I went on a hike with another trader this morning and we were discussing many of the common pitfalls we each fall into on a regular basis when it comes to position management.

We were discussing how most successful traders will tell you that holding the winning trades is often the hardest skill to learn. It doesn’t come naturally.

While in theory, it sounds like holding winning trades would be a good problem to have. Trouble is, it’s not. Often times when I get into winning trades, every single bone in my body wants to sell, or at the very least, take some profits. Deep in the recesses of my brain, signals are being sent to the forefront reminding me of the feelings of past trades that started off great, only to quickly fizzle and reverse on me hard before I had the strength to pull the trigger and get out. I’m constantly being reminded of those frustrations and it’s like there’s a little devil sitting on my shoulder whispering in my ear: “You’re not gonna let all these profits evaporate again, are you dummy? You better cut and run, pal!”

This got me thinking: The reason holding winners is so hard — is it because my mind is only thinking about the inevitable pain I’ll surely suffer when this trend I’m in reverses? And if that’s it, WTF do I do that to myself? How and why do I assume that I know the trend is going to end soon. How can I be so presumptuous to think I know this trend is ending soon and taking my profits with it? Maybe the trend is just getting started and something truly epic is in store?

And why am I afraid of giving back potential open profits from higher levels that I don’t even have yet? Seriously…. WTF?

Where’s the optimism?

The simple truth about making money trading in any time frame is that the math works best when losers are cut quickly and a handful of large winners are allowed to run wild. It only takes a couple trades to make my week, month, or year. I might do 400 trades in a calendar year and its very likely that only 20 of those trades will represent all of my profits for the year. Unfortunately, my crystal ball doesn’t tell me ahead of time which of those 400 trades will make it into the Winners Circle. So I have to keep throwing shit up against the wall and hope some of it sticks.

But there’s no chance of gaining any of those big wins if I’m constantly looking for the exit the moment is starts showing me any meaningful profits. Looking for the exits is no way to ride a trend to the moon.

For the math to work, I have to be willing to suffer reversals of open paper profits. The only way to enjoy a 10x gain on the capital I risked in the trade at entry is to endure painful pullbacks. No stock doubles in value without frequent 10% pullbacks, very likely 20% shakeouts, and the occasional 50% retracement freakout. It’s the cost of doing business of riding trends.

It takes courage to be a pig, Stanley Druckenmiller once famously uttered.

Being aware of my shortcomings is the first and most powerful step to take in making a meaningful change. Being reminded of some of my shortcomings in recent weeks has me exploring some new paths to mitigate and turn these shortcomings into strengths.

I couldn’t be more excited about the possibilities. More to come on that…

I went on a hike with another trader this morning and we were discussing many of the common pitfalls we each fall into on a regular basis when it comes to position management.

We were discussing how most successful traders will tell you that holding the winning trades is often the hardest skill to learn. It doesn’t come naturally.

While in theory, it sounds like holding winning trades would be a good problem to have. Trouble is, it’s not. Often times when I get into winning trades, every single bone in my body wants to sell, or at the very least, take some profits. Deep in the recesses of my brain, signals are being sent to the forefront reminding me of the feelings of past trades that started off great, only to quickly fizzle and reverse on me hard before I had the strength to pull the trigger and get out. I’m constantly being reminded of those frustrations and it’s like there’s a little devil sitting on my shoulder whispering in my ear: “You’re not gonna let all these profits evaporate again, are you dummy? You better cut and run, pal!”

This got me thinking: The reason holding winners is so hard — is it because my mind is only thinking about the inevitable pain I’ll surely suffer when this trend I’m in reverses? And if that’s it, WTF do I do that to myself? How and why do I assume that I know the trend is going to end soon. How can I be so presumptuous to think I know this trend is ending soon and taking my profits with it? Maybe the trend is just getting started and something truly epic is in store?

And why am I afraid of giving back potential open profits from higher levels that I don’t even have yet? Seriously…. WTF?

Where’s the optimism?

