At this point, I believe in the trading method but not in me the trader. I know I have the tools to identify good trades, but the lagging component is ME. It’s about psychology of execution. I hesitate on entering good setups. I exit too soon not wanting to lose my paltry paper profits. I jump in at the peak of momentum not wanting to miss out. I don’t see the trees through the forest.
I have learned so much from the Green on the Screen blog and the other traders that blog about their experiences with the method (especially Welcome to the Gutter). Also now from seminars and chat at Investor’s Underground. While I have struggled even in my paper trading, I’m having light bulb moments every other day and I’m having so much fun. There will never be a day where I can’t learn something new about trading tactics, technical analysis, and everyday life lessons from it as well.
Enter the Fear and Greed Day Trader blog. Scott trades high-priced ETFs like Muddy trades gutter stocks. Muddy often jokes that his approach is “caveman” trading, but Scott, the Fear and Green Day Trader (FGDT) makes it even more stripped simple, if you can believe it. Beyond the price of equities they trade, FGDT does put way more at risk on trades ($150K vs $3K) and he will go “all in at times” (one thing I won’t be adopting) – the two approaches are very similar. And the FGDT blog has a big focus on trading psychology.
Below I pull out quotes from a series of articles on his blog and link to them.
FGDT preaches on turning off CNBC and absolute focus on trading. Strip your charts to candlesticks, volume and moving averages. Embrace the probability of your set ups, but leave emotions for other endeavors. His philosophy is summed in the subheader of his blog:
He breaks down the essence of good trading psychology in a post called “The Secret”:
I’ve been trying to get my paper trading to be like going to the batting cages, the point of which is illustrated here:
He talks about the important of discipline and relates to healthy living (I had a good week, by the way if you remember my resolution posts):
One word of advice was really applicable to where I’m at right now:
I firmly believe that you must trade every setup your edge says is probable with no hesitation.”
He has the same simple three rules to trading that every sensible approach advocates, and #3 is what I’m going to focus on in the immediate future:
GFDT thinks fundamental and technical analysis is dead. He summarizes “momentum analysis” as the following:
Momentum is easy to spot long or short once you now what to look for:
1. A rise or drop in volume after a trend.
2. Longer or shorter candles
3. Markets and stocks moving in sync with each other.
4. Price acceleration/deceleration.”
theory behind momo trading is:
He implements the strategy by:
Both Muddy and Scott trade stocks that have big daily ranges, but the FGDT approach differs a little as he looks for big liquidity and tight spreads (I like them because of their cleaner charts):
Last, I think the best nutshell statement that made me it all click in my head:
When I found this blog (hat tip Complacent Panda), I stopped everything I was doing and read every article on his right column.
I’m going to eliminate distractions when I trade. I’m going to focus on candle sticks, volume and moving averages – taking off the other indicators on my charts. I am going to use almost exclusively the 5 minute chart for monitoring stocks (using 15 minute for determining the trend and support/resistance and 1 minute for entry and exit timing). I am going to keep practicing, over and over till I have dreams of trading. Physical exercise will make me a better trader. I’m going to pull the trigger when I see it, every time. I’m going to let my winners run.
I’m going to combine the Muddy method with the Fear & Greed Day Trading approach. It looks promising.