, that there's ABSOLUTELY nothing wrong with getting into a mistimed trades: 

That happens to EVERYONE regardless of experience. It's an inevitable part of this business. Trading is a business, just like any other business. 

There's nothing wrong with making "mistimed" entries in trading but the biggest mistake one can make is stubbornly REFUSING to obey the stop loss of a trade. When human ego is on the line, as traders, we sometimes do things we otherwise wouldn't do, especially when money or "reputation" is on the line. 
Again, there's nothing wrong with losses as long as they are taken within your system's or within your specific trade's game plan. 
It's much easier to recover from a 2% or 3% or 5% LOSS rather than digging yourself out of a big -20% draw-down(we've all been there, done that and we all know the horror of it).  

Recovering from a large draw-down is a challenging and frustrating. It messes with your head and creates all sorts of emotions like anger, despair, hopefulness and so on. It will affect you psychologically and affect your personal life too in some cases. 

All traders will learn this the HARD WAY unfortunately(maybe even a few times before it really sinks in) but rest assured everyone has done it and it's not fun.  

The best thing to do, I've found is to respect the stop loss, take the initial LOSS. Think of trading as a business like any other business. Every business will sooner or later have to incur a "loss".  For example, a grocery store that's carrying expired inventory, an Auto manufacturer who recalls a faulty car part or maybe even a bank that's made bad loans and now all have to incur these losses, as "business expenses".

Taking losses in trading, has to be seen as a routine "business expense". It's part of doing business we are in. 

But now comes the tricky part of this business, how can i recover mentally when i just had a disaster week and made several losing trades in a row? My confidence is shot, I'm disgusted, I'm angry, I'm frustrated and I want to make that lost money back ASAP! 

Oh boy, don't we all know the feeling of that?! 

After many years of being in this business and making tons and tons of mistakes of all shapes, sizes and colors.... I've implemented the "3 losses in a row" rule. What I've noticed over the years that for my style of trading and using my system of trading, that any time, i took 3 losses in a row, regardless if they were big, small or routine losses, i automatically know that something is wrong and i need to STOP TRADING completely. Do a "time out" in whatever you're doing and take a big step back.... The "3 losses in a row" rule forces me to sit out the ENTIRE day and not trade at all. I will shut down my twitter, CNBC and any other source that could tempt me from making a knee-jerk reaction trade.
The goal is sit out the entire and do nothing, walk away completely and do something else... once the market is closed and i feel a little more relaxed, I'll now want to see what triggered the 3 losses in a row and what could i be doing wrong? What am i missing? Is there anything that needs to be tweaked? Are the market conditions changing? Which trades worked and why? Which trades did not work and why? Have i done something different or deviated from my system? Am i being "honest" with what I'm seeing(or think I'm seeing) versus what's actually happening in the market?

Over the years, i realized that most of the time, whenever i take 3 losses in a row, it's due to a change in "market character" and my positions were caught on the wrong side of the tracks... so that requires immediate attention.

As i mentioned in that blog post from 7 years ago: Things I Learned After 15 years of Trading  : "get aggressive after you make 2 or 3 good trades in a row, get very defensive when you make 2 or 3 bad trades in a row, often times traders will do the exact opposite, self-destructive behavior". 

Naturally emotions are going to be higher than usual at this moment, so you should instinctively know that any trade you make on this day after taking 3 or more trades in a row, these trades are most likely gonna be emotionally driven and chances are high, these trades will not work out well. 

The ideal thing to do is shut down completely and walk away for 24 hours... give yourself one full day off from any trading. The market isn't going anywhere, it'll still be here tomorrow so relax, you're not going to "miss out!" 

Make this a MUST-FOLLOW rule! No exceptions, no ifs, ands or buts. 

Shut down and walk away for at least 24 hours. 

Once you've cooled off a bit and you're ready to get back in the saddle the following day(or 2 or 3 days later ideally), you have to instantly eliminate from your thinking the idea of "i'm gonna make back all my losses in this next trade!" This way of thinking is 100% flawed and is a very typical amateur thing to do. We've ALL done it before and we all know it's silly and a self-destructive way of thinking. 

Trading is a marathon, not a 100 meter sprint! 

Relax, take a deep breath. You will make back your losses but it will not happen in ONE trade, it could take several trades and that's TOTALLY FINE .... the world will not end today if you don't make back that loss from yesterday. 
This is not how professional traders approach a "recovery phase". 
so for example, the last thing i want to do is get back to my desk the next morning and go long a stock like TLRY on margin to make back the losses from the previous series of trades. This will only add more emotions back into the mix and you will make more mistakes and trading losses will pile up quickly.... 

