The Four Biggest Trading Challenges

People have issues with trading for four main reasons:

1.They trade the same setup in every market expecting similar results. Markets don’t work that way. Markets change all the time. Different setups work in different markets. For example, breakouts work amazingly during rising markets, but they will lose you money during range-bound, choppy and corrective markets. When your bread and butter setup stops working, you have two options – find a setup that works or sit on the sidelines until market conditions come back in your favor.

2. They expect to be right almost all the time. This doesn’t happen, even in a bull market. Having a 50% success rate is a very good hit rate. Think about that. If you can be profitable only 50% of the time, how big should your losses and gains be in order to achieve great returns? Not taking a small loss and letting it turn into a big loss has many consequences. The impact on the mind can be even worse than the impact on your account. A big loss influences your future position sizing – you trade small when you have to trade bigger because you are scared. A big drawdown can impact your objectivity and ability to spot and take great setups.

3. They expect regular income from trading. It doesn’t work this way.  Periods of making a lot of money are followed by periods of making no money and periods of losing money. The goal is to keep losses to a minimum and be aggressive only during the right circumstances. Twenty percent of your trades will account for most of your profits. The rest should be small wins and losses that cancel each other out.

4. They trade too big. Most aspiring traders are undercapitalized and they want to get rich quickly. This leads to trading too big, putting all of your money in one small-cap stock, trading illiquid penny stocks, trading options directionally. To sum things up, they trade crappy stocks with a lot of leverage and then they get wiped out quickly.

George Soros and Stanley Druckenmiller became famous for putting 50% or more of their capital into a single position. People assume that they can trade like Soros and Druckenmiller and this is a huge mistake. Never put yourself in a situation where a small market move could shake you out of a perfectly good position just because your sizing was too big. Never let a trade impact your sleep and overall happiness. You don’t want to be in a position where you own two stocks and they are the only two that are not moving with the rest of the market. You should never put more than 20% of your capital into a single stock.

Check out my newest book: Top 10 Trading Setups: How to Find them, When to Trade them, How to Make Money with them 


5 Insights for Aspiring Traders

1. The most important thing is to learn how to learn. Study past winners from different time frames and reverse engineer. Keep a journal, set goals, and work deliberately towards achieving them, one step a time. Improve yourself every week.

2. Less is more. First, learn everything about one great setup – how to find it, when to trade it, how to trade it, when not to trade it. Become a master in trading that setup. Understand that this one setup is not going to work in every market environment, so there will be a time when you will have to stay on the sidelines and do nothing. As you get better at trading your one setup, gradually start adding more setups to your arsenal until you have the right tool for any market environment.

3. Find a mentor who can accelerate your learning curve. There are two ways to learn – from your own mistakes and successes and from other people’s mistakes and successes. You can learn a lot by studying your past trades and reading practical and thought-provoking books and blogs. In most cases, those efforts are not enough. Most people need the help of an outside mentor on their journey to profitable trading.

There has never been a better time in financial history to find a good mentor. There are many tools that could help accelerate your learning and building of trading skills. Some of them are free sources like StockTwits, Twitter, Sparkfin, and various trading blogs. There are also many amazing paid trading services. Find one or two or three that best meet your personality and desired trading style. Try different services that can help you learn new skills and offer you new and insightful market perspectives.

Be honest with yourself. It takes a lot of time and efforts to properly prepare for the trading day/week. If you have a full-time job outside of trading, time is an extremely valuable resource. Becoming a fully independent trader and idea generation machine can be your ultimate goal, but to get there faster you can use the help of an outside mentor – someone who can share good trading ideas, teach you how to approach financial markets and manage risk.

As Christian Siva-Jothy says in “Inside the House of Money” – “ No one gets paid for originality. You get paid for making money. I am happy to take other people’s good ideas and run with them, as long as I understand why I am in a trade.”

