On Trading Execution

Three things you could implement today, that would dramatically increase your execution skills and profitability.

Over the years of my own trading journey, I have probably purchased 20-25 books, and downloaded countless others from the web. To me it was worth getting through hundreds of pages and spending a couple of hours even for 1 nugget of solid wisdom. Over time, the thing that bothered me the most about these popular, well regarded trading manuals is they relied on ultimately useless platitudes that offered no actionable ways to actually improve. Instead, it was all wishy washy mumbo jumbo spoken to and referred to in the abstract.

For example, let’s say you were someone who struggled with maintaining a healthy weight (like myself when I was younger). Everyone you talked to recommended this one book that would supposedly change your life forever and help you conquer your health struggles. One day you buy this book, your hopes and dreams of the start of a new life filling you to the brim with excitement and trepidation. When you finally open it, the author has three rules in big bold letters and underlined.

1. Stop eating so much

2. Eat healthier

3. Exercise more

How disappointed are you? This is what exists out there in the world of finance unfortunately, useless platitudes like “cut your losers” and “stop overtrading”. Thats as useful as telling a fat person to stop eating so much. By the way, the way I was finally able to lose weight after being overweight for most of my life until my early 20s was this. I created friction in my daily routines and around my eating rituals. The key for me, after trying about everything was to use my own laziness against me. I would only buy food for 1 day at a time maximum. If my daily intake was 2000 calories, I would only ever have 2000 calories worth of my food in my apartment at any given day. To consume more food, I would have to get dressed, leave my apartment, and walk 15 minutes to the nearest grocery store to buy more food. Consequently, most days I was just too lazy and would stay at home and sleep or play games instead of taking the extra step to leave my home just to break my diet. True story, a little off topic but stay with me here. This was the first moment in my life I discovered a way to manipulate my tendencies to carry out my bad habits.

Now I want to share other real solutions I discovered myself that materially improved my trading, that could maybe help you as well.

1. Manage your risk by never losing X% of your account on any given day.

   1. Implement a hard stop loss that is executed on your broker or FCM’s server side. My personal futures broker is Rithmic for this reason. You can set daily risk parameters, such as max daily loss as a % of the account. I use 3% of my account, because my futures account is already a smaller portion of my overall trading capital. Once I hit 3% my account liquidates all open positions and no trading is allowed for the rest of the day. Of course people are wondering, how is that helpful if you can just go back in and increase the limit. I personally have 2 computers, one MacBook Air for regular use, and one PC laptop. I can only access Rithmic on my PC, so I have my daily risk parameters set and then my physical computer is at my moms house about a 1 hour drive from where I live. My mom works 9-5 every day in a clinic. To access my PC and change my risk parameters I would have to tell my mom to leave work and meet me at her place just to access it. Thats a hell of a lot of friction preventing me from carrying out my bad habit (overtrading). My PC remains at my mom’s house and I only trade on my phone, which works perfectly fine as I am a swing trader, not scalping on the DOM. Like the former fat kid who was too lazy to walk to the grocery store to break his diet, I am not going to haul my ass across the city and disturb my mom at work just to keep trading when my rational brain knows I should shut it down. To this day, I have never once broken my rule of a maximum daily stop loss.

2. Manage your risk by setting a max position size with your broker.

   1. Call your broker and say make my max size in the ES 5 lots or whatever it may be. This prevents you from oversizing and also it helps prevent unforeseen errors such as the fat finger. I once went to put on a trade in ES for 5 lots, and my Mac autocorrected to 50 lots. I sat there just stunned, waiting for the 50 lots to crawl back up to my entry so I could get out at breakeven. Of course it did no such thing, and I ended up blowing my entire account that day. Lesson learned. I could fat finger 1000 contracts now, the order wouldn’t even execute.

3. Let your winners run.

   1. The way I achieve this is by setting a bracket order to start. This is a real life scenario, a trade I executed just last week on Dec 11 2023.

I waited for SPX to close the initial balance (9:30-10:30 NY time) over 4600 before going long. At 10:30 it was trading 4604. I put on my long ES, with a stop loss of 4597. Allowing 3 points for any random price movements or stop runs at the round number. I then set my take profit at 4700 or whatever your target is. Now my trade is on, and I dont want to touch it at all until either my stop loss is hit, or my take profit is hit, or it rolls over to the next trading day. Then I turned off my phone, left it on my kitchen counter and I left my condo. I went to go have lunch and watch a movie. I didn’t return until after market close. I always make sure to travel or commute around an hour or so from my place, no phone or no computer and I dont even watch the market. Trust in your plan, your analysis and let the trade ride. This is how I manage to let my winners ride, I manage my risk first and foremost then I put the trade on, and I force myself to leave it alone. The reason is this, when you are FLAT your mind is thinking as clearly as it ever will. When your position is live, and you are watching it, your mind starts to doubt itself, and you get emotional. When you get emotional you are not acting rationally. You see the market trade 1 tick from your stop and you cut it just to see it run 50 points in your favour. Or the market immediately rips 20 points and you greedily take profits only to kick yourself later as it ended up running another 40 points into EOD. Never adjust your stop loss or take profit while the trade is live. This is how I did it.