The simple truth about making money trading in any time frame is that the math works best when losers are cut quickly and a handful of large winners are allowed to run wild. It only takes a couple trades to make my week, month, or year. I might do 400 trades in a calendar year and its very likely that only 20 of those trades will represent all of my profits for the year. Unfortunately, my crystal ball doesn’t tell me ahead of time which of those 400 trades will make it into the Winners Circle. So I have to keep throwing shit up against the wall and hope some of it sticks.

But there’s no chance of gaining any of those big wins if I’m constantly looking for the exit the moment is starts showing me any meaningful profits. Looking for the exits is no way to ride a trend to the moon.

For the math to work, I have to be willing to suffer reversals of open paper profits. The only way to enjoy a 10x gain on the capital I risked in the trade at entry is to endure painful pullbacks. No stock doubles in value without frequent 10% pullbacks, very likely 20% shakeouts, and the occasional 50% retracement freakout. It’s the cost of doing business of riding trends.

It takes courage to be a pig, Stanley Druckenmiller once famously uttered.

Being aware of my shortcomings is the first and most powerful step to take in making a meaningful change. Being reminded of some of my shortcomings in recent weeks has me exploring some new paths to mitigate and turn these shortcomings into strengths.

I couldn’t be more excited about the possibilities. More to come on that…

It’s never fun taking losses.

But a smarter trader than me once said: “If you’re not willing to take a small loss, sooner or later you’ll suffer the Mother of all losses!” 

In other words, all big losses start out as small losses. Kill them while they’re small.

The name of the game is avoiding the big losses. Big losses kill the math. Big losses make this game unwinnable. Avoiding these big losses is the first thing we need to work on. For some of us, this one thing is a major hurdle. But we have to clear it.

Next, we have to let our winners breathe. We have to be patient with them and let them run. Believe me, there’s no worse feeling than watching a big winner give back most (or all) of its gain (see my note about my $MJ trade last week). But it’s going to happen time and again. Being willing to see a profit evaporate is the only way we can stick with a position that has the potential to ride to monster gains. For me, this is the hardest thing. No question about it.

If we can succeed in holding our winners, the math works in our favor. Assuming we’re not suffering any big losses, we’ll find that 90-ish percent of our trades over the course of a year will be small winners and small losers, and they’ll effectively wash each other out. No net gain.

The remaining 10%?

That’s where the magic happens. This relative handful of trades will represent all our net profits for the year. 

Do we have the stones to hold those winners? 

This is what separates the hobbyists from the long-term profitable traders. 

Which one are you?

Years of my trading career have been lost by trying to be something or someone I’m not.

  • I wanted to be a rich stockbroker like the guys I’d seen in movies and on the news.
  • I wanted to be a successful daytrader like those guys I read about in Forbes in 1998.
  • I wanted to make $500 a day like the guy across the table from me at my first prop firm.
  • I wanted to be a famous hedge fund manager like Richard Dennis.
  • I wanted to be a wildly successful Exchange Member like the guys I saw in my office every day at the Chicago Board of Trade.
  • I wanted to be like Paul Tudor Jones, Tony Saliba, and the Turtle Traders I read about in Market Wizards.
  • I wanted to be an options trader like Danny Sheridan or Tom Sosnoff.
  • I wanted to be like guys I follow on social media.

I’ve been inspired by and wanted to be like all kinds of people throughout my career. But I didn’t start becoming the Trader I am now until I just started to be myself.

It wasn’t until I looked inward and honestly at the type of risk-taking I’m comfortable with. It wasn’t until I did a reassessment of my true strengths (not the ones I aspire to have). It wasn’t until I created a workflow that actually works with my time constraints (not in spite of them). It wasn’t until I convinced myself that trying to be somebody I’m not might work in the short term, but is doomed in the long run.

We might be able to fake it to the world for a little while, but we can’t fake ourselves forever.

It’s exhausting to be something we’re not. And it pulls energy away from what we are — energy that if harnessed could truly transform ourselves into EPIC stock market performers. The truth is, we are all unique in some way and we all have something that nobody else has got. And if we zero in on what that is, I promise we can find a way to express that in the marketplace.