4. Take the occasional mental breaks from trading. Trading could be very emotionally draining. Find a balance between work and life. Have a hobby outside of trading to occupy your mind. Trading can be a joyful and a profitable experience. If it is not, you are doing it wrong and you need to look for some help.

5. Take care of your health – physical, mental, and emotional. Your trading results depend on your overall well-being. Eat healthy, move a lot, sleep as much as you need to, practice empathy, travel to new destinations to nourish your creativity. Regular 2-minute meditation per day may help to improve your focus and alleviate your anxiety. Do you know what is three times better than meditation for reducing stress? – laughing. Watching some stand-up comedy every day can boost your immune system and make you a sharper thinker.

Check out my new book: Top 10 Trading Setups – How to find them, when to trade them, how to make money with them.

Different Setups Work In Different Markets

Top 10 Trading Setups
“The market plays the music. How you dance depends on the music played.” – Brett Steenbarger

They say that the definition of insanity is doing the same things over and over again and expecting different results. If you do the same things over and over again in the stock market, you are guaranteed to get very different results. Do you know why? Because the market is constantly changing. This is the big secret of financial markets. Nothing works all the time.

Different setups work in different markets. Everyone makes money in a bull market. Not everyone keeps it when the market goes into correction or a range-bound, choppy mode. A good trader is able to adapt to changing markets.
Many get into trading with dreams of getting rich quickly and becoming financially independent. The problem is that most expect things to happen immediately. At the beginning of their career, most people are undercapitalized and have no idea what they are doing. When you are undercapitalized, you are likely to do at least one of the following five major mistakes:
• trade too big,
• trade without an edge or in other words – gamble,
• overtrade,
• trade low-priced junk stocks,
• use excessive leverage.

Some say that discipline and risk management are the solutions to all trading challenges, but they are not going to help you if you trade a setup without an edge in the current market.

Discipline + A losing setup = Consistent losses and frustration.

The one big thing that can improve your trading life is learning how to recognize changes in markets and being able to quickly adapt to them. Different setups work in different markets. Knowing what works and what doesn’t work in each environment is 80% of the battle.
There are four major types of markets and each of them requires a different method: Uptrend, Range-bound, Downtrend, and Bottoming Process. On these pages, I share my approach to each of them.
There are six main factors that have the biggest impact on stocks’ price action in a short-term perspective:
• the general market direction,
• price momentum,
• industry momentum,
• float and newness – is it a recent IPO,
• market reaction to a recent earnings surprise,
• and short interest.

In this book and in my personal trading, I focus on setups that have at least two of the above-mentioned catalysts going for them.

This is one of the most practical trading books ever written. It doesn’t waste your time with personal stories of grandeur. It is all about setups. I explain what setups to trade and when, why they work, how to find them, how to trade them, where to exit. It is a complete game plan for any market environment.

And since I believe a good picture is worth a thousand words, there are 140 annotated charts with examples for the ten major setups discussed in the book.

Here’s the table of contents for the book:

INTRODUCTION – The one thing that will make you a better trader.

Chapter 1. BREAKOUT SETUPS – How to profit from range expansion.

Chapter2. PULLBACK SETUPS – How to enter an established trend with low risk and for high reward.

Chapter 3. IPO SETUPS – How to find stocks that can go up 50% in a month.

Chapter 4. INDUSTRY MOMENTUM SETUPS – How to benefit from one of the most powerful market forces.

Chapter 5. EARNINGS GAP SETUPS – How to profit from post-earnings-announcement drift.

Chapter 6. SHORT SQUEEZE SETUPS – How high short interest might lead to explosive short-term moves.

Chapter 7. HUGE VOLUME SETUPS – How to quickly grow a small account.

Chapter 8. BEARISH SETUPS – How to make money during corrections.

Chapter 9. RELATIVE STRENGTH SETUPS – How to gain from the moves of big players.

Chapter 10. MEAN-REVERSION SETUPS – When is the right time to go against a trend.


It is available on Amazon.