You have to focus on rebuilding back up SLOWLY. In a cool, calm and controlled manner. 
What i like to do is come back the following day and start looking for SAFE and EASY to trade ETFs and take the next series of trades using only 1/2 size positions. I'll often focus on taking only the HIGHEST QUALITY setups in ETFs. I want to focus on doing the "small things" and getting the absolute basics done right. Waiting for the absolute best and easiest setups, my "bread and butter" setups and executing this trade properly, raising stops, booking gains. I want to focus on the basics and doing the basics right. The goal is not to "make up losses immediately".... No, that's NOT the goal right now. Right now, i need to make sure that I slowly build up my trading confidence because i know when I am doing the small things correctly and focusing on find good setups, waiting for the good setups and then EXECUTING the good setups, then this is what's going to rebuild up my confidence for the next series of trades. You'd be surprised what ONE small little green trade can do to your confidence.


Another important point to keep in mind: traders have a "breakeven mentality" when it comes to losses. Some traders will even refuse to sell a position that going against them in a very dramatic manner simply because they just want to "breakeven" and then they'll sell it. You have to be very careful when you start catching yourself thinking like this. This will land you into deep waters and into some very painful trades sooner or later. 

Traders focus too much on PnL to the point that it hinders their progress and often times just end up trading purely based on their PnL's fluctuations and not based on actual setups and their system's trades. Totally failing to understand that if you're focusing on trading well, stop looking at your PnL, only focus on finding and executing the best setups and doing all the simple things right, the PnL will take care of itself. 

Stop obsessing about your PnL and start obsessing about trading your process, your trading system, and executing your trades well... the PnL will take care of itself.  

I hope you found this post helpful! 

Happy trading! 

Thursday, September 13, 2018

AAPL Trade: Step-by-Step !!

Hey folks !!

Earlier this week, we made a SWEET trade in AAPL and today i wanted to go over HOW and WHY we traded this one... 

So here goes.... 

Ok, so first of all, AAPL made an amazing BIG run up recently but it did get way too hot and needed a pullback... so kept telling AOT members to be patient because we will get a good trade in AAPL sooner or later and the time has come this week in the form on a "HOLY GRAIL" setup !! 

A 'Holy Grail" setup is basically: a setup where a stock that's in a VERY strong trend, in AAPL's case, an UP-TREND, pulls back, tests and holds the 20 day MA.... In my experience, it's best to buy the 1st and/or 2nd TEST of the 20 day MA in a strongly trending stock.... 
Long time AOT members know I've been sharing the the "HOLY GRAIL" setup for YEARS and it's definitely one of my favorite setups! 

When AAPL first tested the 20 day MA... AAPL was already down 4-5 days in a row, which made this pullback INCREDIBLY appealing for a risk/reward point of view and couple that with the fact that i was expecting the market to bounce this week(as i tweeted numerous times and i'll do a separate post on why i expected the market to bounce this week) .... 

This is what AAPL chart(daily chart) looked like when it caught my eyes ..... 

So the first you should notice about the AAPL chart above is the fact that this a stock in a VERY strong uptrend and just pulled back 4-5 days in a row and TESTING the 20 day MA.... Now, once i saw that, i then quickly zoom into the 5 minutes charts and, like a good mechanic, you wanna look "under the hood" .... I'm now looking for "hints" this stock is looking to "bottom" or reverse so i can establish a long position...

Here's the 5 minute chart and what i was thinking thru-out the day while watching this stock: 

Please take your time and really study the chart action as well as the commentary on the chart.... 

We kept raising/trailing the AAPL stop loss every +$1 increment(for example, once AAPL broke thru $219, raised stop to $218... once it broke thru $220, we raised stops to $219 etc etc), reason why i wanted to trial the stop loss so tightly as it kept ramping higher the next day is because AAPL had a product event the next day and didn't want to be holding the shares thru such a thing it could be a volatile hold.... 

Ended up stopping out of at AAPL at $223.00  for a +$5.55 gain in 2 days!!  

Fast forward 2-3 days later and here's what AAPL is looking like now... 

I hope you found this helpful!! 

Happy Trading !!


Monday, September 10, 2018

3 AOT Members Share Their Progress!

Hey folks!

I got these 3 emails from 3 different AOT members recently and I wanted to share their progress with you thus far!! 

So if you've been struggling lately or going thru a frustrating phase or perhaps feeling like you're hitting a "plateau" in your trading career right now.... Please read these 3 letters below!

