Trade Smarter, Not Faster

It seems you can’t watch a football or baseball game anymore without seeing an advertisement for TD Ameritrade or that damn diaper dandy smugly trading stocks in his E*Trade account. Yeah, the kid is funny – but I’m over it (bring back Stewart!)

Each company touts their account-friendly commission rates and breadth of tradable products as well as a whole host of trading tools available to help you make quicker decisions (HEAT MAP!!!)

The underlying and unspoken message in all these ads is: “we want you to trade more, more, more!!”

Don’t be fooled by low commission rates. They are only a trap to get you to think less about the impact of your volume to your bottom line at the end of the day, month, or year.  I once had a chat with an insider at a retail brokerage firm (which shall remain nameless). He told me that his firm reasonably expects to generate commission dollars over the life of each account equal to the amount of cash deposited into said account. So, for example, if you are an active trader and you open a $25,000 account at XYZ Brokerage, they fully expect to earn $25K in commissions off your account before you either blow up or close it down and move somewhere else. This is probably more true for futures and options traders than stock traders, and the figures might be an exaggeration, but it still points to the motivations of the brokerage.

On my blog at chicagosean.com, I’ve written a lot about “less is more” and smartly picking your battles. We humans simply cannot compete against High Frequency Trading algobots. So don’t even play their game.

Find me 100 successful Traders, and I’ll show you 100 different ways to make money in the markets. And more frequently, in the foreseeable future, the successful strategies for retail traders will involve moving out your time frames and playing for the bigger swings.

The benefit of playing slower and positioning for bigger swings is that you have more time to be smart about your position and to work into it – perhaps by pyramiding into winners. You can take a bigger picture approach to your market selection. You can spend the time scanning the StockTwits stream for commentary from other traders who are keeping an eye on the same stock as you. And you can stay current with the bloggers you follow who give you a good sense of overall market direction and sentiment. Slowing down, perhaps finding your Zen place or “moment of clarity” as Jules Verne once championed in Pulp Fiction makes the whole process more rewarding.

Of course, the challenge of slowing down and playing for bigger swings is that with the possibility of increased reward comes increased risk. You will have to give yourself wider stops on your positions to let your trade ideas play out. It can be a tough mental hurdle to go from risking 1% equity in an attempt to make 3%, to risking 8% of your equity on a play that could yield 25-40% or more if you’re right. It is definitely an adjustment. Some guys like to say “ah, it’s just numbers.” But we all know that isn’t entirely true. And, paradoxically, many find that the hardest thing to do is to sit with a winning position! When you’re up 10-12% in a trade you’ve been holding for 10-15 days, it is so tempting to take your gains and run. FIGHT THIS URGE! Often, the market is telling you you’re on to something.

The internet, the markets, the world are speeding up all around us. It is so tempting to ride the wave. But as they teach in Drivers’ Ed: SPEED KILLS!! It can be exhilarating, but too much of it or one bad turn and you’re toast. Do your mind, your eyeballs, and your fingers a favor – take the time to thoroughly think through your next moves. Seek confirmation. Test the waters with small positions and build from there. Consult your Insider’s Network on StockTwits. The great thing about the markets is if you “miss” an opportunity, they’ll be another one coming around the bend soon enough. There always is.


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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