Are you an introvert? Maybe this means you like to invest in cyclical dividend paying stocks while quietly working your data entry job in a cubicle tucked away in the corner of the office.

Are you an extrovert? Maybe this means you daytrade cryptocurrencies from your mobile phone at a Starbucks in the center of town.

Are you cautious? Maybe this means you trade one setup per day that you know in and out and can do in your sleep. You work that setup to death, ignore everything else, and will gladly sit on your hands for five days straight if the setup doesn’t prevent itself.

Are you aggressive? Maybe you day trade weekly options on stocks getting pumped on reddit, or maybe you’re on the hunt for pumped up and heavily shorted penny stocks?

Are you here for entertainment? Maybe you find all the stocks the kids are talking about on StockTwits and put on piker trades just so you can shitpost about them with skin in the game?

Or maybe you’re just trying to impress your friends by sharing the trials and tribulations of investing and trading in all the household megacap stocks.

No matter our motives, there are an infinite amount of ways to make money in the market. There is opportunity every single minute the market is open. If there’s a bid and an offer — game on!

But true success for you, just like success for me, will not be attainable until we truly come to terms with who we are, and how we express our true selves in the market.

We can’t be anything until we can be ourselves.

Be you.

~ @chicagosean


Need help finding out who you are? Come hike with me.

It’s never the losing trades that hurt. It’s the missed opportunities that piss me off more than anything. 

Here’s a real world example from my personal trading this week:

On Monday, I bought shares of $MJ, the Alternative Harvest (read: marijuana) ETF at $24.09. Within minutes of my purchase, it began to take off. It was starting to look like another one of those short-squeeze traps. By Wednesday’s open, $MJ was trading at $34 per share — up 41% since my entry in less than 48 hours!

The options trader in me began to think about ways to keep this long stock position on, while simultaneously locking in some gains.

I considered three possible strategies:

  1. Buy Puts — didn’t like this idea because the premiums were jacked.
  2. Sell Covered Calls — this seemed more practical as I could take advantage of the juiced premiums. But the reality was this wouldn’t protect me much on the downside.
  3. Collar — this one made the most sense. With MJ trading at $34, I was looking at selling the March 40 calls and using those proceeds to buy the March 30 puts for a small net credit. Basically, a free hedge that would buy me some time to let the volatility cool down a bit before deciding whether to hold longer or just completely exit the position.

So which trade did I execute?

None of the above.

I froze like a deer in headlights — caught up in my own toxic brew of Fear and FOMO. And here I am, still holding my stock position, still up net… but WAY off the highs.

Next time you’re beating yourself up for lost opportunities, take comfort in the fact that you’re not alone. We all make mistakes. I’ve been in this game 23 years, and I still make them. You will, too.

Learn from them.

I recently started broadcasting short videos on YouTube highlighting ideas for a super-aggressive cash flow strategy using SPY options.

Going into this endeavor, I had confidence my ideas were sound and profits were a foregone conclusion. I’d thought through the strategies every which way but sideways. But it wasn’t until I got into it with real trades and real money on the line that it began to dawn on me that it just won’t work. 

I can put in all kinds of effort into reading, talking with others, theorizing, and modeling. And I definitely do all of these! But no matter my level of confidence on Day 1, my real learning doesn’t actually begin until I make that first trade. 

I wish this wasn’t the case. But it’s the only way learning works for me. And as you can expect, the best lessons cost money. In this case, we’re talking trading losses.

My conclusion wasn’t necessarily that I wouldn’t be able to make money with it (though so far I haven’t), but it was the realization that whatever profits I may squeeze out of this trading was probably not going to be worth the time and effort required to monitor the plays. The strategy was chaining me to my desk — which is the exact opposite approach I prefer. I don’t want to track every tick — nor can I!

Ultimately, it was causing unnecessary stress. It’s tough to model emotional stress into backtests. The only way for me to truly know was to do it. I have to learn by doing.

What about you?