If they can do it, YOU can do it too! 
No excuses! 

So here you go!! 

Hi stewie,

I've been a Member for around 6 weeks.  I was fed up with taking entries on break outs, following sensible and recognized criteria, then watching the price turn around in the chop and getting stopped out.  So I was particularly looking tor a service that would help teach me swing trading, rather than longer term trend following, to be able to make money in all markets, even choppy markets such as we've experienced over the last few months.  Boy, has Stewie met my expectations and more!

Separating the trading results from the education, the results have been very good - high probability trades with smaller draw-downs on the losers.  I would have made very good money but have been taking modest positions while I build my trust in the service.  Given the great return on risk that I've seen I'm now ready to move up my position size to what I regards as full positions (I'm a cautious chap!).

Turning to the learning, that has been no less impressive.  Stewie seems to be on a mission to share all he knows and educate his Members in all aspects of his craft.  What I especially like is how uses the actual trades along with subject specific emails to get his message across.   I love how simple and straightforward he keeps his teaching.

Since I started trading (rather than investing) last year I've read and heard countless times from greatly respected traders about how essential it is to be patient and wait for the high probability trade in the right market.  I have nodded sagely to myself and then gone on to snatch at whatever has taken my fancy!   However watching how Stewie makes such good money while making fewer trades, waiting not only for the right trade but for the right trade against a backdrop of a favourable market, has hopefully brought home to me the Jesse Livermore statement that:

“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this:  It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!”

If this takes hold in my trading then everything else I learn from Stewie will be a bonus!

Thanks for all you do and your generosity in sharing what you know.


Hi Stew,

Hope all is well! My apologies in advance for this lengthy email! Pls read when you find time.

I wanted to take a moment and thank/update you for all the fantastic trades this month. In spite of the chop, staying patient and taking the best setups has helped me tremendously this month. 

In a nutshell, I'm up $5,000 this month in profitsI cashed out 3K out of this account after taking this snapshot below. This is the highest payout I've received from the market ever and am very grateful I'm having a good month.

Over the past 4 months, I was literally in a CHOP in terms of performance. Had some great trades here and there, but losing in commissions overall and no real gains overall. Kept giving them gains back. There were 2 main reasons. 
1) I was taking WAY TOO many day trades (not per plan/no setup/getting stopped or wiggled out of positions).
2) Expecting a huge % win in a short period of time, and holding trades longer than needed. 
Risk was defined, so I didnt blow any accounts, but definitely didnt make any money net.

I have learnt a TON over the past few months from AoT compared to what I've learnt in past 6  years of trading struggle. To put this to use finally without giving up, I added some trial capital into Robinhood to execute my options trades. No commissions and max 3 day trades in 5 days helps my case. 

My equity curve looks like this since I started trading here on August 1st. Initial capital: 2,000 (trial). Today its at $7000 (I have withdrawn $1500 over the past 7 days as I was seeing gains, $1500 after this snapshot). So account is literally up 250% (dont mind the % in snapshot, its basically a bug). This is not the usual for me and I don't want to get greedy, so I did take cash out to keep myself humble.

I played all of AoT recommendations as well as small positions in many charts that you posted but didnt play (GOOGL, PYPL, NFLX etc.). 85% of these were 2-3 day swing trades. Robinhood has made it difficult for me to journal since it has to be manually, but I'll show you the journal based performance stats once I have it ready!

Things I will do moving forward:
1) No setup = No trade
2) No revenge, chase or overtrading
3) Reduce expectations - more singles than home runs ( i see home runs will come with some of your best setups automatically!)
4) No need to grow account to actually make money from the market
5) Reduce day trades as much as possible since I cant monitor the markets (this is NOT my time frame)
5) Stay humble, keep greed in check and rinse-repeat 1-6

A HUGEEEE THANK YOU to you for getting me back on the right track. You are an fantastic trader, excellent mentor, great entertainer (cooking + soccer + trading + handling the trolls lol) and more importantly, a good trading buddy :). 

Will keep you posted.


Hi Stewie,

Just wanted to give you a quick update on my progress now that I’ve completed 3 months at AOT.

First, want to share the reason why I’m doing this: 

This is my granddaughter Alanna(not going to share Amy's picture of her granddaughter of course!). She’s almost 3. I lost my job in April and have been agonizing over whether or not to take another time consuming, travel-intensive job. I’ve made the decision to spend these next couple of years with her instead with trading for income. I’m excited and a bit terrified but my gut tells me that this is the right decision.

So, onto the progress! What I’m most happy about is that I’ve increased my trading skills, pattern recognition, and discipline. I still make some stupid mistakes but they are getting fewer and with less disastrous results.

I don’t keep track of percentage wins because I’m trying not to focus on P/L but rather focus on the skills learned. The money will come as a result of good, consistent trading. For the past three months, I’ve been able to wire cash out to my bank account an average of $3500 each month. Still not where I want to be but I know that will come if I execute the trades correctly and gradually increase my risk as I gain confidence.

I can’t thank you enough. Your guidance has not only helped me improve my performance but more importantly, it’s given me the gift of time with my granddaughter. That is incredibly precious and I humbly thank you.

You rock! If you’re ever on the East Coast, I owe you a huge hug!!


Hope these 3 letters have fired you up and motivated!!! 

Happy Trading!! 

Sunday, August 5, 2018

How to Use RSI and MACD Divergences to Spot Big Reversals

Hey folks, 

I wanted to do an EDUCATIONAL post on how and why SPY and QQQ rallied so hard on Thursday and why i was so convinced the market would rally hard despite the market's initial very big gap down open on Thursday morning. 

As many of you who were following my tweets on the @AOTtrades private feed and also on @TraderStewie public feed, i was very bullish on that day and I'm going to walk you thru it, STEP BY STEP.... 

Ok, so coming into Thursday morning, we were already long NFLX and FB.... so coming into Thursday's open, the market was gapping down big at the open due to some new "Tariffs news" blah blah blah....... Remember, the news is almost always irrelevant, it's the REACTION TO THE NEWS, that interests me most!

***Coming into the day, the Dow Jones was going to open down about 175 points, SPX was opening down 20 points*** 

Ahead of the open, i took out my "SPY Road Map" chart(see below) to see where we were going to open.... 

I quickly noticed that SPY was opening down near the $279 area which has been strong support on numerous recent tests.... 

However, what made today's weak open so interesting so that not, only was it opening at exactly the $279 support area but also, that the RSI and MACD indicators were HIGHER  than the previous time SPY tested the $279 area... since RSI and MACD were higher than the previous time, that right away told me, they were making a HIGHER LOW hence telling me, that today's down open is WEAK and UNSUSTAINABLE therefore odds of an upside reversal were very high..... 

I actually tweeted this out shortly after the open: 

"Today is a good test for the , ... as they RETEST support.... Note... ..on this RETEST, we need to watch how the MACD and RSI behave here... if RSI and MACD continue to form a HIGHER LOW as , retests support, odds increase for a strong bounce phase soon."

A few minutes after the open, SPY, QQQ started to bounce, they wasted no time... so that increased my confidence that a big reversal and rally day was brewing here.... 

Note the mini HAMMER candle in the above SPY chart shortly after the gap down open and right off $279 support.... the RSI and MACD higher lows were very visible at thus point and firming up even more aggressively... 

A few minutes after the open... i started to notice many of the big stocks started to reverse to green, despite the overall market still well in the RED.... Stocks like FB, MSFT, GOOGL, NFLX were starting to go from RED to GREEN... that's when my confidence of a reversal went from 75% to 99% !! 

... and that's when I tweeted this out ... 

" bouncing here as RSI and MACD are carving out a HIGHER LOW .... This is setting up for a wicked bounce...."

....At this point, SPY was pretty much almost FLAT(see chart below).... while the clear cut leader was QQQ....

Meanwhile, i noticed that "trader sentiment" on twitter was still surprisingly bearish or skeptical at best(not many bulls), which only further increased my confidence that this rally day was only getting started and that's when i tweeted this out.... 

" ... up a cool +$1.5 since this posting tweet/chart and i suspect, this could be just starting!"

Note the STRAIGHT UP move in QQQ after the initial gap down open.... 

....Fast Forward a few hours later.... 

Our NFLX position was up a good +$8 points since our entry and FB was up $6 since our entry .... 

SPY was now up a good +$3(see chart above) since tweeting out the first SPY chart with the RSI and MACD bullish divergences playing a key role in pinpointing a reversal and rally.... 

I tweeted out this: 

"How bout that chart, folks?! Up almost +$3 since posting this SPY chart at the open! Learn to spot those RSI + MACD divergences! Especially on indices, this pattern is as strong a buy signal as you ever gonna get!"

This is 100% true, LEARN TO SPOT these RSI and MACD divergences on the indices!! 

RSI and MACD bullish divergences are as strong a "BUY signal" as you're ever gonna get, especially when you're analyzing the indices.... 

I hope this educational post will help you spot these divergences going forward!! 

Happy Trading!  

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